Unpaid Employee Compensation Claims under the Colorado Wage Claim Act
The Colorado Wage Claim Act, C.R.S. § 8-4-101, et seq., is an act designed to ensure that employees are paid fully for any compensation they are owed by their employers. Specifically, where an employer has refused or failed to pay an employee, the act gives statutory rights to the employee which can result in substantial damages and penalties if the employer refuses to comply with those rights.
This article discusses the provisions of the Colorado Wage Claim Act, how an employee can enforce her rights under the act, and the potential penalties an employer may face if the act is not complied with.
Employee vs. Independent Contractor
While the Colorado Wage Claim Act applies to and defines various types of employment, including “migratory worker” and “field labor contractor,” it generally applies to all times of employment where the employee is under the control and discretion of the employer. That is, the Colorado Wage Claim Act applies only to employees and not to independent contractors since independent contractors have control and discretion over how they perform their job.
In particular, under the act “employee” is defined as:
. . . any person, including a migratory laborer, performing labor or services for the benefit of an employer in which the employer may command when, where, and how much labor or services shall be performed. For the purpose of this article, an individual primarily free from control and direction in the performance of the service, both under his or her contract for the performance of service and in fact, and who is customarily engaged in an independent trade, occupation, profession, or business related to the service performed is not an “employee.”
See C.R.S. § 8-4-101(5). Importantly, and as indicated above, the distinction between an independent contract and an employee is dependent on how much control the employer has over when, where, and how the hired individual must perform labor or services. The more control the employer has over the individual the more likely it is that the individual will be classified an employee and not an independent contractor.
Further, under Colorado law, where an individual is working for another person it is presumed that the individual is an employee as opposed to an independent contractor unless proven otherwise. See C.R.S. § 8-70-115(b). In determining whether an individual is an employee or an independent contractor, Colorado courts look to various factors including:
(1) whether the individual is required to work exclusively for the person for whom services are performed;
(2) whether the employer is overseeing the work and giving specific instructions to the individual as to how the work will be performed;
(3) whether the individual is being paid a salary or hourly rate or rather a fixed or contract rate;
(4) whether the employer can terminate the work during the contract period at its own discretion or whether the work can only be terminated if the individual violates the terms of the contract or fails to produce a result that meets the specifications of the contract;
(5) the extent and degree the employer provides training to the individual;
(6) the extent and degree the employer provides tools or benefits to the individual;
(7) whether the employer or the individual dictates the time of performance, including work hours and timeframe for completion;
(8) whether the individual is paid personally or if payment is made to a trade or business name of the individual;
(9) whether the employer combines his business operations in any way with the individual’s business, or if the employer maintains such operations as separate and distinct;
(10) whether the individual maintain an independent business card, listing, address, or telephone;
(11) whether the individual has a financial investment in the project such that there is a risk of suffering loss on the project;
(12) who sets the price for performing the work or project;
(13) whether the individual employs others to complete the project; and
(14) whether the individual carries separate liability insurance.
See C.R.S. § 8-70-115(c); Industrial Claim Appeals Office v. Softrock Geological Services, Inc., 325 P.3d 560 (Colo. 2014).
Overall, if the individual is found to be an independent contractor as opposed to an employee, then the act will not apply and that person’s remedies will be limited to contractual remedies as opposed to Colorado Wage Claim Act remedies.
Remedies under the Colorado Wage Claim Act
Where an individual qualifies as an employee and has ceased working for her employer, she can pursue remedies under the Colorado Wage Claim Act for any unpaid compensation owed to her. In particular, under the act, where an employee has ceased working for an employer, the employee’s wages or compensation is due within a certain amount of time after the relationship has terminated. If the employee’s compensation is not paid within that time frame, the employee can begin to pursue her remedies under that act.
Importantly, compensation under the act is broadly defined and includes:
(I) All amounts for labor or service performed by employees, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculating the same or whether the labor or service is performed under contract, subcontract, partnership, subpartnership, station plan, or other agreement for the performance of labor or service if the labor or service to be paid for is performed personally by the person demanding payment. No amount is considered to be wages or compensation until such amount is earned, vested, and determinable, at which time such amount shall be payable to the employee pursuant to this article.
