Colorado Vacation Payout Laws
Colorado does not require vacation to be paid out to employees upon termination. However, if the employer has a policy that states unused vacation must be paid out upon termination, the employer is legally required to pay that unused vacation. The statute, Colo. Rev. Stat. 8-4-101Re:Termination of Employment., applies, which requires Colorado employers to pay wages or compensation due an employee, no later than the next regular payday.
No, employers who do not have a policy that states they will pay out vacation upon termination or pay out a cash equivalent benefit does not risk liability on these grounds . Employees cannot sue for damages or anything else, as long as Colorado law requires the money be paid out on the next pay period after the employee has terminated their employment. According to the Court of Appeals in Pinder v. Goehring, No. 99CA0351 (Colo. Ct. App. Sept. 14, 2000), the Colorado statute just requires payment of vacation wages on the first regular payday after termination. If there are no vacation wages due, then nothing must be paid.
Do Colorado Vacation Days Count as Wages?
In Colorado, the phrase "wages" includes the term "vacation." More specifically, Colorado law provides that "unless otherwise agreed to in writing," the "termination of employment of any other time shall not affect the right of the employee to fully paid vacation . . . earned prior to such termination." C.R.S. §8-4-101(14)(a)(I) (emphasis supplied).
With respect to vacation or PTO pay at termination, therefore, Colorado employers have the choice to either provide it or not to provide it. However, if an employer does not have a written policy that clearly states that employees will not be paid for unused vacation/PTO time or that payments will be made only in certain situations, Colorado law is clear that accrued paid vacation is regarded as wages earned by the employee and must be paid to the employee upon termination of employment. This process is automatic – an agreement and/or policy that requires the employee to request payment in writing or meet other requirements for payment is invalid under Colorado law.
This designation of vacation/PTO time as wages is significant because it will allow a former employee to obtain a prejudgment interest award if litigation is required in order to obtain pay for accrued vacation/PTO time. If an employer fails to pay a terminated employee the vacation/PTO that he or she earned before termination, the underlying claim for wages will be of significant value because Colorado law provides that employees can seek prejudgment interest for any wages that are not timely paid. This interest is calculated at the rate of 8% simple interest per year and accedes from the date of the demand (if a formal demand is made by the employee, which generally requires more formalities than a mere email request, or a specific letter making a demand) to the date of payment (or the judgment, if a lawsuit is filed and the employee prevails).
In order to avoid litigation regarding vacation/PTO time at termination and to avoid having to pay significant interest to a terminated employee, we recommend that all employers maintain a written vacation/PTO policy. For employers who already have a policy in place concerning vacation/PTO pay at termination, it is important to review that policy to confirm whether or not it provides for the payment of vacation/PTO and to confirm that the language is drafted with regard to the legal implications outlined above. Employers who may not have a policy addressing this topic should consider implementing one.
Colorado Employer Responsibilities for Payout of Vacation
Under Colorado law, vacation time is considered wages earned and therefore, must be paid out to employees upon termination. Both the Colorado Wage Act (C.R.S. 8-4-101 to 124) and Colorado’s Department of Labor and Employment ("CDLE") require for some employers to provide a written policy clearly stating whether the employer will pay out unused vacation days at the time of termination. CDLE FAQ S2013-3 states that the employer must either pay out vacation or set out the circumstances when an employee would not receive payment in its vacation policy in order to avoid violating the Wage Act. The CDLE enforces the Colorado Wage Act and can seek civil penalties of up to $7,500 for first time violators with repeat offenders subject to significantly higher penalties. There is no private right of action but Colorado employers should still follow the CDLE’s guidance and have a clear policy for how they intend to treat accrued paid time off to avoid inquiries from the CDLE.
For those employers who choose not to pay out accrued vacation, such a policy must be "firm and definite." A "firm and definite" policy will specify when an employee will lose the ability to use or receive compensation for unused vacation. For example, an employer could state that employees are not entitled to cash out unused vacation days, however, the employer will pay out unused, accrued vacation for the purposes of a termination, resignation, lay-off or similar event no later than one month after the event. It is advisable for employers who do not pay out accrued vacation to be clear on what happens to accrued time off in different circumstances, e.g. when an employee is terminated versus laid-off or resigning.
Employers should also ensure that their policies comply with the Colorado Wage Order applicable to their industry, as those Wage Orders may dictate additional requirements for the vacation policy. All Colorado employers should review their vacation policies to ensure that they comply with the law and the CDLE’s interpretations of the law.
Colorado Employees’ Rights and Vacation Payouts
Vacation payout laws vary from state to state. Some states require employers to pay out earned vacation time when the employment relationship ends; others do not. Colorado is like most other states in that it does not require employers to pay out vacation pay at termination. However, it does provide some rights to employees who are denied earned vacation pay.
First, note that vacation pay (and/or PTO) pay is treated no differently from wages. Thus, under Colorado law, any vacation time must be paid out at termination if the employer has a policy or contractual agreement to pay out such time. This means that if you do have a vacation payout policy—and many employers do—Colorado courts will enforce that policy even if the policy is not in a formal employee policy.
