Colorado

In 2021, the Colorado Supreme Court ruled that employers must pay all earned vacation on separation from employment and any forfeiture provision was void (Nieto v. Clark's Market, Inc., 2021 CO 48). The court analyzed the Colorado Wage Act (CWA) (CO Rev. Stat. §§ 8-4-101 to -125). That law generally defines wages and compensation as “earned, vested, and determinable” and expressly includes “vacation pay” provided under the terms of any agreement as protected wages or compensation.

In response, the Colorado Department of Labor and Employment (CDLE) revised its wage protection rules (7 CO Code Regs. § 1103-7-2.17) to clarify that this nonforfeiture prohibition extends to any accrued paid leave, including vacation. The regulation allows employers’ vacation agreements to contain provisions detailing:

• Whether the employee will receive any vacation pay at all
• How much vacation pay per year or other period the employee will earn
• Whether vacation pay will accrue all at once or proportionally each week, month, or other period
• Whether a cap of one year’s worth (or more) applies to vacation pay accruals

As a result, employers may have policies that cap employees’ vacation pay accruals to one year or some other limit, but cannot require forfeiture of any accruals earned.

The rules broadly define vacation pay as “pay for leave, regardless of its label, that is usable at the employee’s discretion (other than procedural requirements such as notice and approval of particular...

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