Last month, in a private meeting with a local law firm, the Colorado Department of Labor and Employment (CDLE) indicated it would adopt a tougher stance against “use-it-or-lose-it” vacation policies. On September 28, the agency told MSEC it was still refining its stance.
On October 12, the Denver Post’s Alicia Wallace, after speaking with state officials, reported that there was no policy “being contemplated that would prohibit ‘use it or lose it’ vacation policies.” CDLE’s emphasis was on payout at termination, Ms. Wallace reported, but unfortunately, this focus was not clear in CDLE’s earlier materials.
This week, CDLE posted additional guidance to its website. The FAQ section states as follows:
Can employers in Colorado have “use it or lose it” provisions in vacation agreements?
Yes. “Use-it-or-lose-it” policies are permissible under the Colorado Wage Protection Act, provided that any such policy is included in the terms of an agreement between the employer and employee. A “use-it-or-lose-it” policy may not operate to deprive an employee of earned vacation time and/or the wages associated with that time. Any vacation pay that is “earned and determinable” must be paid upon separation of employment. The terms of an agreement between the employer and employee will dictate when vacation pay is “earned.”
How can employers have use-it-or-lose-it policies that don’t “operate to deprive an employee of earned vacation time and/or the wages associated with that time”? One possibility is that employers could implement such policies prospectively, but not use them to deny employees payment at separation for vacation earned prior to the policy’s implementation. This interpretation seems consistent with a 1992 Colorado Court of Appeals case that implied “the right to compensation for unused vacation time upon termination … absent an express agreement to the contrary.” Thompson v. Cheyenne Mountain School Dist., 844 P.2d 1235, 1237 (Colo. Ct. App. 1992).
MSEC’s attorneys are familiar with this case.
We expect CDLE to issue additional guidance. Most employers don’t object to paying out vacation time at termination, and MSEC can help you draft policies that prevent unused vacation from accruing indefinitely. We hesitate to say anything beyond that until we know more, and we will continue to follow the issue closely.