New Developments in Colorado Wage Law

• Publication year: 2004
• Pages: 67
• Citation: Vol. 33 No. 1 Pg. 67

33 Colo.Law. 67 Colorado Lawyer 2004.

2004, January, Pg. 67. New Developments in Colorado Wage Law

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67

Vol. 33, No. 1, Pg. 67

The Colorado Lawyer
January 2004
Vol. 33, No. 1 [Page 67]

Specialty Law Columns
Labor and Employment Review
New Developments in Colorado Wage Law
by John R. Paddock, Jr

This column is sponsored by the CBA Labor Law Forum Committee to present current issues and topics of interest to attorneys, judges, and legal and judicial administrators on all aspects of labor and employment law in Colorado

John R. Paddock, Jr.
Column Editor

John M. Husband of Holland & Hart LLP in Denver - (303) 295-8228,
jhusband@hollandhart.com

About The Author:

This month's article was written by John R. Paddock, Jr., Denver, a partner with Hale Hackstaff Friesen, LLP - (720) 904-6000, jpaddock@ halehackstaff.com. He is the author of Colorado Employment Law and Practice and the 2004 Colorado Employment Law and Practice Handbook. He is also a member of the CBA Labor and Employment Law Section's new Legislative Liaison

Subcommittee.

This article reviews 2003 changes to the Colorado Wage Claim Act resulting from the state legislature's comprehensive amendments to the act and a Colorado Supreme Court opinion abrogating precedent regarding corporate officers' personal liability for employees' wages.

Some of the most important developments in Colorado employment law in many years occurred in 2003. A Colorado Supreme Court opinion changed prior interpretations of the laws governing who is liable for employees' wages. In addition, a comprehensive set of amendments to the Colorado Wage Claim Act ("WCA") made numerous changes to the laws that define "employers," "employees," and "wages"; govern how and when employers pay employees; and address employees' remedies when they are not fully paid.1

This article reviews and analyzes these developments. Its purpose is to review how the wage laws have changed and highlight how amendments to the WCA addressed questions that sometimes arose under the former act. The article also analyzes how the 2003 amendments have created new issues for employers, employees, and employment law practitioners.

Leonard v. McMorris: No Individual Officer Liability

In its February 2003 decision, Leonard v. McMorris,2 the Colorado Supreme Court considered for the first time whether the officers and agents of a corporate employer have personal liability for employees' unpaid wages. Leonard involved a group of employees who had worked for NationsWay, a Colorado-based national trucking company. The defendants were NationsWay's principal corporate officers. The Leonard case came to the Colorado Supreme Court as an appeal from a federal trial court's entry of summary judgment for the plaintiff-employees and against the defendant-officers on the issue of the officers' individual liability for employees' unpaid wages under the WCA.3

NationsWay had filed for bankruptcy protection. At the time of the bankruptcy, NationsWay had not fully paid hundreds of its workers. The plaintiff-employees, who were from numerous states, sued in Colorado, because NationsWay is headquartered here. The plaintiffs also wanted to take advantage of the WCA's remedies, which included: (1) a 50 percent penalty on the wages each employee was owed; (2) attorney fees for prevailing parties; and (3) most important to the plaintiffs' hopes of collecting their pay, personal liability for NationsWay's officers and agents.

The trial court had interpreted the WCA's definition of "employer"4 and found that the defendant-officers were "employers." Thus, the trial court held that the officers had personal liability for the employees' unpaid wages. The summary judgment decision was certified as a final, appealable ruling under Federal Rule 54(b), which is identical to Rule 54(b) of the Colorado Rules of Civil Procedure. Thereafter, the trial court's interpretation of "employer" under the WCA was appealed to the Tenth Circuit Court of Appeals. Because there was no Colorado Supreme Court opinion interpreting the WCA's definition of "employer," the Tenth Circuit Court certified two questions to the Colorado Supreme Court,5 and that Court accepted the appeal.

