"Use-It-Or-Lose-It" Vacation Policies Declared Permissible in Colorado

The Colorado Department of Labor-Division of Labor has issued much needed guidance confirming that "use-it-or-lose-it" vacation policies are permissible under the Colorado Wage Protection Act provided that the policy is included in the terms of an agreement between an employer and employee. However, a "use-it-or-lose-it" policy may not deprive an employee of earned vacation time or the wages associated with it. So, any earned and determinable vacation pay must be paid when an employee separates from employment.

The Division also clarified that challenges to a "use-it-or-lose-it" policy will prompt a wage complaint investigation by the Division. The Division will review the policy along with the remaining terms of the agreement between the employer and employee. If the agreement is silent or ambiguous about when vacation is "earned," the Division may consider the following factors, which are not exhaustive and may vary by case:

• The employer’s historical practices
• Industry norms and standards
• Subjective understandings of the employer and employee
• Any other factual considerations which may shed light on when vacation time becomes "earned" under the agreement in question

While previous notice of this pending guidance implied a potential change in Colorado law, the guidance itself does not appear to effect significant changes to the treatment of vacation time in Colorado. The Division’s guidance, in the form of Frequently Asked Questions with answers, is not binding law or legal advice; however, it is helpful to clarify and to understand the Division’s current position on vacation policies.

Colorado employers should consider reviewing their existing vacation policies in light of this new guidance. A copy of the Division’s Frequently Asked Questions is available to the public on the Colorado Department of Labor and Employment’s website.