The Colorado Department of Labor and Employment (CDLE) has adopted temporary rules clarifying that employers must pay employees for unused vacation at the time of separation. The CDLE also proposed making the rules permanent.
Background:
Under the Colorado Wage Act (CWA), as amended, wages cannot be forfeited once earned. The law's definition of wages includes vacation pay earned pursuant to any agreement. The provision further states that if an employer provides paid vacation, they must pay all earned vacation pay upon separation.
In June 2019, the Colorado Court of Appeals ruled that an employer's policy requiring employees to forfeit payment for unused vacation time if they separate from employment without giving two weeks' notice didn't violate the CWA (See Nieto v. Clark's Market). The court found that whether compensation for unused vacation pay is required depends on the employment agreement between the employer and employee.
Temporary Rules:
In temporary rules adopted on August 20, 2019, the CDLE states that the language of the Wage Protection Act doesn't allow a forfeiture of any earned vacation pay. Thus, a policy or practice that forces employees to forfeit accrued, unused vacation is prohibited under the temporary rules. However, the WPA does allow agreements on:
- Whether there is any vacation pay at all;
- The amount of vacation per year;
- Whether vacation pay accrues all at once, or proportionally each week, month, or other period; and
- Whether there is an accrual cap of one year's worth of vacation pay.
The temporary rules also state that employers are prohibited from taking adverse action against an employee who has filed a complaint, testified, or instituted any proceeding under the law. The rules also make clear that any effort to use a person's immigration status to negatively impact their rights is unlawful.
Compliance Recommendations:
Colorado employers should review their policies and practices to ensure compliance with the temporary rules. We will continue to monitor the status of the rules and provide updates as necessary. Please contact your dedicated service professional with any questions.