Colorado Supreme Court Bans Use It or Lose It Vacation Policies

Author: David B. Weisenfeld, XpertHR Legal Editor

June 23, 2021

Employers may not have "use it or lose it" vacation policies, the Colorado Supreme Court has ruled in a first-of-its-kind ruling in the state. While the Court noted that the Colorado Wage Claim Act (CWCA) does not require an employer to offer vacation pay, it held that once such pay is earned, it cannot be forfeited.

The case ofNieto 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.

But in siding with the terminated employee, the Colorado Supreme Court explained that all "earned" vacation pay must be paid at the end of the employment relationship regardless of the terms of any agreement, including employee handbooks. It noted that the CWCA defines vacation pay as protected wages and compensation.

The Court added that it could no more require an employee to lose vacation pay than it could require the forfeiture of earned hourly wages.

While many states permit employers to impose use it or lose it vacation policies, a few have restricted or banned them, including:

  • Alaska;
  • California;
  • Montana; and
  • Nebraska.

In light of the Colorado Supreme Court's ruling, employers in the state should revise their vacation policies to remove any use-it-or-lose-it provisions.