On June 2, 2009, Colorado Governor Bill Ritter signed a bill intended to crackdown on the misclassification of employees as independent contractors. The new measure creates an enforcement mechanism within the Colorado Department of Labor, and raises the penalties for willful violations. Moreover, repeat violators face potentially severe fines and the possible loss of state contracts.

Under HB 1310, any person may blow the whistle on an offending employer by filing a complaint with the state's Division of Employment and Training. The Complaint must state facts showing that a person classified as an "independent contractor" is actually an "employee" under state law. When such a complaint is filed, the state will have thirty days to determine whether the allegation warrants an investigation. If a subsequent investigation leads to a finding that an employer has misclassified one or more employees, that employer will be required to pay back-taxes and interest covering the unpaid employment taxes.

More concerning, the employer may also be subject to severe penalties. This is aimed primarily at repeat violators who willfully disregard the law. First-time violators shown to have engaged in "willful disregard" face a possible fine of up to $5,000 for each misclassified employee. Subsequent violators who act with "willful disregard" face fines of up to $25,000 for each misclassified employee and may be barred from receiving state government contracts for up to two years.

According to Rep. Claire Levy, a sponsor of the bill, "there is a lot of misclassification going on, primarily in the contracting and building trades." She explains that this has an impact on both the revenue the state collects for unemployment insurance, and the economic protections workers receive should they lose their jobs. HB 1310 aims to correct the underpayment of employment taxes and to ensure that misclassified employees are properly eligible for unemployment insurance.

HB 1310 does not change the substantive law or definitions regarding the difference between an "employee" and an "independent contractor" under Colorado law. The general guidelines still apply. If a person is an independent contractor, employers may control the ends to be achieved but not the means for getting the job done. Under current state law, employers intending to preserve the "independent" status of their contractors may not do the following: require the contractor to work exclusively for the employer; oversee the actual work or instruct the contractor as to how the work will be performed; pay a salary or hourly rate (but rather a fixed contract rate); terminate the work during the contract period (unless the contractor violates the terms of the contract); provide more than minimum training; provide tools and benefits (except that materials and equipment may be supplied); dictate the time of performance (except that a completion schedule and mutually agreeable work hours may be established); pay the contractor personally (but rather make checks payable to the trade or business name); combine employer's business operations in any way with the contractor's business operations.  

HB 1310 also requires the state to develop a notice explaining the complaint process and the rights of employees to be properly classified. Employers will be required to post the notice conspicuously in the workplace. The state will also create a process for issuing fee-based advisory opinions for employers seeking more clarification on a specific set of facts.