Q&A: managing the employment relationship in the USA (Colorado)

Employment relationship

What state-specific laws govern the employment relationship?

Colorado Revised Statutes – Title 8 – Labor and Industry contains the majority of the laws governing employer-employee relationships, including wages, workers’ compensation and employment security (unemployment compensation). Title 24 – Government-State contains the state’s anti-discrimination and fair employment practices laws. 

Colorado’s Administrative Regulations (CCR) include rules governing employment-related matters. 3 CCR 708 contains rules related to Colorado’s Civil Rights Commission and enforcement of the state’s Anti-Discrimination Act. 7 CCR 1101 to 1103 includes regulations concerning wages, employment security (unemployment compensation), wages, employment verification, restrictions on the use of credit report and social media and worker’s compensation.

Who do these cover, including categories of workers?

Depending on the specific provision, these laws generally cover employees. Some provisions, including the anti-discrimination laws, also apply to applicants for employment.

Are there state-specific rules regarding employee/contractor misclassification?

Colorado has a misclassification statute related to misclassifying independent contractor status under the Employment Security Act (unemployment compensation) (C.R.S. §8-72-114). It provides for penalties of up to $5,000 per misclassified employee for the first misclassification with willful disregard, and up to $25,000 per misclassification for subsequent willful misclassifications. The employer will also be ordered to pay appropriate premiums for unemployment insurance, including back premiums, and interest. 

For wage and hour purposes, an individual primarily free from control and direction in the performance of the service, both under their 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” (C.R.S. §8-4-101(5)).

For workers’ compensation and unemployment compensation purposes, any individual who performs services for pay for another shall be deemed to be an employee, unless such individual is free from control and direction in the performance of the service, both by contract and in fact, and such individual is customarily engaged in an independent trade, occupation, profession, or business related to the service performed (C.R.S. §§8-40-202; 8-70-115).

To prove independence, it must be shown that the person for whom services are performed does not:

• require the individual to work exclusively for the person for whom services are performed—except that the individual may choose to work exclusively for such person for a finite period specified in the document;
• establish a quality standard for the individual—except that the person may provide plans and specifications regarding the work, but cannot oversee the actual work or instruct the individual as to how the work will be performed;
• pay a salary or pay at an hourly rate instead of at a fixed or contract rate;
• terminate the work of the service provider during the contract period, unless such service provider violates the terms of the contract or fails to produce a result that meets the specifications of the contract;
• provide more than minimal training for the individual;
• provide tools or benefits to the individual—except that materials and equipment may be supplied;
• dictate the time of performance—except that a completion schedule and a range of negotiated and mutually agreeable work hours may be established;
• pay the service provider personally instead of making checks payable to the trade or business name of such service provider; and
• combine the business operations of the person for whom service is provided in any way with the business operations of the service provider instead of maintaining all such operations separately and distinctly.

A written contract signed by both parties may create a rebuttable presumption of an independent contractor relationship. For workers’ compensation purposes, the signatures on such document must be notarized (C.R.S. §8-40-202).

Must an employment contract be in writing?

An express contract for employment may be made either orally or in writing (Tuttle v. ANR Freight Sys., Inc., 797 P.2d 825 (Colo. App. 1990)). An agreement may also be created by conduct, which is said to be a contract implied in fact (Id. (citing Colo-Tex Leasing, Inc. v. Neitzert, 746 P.2d 972 (Colo. App. 1987)).

An implied contract can arise out of an employment manual, handbook, or other document reflecting company policy and practice (Frymire v. Ampex Corp., 61 F.3d 757 (10th Cir. 1995)).

The statute of frauds voids unwritten agreements that cannot be performed within one year, so an oral contract extending beyond one year must be in writing (see C.R.S. §38-10-112).

Are any terms implied into employment contracts?

Every contract in Colorado contains an implied covenant of good faith and fair dealing (Cary v. United of Omaha Life Ins. Co., 68 P.3d 462 (Colo. 2003) rev’d on other grounds by Cary v. United of Omaha Life Ins. Co., 108 P.3d 288, 290 (Colo. 2005)). However, in the employment context, the Colorado Court of Appeals has refused to extend the implied covenant of good faith and fair dealing to at-will employment contracts (e.g., Pittman v. Larson Distrib. Co., 724 P.2d 1379 (Colo. App. 1986)). The Colorado Supreme Court has declined to recognize a tort claim for breach of an express covenant of good faith and fair dealing, concluding that a breach of an express covenant may result in damages for breach of contract only, not as a tort (Decker. v Browning-Ferris Indus. of Colo., Inc., 931 P.2d 436 (Colo. 1997)).

Are mandatory arbitration agreements enforceable?

In Colorado, arbitration is a matter of contract and ordinary principles of contract interpretation apply (Austin v. US West, Inc., 926 P.2d 181 (Colo. App. 1996)). Arbitration is a favored means of dispute resolution in Colorado courts (Id.). Without grounds based in a contract to find the arbitration agreement unenforceable, mandatory arbitration agreements may be enforced (Id.).  Likewise, mandatory arbitration agreements may also include class and/or collective action waivers, generally speaking.

How can employers make changes to existing employment agreements?

Colorado courts have long established that after a contract, written or unwritten, has been made, the parties may alter it orally (Arkansas Valley Bank v. Esser, 224 P.227 (Colo. 1924)). However, best practice would be to record any contractual changes in writing, signed by both parties.