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Forfeiture of Accrued But Unused Vacation Time Lawful When Employee Terminated


Nieto v. Clark's Market, Inc. - Court of Appeals of Colorado, Division IV


Facts:  Carmen Nieto ("Nieto") worked at Clark's Market, Inc. ("Clark's") and accrued vacation time pursuant to clark's policy in the employee handbook.  The policy stipulated how vacation time was to be accrued, how it could be used, and ether and under what circumstances employees would be entitled to payment for any unused vacation time when they left Clark's.  The policy stated that an employee was entitled to payment for accrued but unused vacation time if he/she voluntarily resigned and gave at least two weeks' notice.  However, if Clark's terminated the employee for any reason, no reason, or if the employee failed to give at least two weeks' notice before quitting, the employee would forfeit all earned vacation pay benefits.

When Nieto was terminated, it refused to pay her for the vacation time she had accrued but not used.  Nieto filed suit against Clark's on the grounds that the policy violated the Colorado Wage Claim Act because it denied her payment for earned wages. Clark's moved to dismiss the claim which the district court granted.  Nieto subsequently appealed.

Holding:  The Colorado Wage Claim Act states that when an employer terminates an employee, "the wages or compensation for labor or service earned, vested, determinable, and unpaid at the time of such discharge is due and payable immediately."  Vacation pay is included in the definition of wages in the Colorado Wage Claim Act.  However, a provision of the Colorado Wage Claim Act stipulates that if an employer provides paid vacation for an employee, the employer shall pay upon separation all vacation pay earned and determinable in accordance with the terms of any agreement between the parties.

In this case, the Court recognized that nothing in the Colorado Wage Claim Act creates a substantive right to payment for accrued but unused vacation time.  Therefore, the matter of whether particular compensation is "earned, vested, [and] determinable," and therefore due upon termination depends upon the terms of the parties' agreement (ie the employee handbook.)  As the facts established, the handbook conditioned payment for accrued but unused vacation time.  Nieto had failed to allege she met the conditions (as she was terminated and therefore not due the unused vacation time.)

Judgment:  The Court of Appeals affirmed the employer's motion to dismiss, on the grounds that the terminated employee failed to establish her employer's policy of not paying unused but accrued vacation time violated the Colorado Wage Claim Act, as the terms of the employee handbook dictated how the unused vacation time would be handled at the time of separation.

The Takeaway:  Note, in this case, the Court held that nothing in the Colorado Wage Claim Act created a substantive right to payment for accrued but unused vacation time.  Rather, the agreement between the parties controls how the unused vacation time is to be paid (or not paid) upon the end of the employment arrangement.  In this instance, the employee handbook spelled out what would happen to any accrued but unused vacation time.  Unfortunately for Nieto, she got caught holding the short end of the stick here and simply could not establish any violation of the Colorado Wage Claim Act by Clark's, based upon the wording of the employee handbook.

With that being said, it is always a good idea to consult the local laws in your state to determine how this (and other related matters) are handled.  Just because Colorado allows for the forfeiture of accrued but unused vacation time in this particular case does not mean other states would find such acts lawful as well.

Majority Opinion Judge:  Judge Jones

Date:  June 27, 2019

Opinion:  https://www.leagle.com/decision/incoco20190627070

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