(II) Bonuses or commissions earned for labor or services performed in accordance with the terms of any agreement between an employer and employee;
(III) Vacation pay earned in accordance with the terms of any agreement. If an employer provides paid vacation for an employee, the employer shall pay upon separation from employment all vacation pay earned and determinable in accordance with the terms of any agreement between the employer and the employee.
See C.R.S. § 8-4-101(14). Accordingly, employees may have wage claims not just for unpaid hourly compensation but also for bonuses, commissions, and vacation pay owed to the employee. However, in order to pursue an action under the Colorado Wage Claim Act, any owed compensation must be earned, vested, and determinable; meaning that there are no further requirements the employee has to fulfill in order to be entitled to the unpaid compensation.
Where an employer has terminated the employee-employer relationship, the wages or compensation owed to the employee are due and payable immediately at the time of the discharge unless the employer’s payroll and accounting staff are not on duty. In such circumstances, the employee’s compensation will be due no later than 6 hours after the payroll and accounting staff’s next scheduled workday. See C.R.S. § 8-4-109(1)(a).
In contrast, in situations where the employee terminates the relationship, the employee’s unpaid wages or compensation becomes “due and payable upon the next regular payday.” See C.R.S. § 8-4-109(1)(b). Accordingly, an employer may have significantly more time to pay the employee where the employee quits as opposed to the employer terminating the relationship.
With respect to delivery of the employee’s last paycheck or earned compensation, the payment must be made available in the applicable time frame at either the employer’s work site, the employer’s local office, or the employee’s last known mailing address. See id.
Where an employer fails to make timely payment in accordance with the statutes, the employee may then begin to exercise his remedies under the Colorado Wage Claim Act. Specifically, in such circumstances the employee or an agent on his behalf should send a written demand for payment to the employer indicating the amount of compensation that is owed to the employee. See C.R.S. § 8-4-109(3)(a); C.R.S. § 8-4-101(15).
Once a written demand is sent, the employer must pay the unpaid wages within 14 days otherwise the employer will be liable to the employee for the amount of unpaid compensation plus a penalty of the greater of either:
(1) the employee’s average daily earnings for each day after the 14 day period that payment was not made; or
(2) 125% of the unpaid compensation up to $7,500 plus 50% of any unpaid compensation over $7,500.
The employer may also be subject to a 50% increase of the penalty amount if the employee can demonstrate that the failure to pay was willful. See C.R.S. § 8-4-109(3).
Lastly, where the employee has pursued an administrative action through the Colorado Division of Labor Standards and Statistics in the Department of Labor and Employment (“the Division of Labor”), the employer may also be subject to substantial fines owed to the state.
Forums for Enforcing Claims under the Colorado Wage Claim Act
Where an employee has legitimate claims under the Colorado Wage Claim Act, he has two main routes for enforcing those claims. Specifically, the employee may either file a wage complaint with the Division of Labor which will initiate an administrative proceeding, or may file a civil lawsuit to enforce his claims in a court of law. There are pros and cons to each route.
In particular, for cases where the unpaid compensation is less than $7,500, filing a wage complaint with the Division of Labor may be quicker and more efficient since the employee will likely not have to hire an attorney and the Division of Labor will investigate and render a decision on its own. Indeed, the Division of Labor only has the authority to receive and adjudicate claims for nonpayment of wages or compensation that are under $7,500. See C.R.S. § 8-4-111. For cases where the unpaid compensation is over $7,500; the employee must wish to seek her claim through the court system since the administrative process can limit the amount of compensation available to her.
Importantly, the $7,500 maximum for pursuing the claim administratively is exclusive of penalties the employer may owe. That is, if the Division of Labor finds that the employee is owed compensation, it may access penalties such that the total amount owed to the employee will exceed $7,500. See C.R.S. § 8-4-111(2)(a).
