NEW COLORADO RULE ADDRESSING “USE-IT-OR-LOSE-IT” VACATION POLICIES


As of December 15, 2019, the Colorado Department of LaborUse-It-Or_Lose_It and Employment (CDLE) has a new rule in place clarifying that companies may cap but not take away employees’ earned, unused vacation pay. The viability of “use-it-or-lose-it” vacation policies under the Colorado Wage Claim Act (the “Act”) has been in flux for years, with the latest conflict stemming from a 2019 Colorado Court of Appeals decision upholding a policy under which employees forfeited vacation pay in some circumstances (e.g., if they resigned without providing two weeks’ notice). The CDLE’s new rule (7 CCR 1103-7, Rule 2.15) rejects the Court of Appeals’ holding and clarifies that an employer may have a policy limiting how vacation pay accrues but may not diminish earned vacation days other than through an employee’s actual use of vacation time.

Colorado employers with conditional vacation payout policies should immediately address the application under the new rule.  If needed, consultation should be made with an employment law attorney to address a companies’ needs.  Companies should address the difference between having vacation policies and general “paid-time off” policies.  The new rule is not applicable to the latter type of policies.  Therefore, companies with vacation only policies should address the potential implications of wage exposure to employees under the new rule.  For example, upon termination, under the new rule, an employee with unused vacation time is now entitled to wages for that unused time.  Conversion over to general “paid-time off” policies may be better suited to avoid this type of liability.

As always, if you have any questions regarding employment or workers’ compensation insurance laws, please contact one of the attorneys at Lee & Brown, LLC.