Second, note that even if there is no explicit vacation pay policy, an implied policy can be inferred that requires that vacation pay be given at termination. For example, if the employer has historically paid out vacation time upon termination, an implied policy may exist.
So, if you have been terminated or resigned, and your employer has refused to pay out your accrued vacation time, you may have a claim for breach of contract. It will be up to you to show not only that the employer has a policy or implied policy to pay out vacation at termination, but also that you sought to take and were denied or could not use your earned vacation time. If you have taken vacation time and your employer paid it out, chances are you have no claim.
An example is illustrative of Colorado’s vacation pay rules. First, assume that you have a contract or policy that allows you to carry over unused vacation time without limitation. As you earn vacation leave , it is credited to your account and can be used at any time. Under those circumstances, your right to payment of your earned vacation time is protected by Colorado law. If your company has a policy that prohibits earning vacation time if you already have a certain amount of unused vacation time, you may have a claim for breach of contract because you will not be paid for the time you could have accrued.
That is not to say that you can work and accrue additional vacation time while you are on vacation. We have also seen employers deny accrual of fringe benefits and time off for employees who have vacationed for an extended time.
For example, in one case an employee worked a holiday after returning from vacations abroad and was denied pay for that day; in another, an employee was unable to cash in a previous year’s unused vacation because she took vacation for an extended period (over 2 weeks). In those instances the actions by the employers to deny payment to the employees were upheld since it was clear that the employee had earned the time off but chose to take it on vacation instead of cashing it in. And in the latter case, delivery of work performance on the holiday after the employee was on vacation for 4 weeks was evidence that the employee’s actions were not adverse to the employer’s interests.
In sum, Colorado allows employers to limit vacation time and does not require employers to pay vacation out at termination where there is no contractual policy permitting it. However, if an employer has a vacation payout policy, Colorado courts will enforce that policy even if it is only implied by the employer’s actions.
Resolving Disputes Regarding Vacation Payout
Under the Colorado wage laws and the Colorado Wage Act, there are strict limits and requirements for vacation payout. While there are many provisions that can apply to a dispute over whether an employee’s vacation was owed, was entitled to, should have been paid out or not paid out and what the amount ought to be when (and if) it is paid out, we will discuss below where the dispute gets resolved and how.
Mediation and Other Formal Dispute Resolution Processes
Under the Colorado Division of Labor and Employment Wage and Hour Order 35, unlike other areas of employment or contract law, the parties must always go through mediation before going to the Court. In fact, a litigant should not even initiate a case without first going through that mediation, regardless of the jurisdiction. And sometimes, it is required for a certain period of time before a true mediation can happen. So, while they are few or no attorneys that will take a case where mediation is mandatory (attorneys don’t get paid through "legal services" agreements nor do they get paid reasonable hourly fees just to try and settle a disputed case), mediation remains a required part of a Colorado wage dispute over vacation payout. Everyone should be aware that when you file a charge or complaint with the Colorado Division of Labor and Employment ("CDLE") for unpaid wages, the CDLE wants to send it through mediation. That doesn’t mean you can’t resolve it a different way, however the mediation process should be undertaken in the first instance unless the other party refuses to participate, then a wage complaint or private suit may be the appropriate means to resolve the dispute.
Litigation
If the parties can’t come to an agreement on their own, through formal mediation or informal means, a litigant will file a wage claim with the Colorado Department of Labor which will then be sent to mediation and the litigant will be given a mediation date or it can be filed directly with the Court in a private capacity where a judge or jury will make the final determination. The outcome in all of these venues can be the same or substantially different. Just like with any contractual, tortious or statutory dispute, an attorney can advocate that a business’ actions or refusal to pay a requested payout of vacation is either appropriate or inappropriate based on the circumstances; both that the claim should be allowed, fought, litigated or paid on a lesser amount, as well as the dollar amount in dispute. It is essential to have sound and credible legal advice and counsel throughout this process. One thing that must be understood may be that the employee does not have to be paid the amount he/she wants to be paid and that may mean that something less than the ask is what will ultimately be paid. An attorney can help advise on when to settle a case (and where a compromise will be on the dollar amount as well).
New Developments and Changes in Vacation Payout Laws
In 2019 Colorado government enacted a law that slightly alters the state’s regulations for when vacation time must be paid out. Under the new provisions, employers are allowed to create and maintain policies that allow the accrual of vacation time much as the accrual of sick leave is typically managed. Additionally, these new rules only apply to vacation time accrued after January 1st of 2020. Not only does this new requirement mean there is less liability for companies, but it also means that employees have a greater responsibility for managing their accrued time.
Under the old law , Colorado employers were required to pay out accrued vacation time if an employee separated from its employment. Now, as long as the employee’s separation is not due to being involuntarily terminated for failing to perform the job effectively, or for unsatisfactory performance, the employee has no claim to unused vacation days.
Even for workers who were terminated for unsatisfactory performance, employers are expected to pay out any vacation time already accrued, unless the employee has previously entered into an employment contract in which they waive this right to payout.
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