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Colorado Supreme Court Bans Use It or Lose It Vacation Policies

On Monday, June 14, 2021, the Colorado Supreme Court issued a long-awaited decision prohibiting “use-it or lose-it” vacation policies, resulting in employers no longer being able to have vacation policies which require the forfeiture of earned but unused vacation upon separation of employment.

The case of Nieto v. Clark’s Market involved an employer’s refusal to pay a long-time employee for her unused vacation time upon her termination. The company cited its company policy that vacation time cannot be carried over from year-to-year.

The Court noted that the Colorado Wage Claim Act (CWCA) does not require an employer to offer vacation pay but held that if offered all “earned” and “determinable” vacation pay must be paid at the end of the employment relationship regardless of the terms of any employer-employee agreement, including those in an employee handbook.

Due to the Court’s ruling, employers in the state should revise their vacation policies to remove any “use-it-or-lose-it” provisions and ensure employees are properly paid for earned but unused vacation and/or PTO at the time of separation.

HR Works, headquartered in Upstate New York, is a human resource management outsourcing and consulting firm serving clients throughout the United States for over thirty years. HR Works provides scalable strategic human resource management and consulting services, including: affirmative action programs; benefits administration outsourcing; HRIS self-service technology; full-time, part-time and interim on-site HR managers; HR audits; legally reviewed employee handbooks and supervisor manuals; talent management and recruiting services; and training of managers and HR professionals.