A company’s decision to not pay out accrued vacation time to a fired employee was indeed lawful, a Colorado court ruled in June.
The Colorado Court of Appeals found that the employer did not violate state law and at the same time clarified previous guidance from the state’s Department of Labor and Employment (DLE) regarding vacation time.
UPDATE: The decision has been overturned.
The company involved in the case has a policy that says employees are entitled to their earned vacation time unless they are terminated or quit with fewer than two weeks’ notice. It was a closely watched case in the employment law realm.
However, the former employee argued she was entitled to the vacation time under the DLE guidance, which says “use it or lose it” policies “may not operate to deprive an employee of earned vacation time.”
The worker did not dispute that she failed to meet the company’s conditions for paying out unused vacation time. And the appeals court held that the agreement between an employee and employer is what matters — affirming that state law does not force companies to pay out accrued but unused vacation time.
Citing previous caselaw, the court also noted that the Colorado Wage Claim Act provides only minimal requirements regarding “when and how agreed compensation must be paid.”
Impact for Colorado Employers
Essentially, employers may implement “use it or lose it” policies regarding earned vacation time, under the court’s ruling. That likely includes rules prohibiting an employee from carrying over unused vacation time from one year to the next.
Still, the case underscores the need for companies to revisit (and possibly refine) their policies about vacation time to ensure clear language is in place under employment agreements.
It’s also worth noting that Colorado has recently been at the forefront of many changes in employment law. Keeping up with the latest updates in the progressive state will be paramount for compliance and HR officials moving forward.