If an employee chooses to go the administrative route, once a wage complaint is filed with the Division of Labor it must investigate the complaint, send notice to the employer, and issue a determination within 90 after sending the notice to the employer unless good cause exists for an extension of time. See C.R.S. § 8-4-111(2)(a)(III). Accordingly, one added advantage of pursuing an administrative remedy is that the claim will likely be resolved in a much shorter time frame than would otherwise be required if the claim were litigated in a lawsuit.
Where a wage complaint is filed administratively, if the Division of Labor determines that a violation has occurred, it shall issue a citation and notice of assessment to the employer which will include the amount of compensation owed up to $7,500; include any penalties applicable under C.R.S. § 8-4-109; and include any fine determined by the director of the Division of Labor up to the sum of $50 per day for each day the employer failed to pay the employee. See C.R.S. § 8-4-113.
While the resulting penalties and fines assessed by the Division of Labor can be substantial, the employer may mitigate those penalties and fines if, upon receipt of the citation and notice of assessment, the employer pays the employee all wages and compensation owed within 14 days. Under such circumstances, Division of Labor may waive or reduce any fines imposed under C.R.S. § 8-4-113 and may reduce by up to 50% any penalties imposed under C.R.S. § 8-4-109.
Importantly, where an employee has pursued an administrative remedy with the Divisions of Labor, the employer has received a notice of assessment and citation from the Division of Labor, and the employer has made payment to the employee and the employee accepted, it will be considered a full and complete satisfaction of any unpaid compensation owed by the employer the employee. That is, the employee’s wage claims will be considered fully adjudicated and the employee will be barred from initiating another action, administratively or otherwise, on the based on the wage complaint already adjudicated. See C.R.S. § 8-4-111(2)(e).
Importantly, where an employee has first elected to pursue an administrative remedy, the employee may elect to terminate that process by providing a notice to the Division of Labor within 35 days after the Division of Labor’s issuance of a notice of assessment and citation to the employer. See C.R.S. § 8-4-111(3). If an employee elects to terminate the administrative process, the Division will revoke any citation and notice of assessment already issued and the employee will preserve any private rights of action she may have.
Accordingly, in such circumstances, the employee will still have the ability to file a civil lawsuit seeking any unpaid compensation and applicable penalties from the employer. Notably, the Division of Labor’s notice to the employer of the employee’s wage complaint satisfies the requirements of a written demand for payment under the act. See C.R.S. § 8-4-111(5). Thus, where an employee has initiated an administrative proceeding and then later terminated it, the employee will likely be entitled to penalties where the employer has failed to make payment within 14 days of receiving the Division of Labor’s notice.
In contrast to pursuing an administrative remedy, an employee may elect to file and pursue a civil action where the restrictions and limitations of the Division of Labor’s administrative process will not apply. In essence, by filing a civil action the employee will be entitled to the full amount of unpaid compensation and any applicable penalties the employer will owe as determined by C.R.S. § 8-4-109. That is, the employer will not have an opportunity to mitigate any penalties that otherwise would have been available to the employer if the administrative route had been used.
Additionally, where an employee initiates a lawsuit Colorado Wage Claim Act allows the presiding court the discretion to award attorneys’ fees to the prevailing party. In particular, if the employer prevails and the employee claimed unpaid compensation in excess of $7,500; then the presiding court may award reasonable costs and attorneys’ fees to the employer for defending the action. See C.R.S. § 8-4-110. In contrast, if the employee prevails then the employee is presumptively entitled to costs and attorneys’ fees regardless of the amount of unpaid compensation claimed. See Lester v. Career Bldg. Acad., 338 P.3d 1054 (Colo. App. 2014).
Overall, the main pros and cons of pursuing a lawsuit as opposed to an administrative remedy are tied to how quickly and efficiently a resolution is needed, and how much unpaid compensation the employee is entitled to. In particular, while pursuing an administrative remedy will likely result in a speedier and less costly resolution, it may end up limiting the amount of relief available to the employee, especially where the unpaid compensation exceeds $7,500. In contrast, pursuing a civil action will likelier take longer and may be costlier, but the employee can seek full relief and penalties which can be a substantial amount.
© 2017 J.D. Porter, LLC. Author: Jordan Porter. Denver, Colorado.