Lessons on Unused PTO from a Minnesota Case

February 26, 2021

A recent Minnesota case serves as a useful reminder for Colorado employers. Earlier this month the Minnesota Supreme Court held that a disclaimer in an employee handbook does not necessarily prevent a terminated employee from making a claim for unused paid time off (PTO). Because the disclaimer stated that the handbook does not create a contract, the employer argued it was not obligated to pay a terminated employee for accrued, unused PTO. In this case, the employee had accrued 1,778 hours (222 days!) of PTO. The court found that the handbook described the PTO policy in detail and its terms were definite enough to create a contractual obligation, despite the handbook’s disclaimer.

Although this case was decided under Minnesota law, it holds lessons for Colorado employers. Neither federal nor Colorado law requires employers to provide paid vacation. However, under Colorado law, vacation time (or PTO) that is “earned and determinable” according to the employer’s policy is treated as wages. Therefore, any accrued, unused vacation time or PTO must be paid as wages upon termination. In other words, “use it or lose it policies” are prohibited in Colorado and, of course, a disclaimer in an employee handbook will not negate Colorado wage law. It is worth noting that the Colorado Department of Labor and Employment recently issued revised rules reasserting its position on this issue.

Does your vacation or PTO policy permit employees to accrue enormous amounts of vacation time, as in the Minnesota case? Unless that was your intent, you may want to review your policy. You can cap the number of days or hours an employee is permitted to accrue.

Employers should have legal counsel review their employee handbooks for other policies or provisions that could unintentionally place contractual obligations on the employer.

Employers are not required to have employee handbooks. But if you do have one, be aware that some laws require that your handbook include information about those laws (e.g., FMLA, HFWA, Colorado COMPS Order).