In a four-to-three majority opinion, the Colorado Supreme Court held that a corporation's officers are not "employers," as defined by the WCA.6 That decision led to the reversal of the trial court.7 It also overturned two Colorado Court of Appeals' decisions that had interpreted the WCA's definition of "employer" to include corporations' officers and agents.8

The Supreme Court ruled that the WCA's definition of "employer" as a "corporation . . . and any agent or officer thereof" was ambiguous, finding that it was unclear whether the legislature intended to make a corporation's officers and agents jointly and severally liable with the corporation for its employees' wages. The majority resolved that ambiguity by reference to traditional corporate law, under which officers are insulated from a corporation's liabilities. Generally, that protection is lost only if: (1) there are grounds to pierce the corporation; or (2) an officer or agent acts outside the scope of authority and does not disclose that he or she is acting for the corporation.9

The majority also referenced the wage laws of other states. In contrast to the wage laws of Illinois and Kansas,10 the WCA is not as clear about whether officers or agents are jointly liable with corporate employers for unpaid wages. The majority reasoned that Colorado's legislature purposely chose not to use language that clearly references personal liability or states that officers and agents are "employers" if they manage a corporation that fails to pay its employees' wages. Because the WCA "does not contain language directly addressing" officers' and agents' personal liability, the majority concluded that the legislature did not intend to vary from traditional corporate and agency law by making officers and agents equally liable with corporations for wages that corporations failed to pay.11

The dissenting justices take issue with each of the majority's rationales. Agreeing with the trial court, the dissent's principal point is that the legislature must have had some reason to define "employer" to include not only a corporation but also "any agent or officer thereof." Based on the plain meaning of the words used, the dissent stated that the most logical conclusion is that the legislature intended to expand "employer" beyond the corporation to include agents and officers.12

Regardless of any weakness in the reasoning behind the majority opinion in the Leonard case, the Court's binding conclusion is that a corporation's employees and former employees seeking unpaid wages under Colorado's laws may now look only to the company. They may no longer pursue individuals based solely on their status as a corporation's officers or agents.

After Leonard, the legislature's options are to do nothing or to amend the WCA's definition of "employer." If the legislature does not amend the definition, employees seeking unpaid wages from insolvent or bankrupt companies will have almost no chance to obtain payment from any officer, owner, or other source.13 The legislature could amend the definition of "employer" in a way that clearly imposes personal liability on all corporate officers and agents (and managers of limited liability companies and partners of limited liability partnerships).

Alternatively, the legislature could adopt one of the schemes some other states use, which impose personal liability only on the officers, agents, or others who have authority to cause a company to pay or not to pay wages or that impose secondary liability on certain individuals if the company is judgment proof. In New York, for example, unpaid employees who are unable to collect a judgment for their wages from their corporate employer may sue the company's ten largest shareholders.14

H.B. 1206 Amendments
To Wage Claim Act

In May 2003, three months after Leonard was decided, the Colorado General Assembly passed House Bill 03-1206 ("H.B. 1206"). That law, effective August 6, 2003, rearranged the WCA and made a number of significant, employer-friendly changes. The Appendix to this article highlights the bill's changes to the WCA and compares it to the prior law. The following discussion focuses on the most important substantive changes.

"Employer" Definition

The legislature changed the definition of "employer"15 to exclude the state and its agencies. H.B. 1206 did not change the definition of "employer" as applied to "every corporation." The statute still includes "and any agent and officer thereof." Therefore, unless the definition is changed, Leonard's interpretation of "employer" will continue to mean that agents and officers are not individually liable for wages a corporate employer fails to pay.16

Limitation on "Wages"

H.B. 1206 makes important changes to the WCA's definition of "wages" or "compensation" employers must pay their Colorado employees. The amended definition still provides that wages are "all amounts for labor or service performed by employees." However, new provisions reflect the findings in various cases by expressly stating that earned bonuses, commissions, and vacation are "wages," and that no amount is "wages or compensation until such amount is earned, vested, and determinable."17

The amended definition also repeatedly refers to wage "agreements." For example, the new provisions for bonuses, commissions, and vacation pay state that they are "wages" if they were earned "in accordance with the terms of any agreement" between the...