Colorado has become the latest state in a growing trend to impose stiff penalties on employers who misclassify workers to save on business costs and avoid paying appropriate taxes.

On June 2, 2009, Colorado Governor Bill Ritter, Jr., signed into law House Bill 1310, which imposes penalties on employers who willfully misclassify employees as "independent contractors" of up to $5,000 per misclassified employee and up to $25,000 for subsequent violations. An employer found to have misclassified willfully two or more times can be prohibited from contracting with the state for two years. 

The Colorado action follows Maryland's enactment on May 7, 2009, of the Workplace Fraud Act of 2009, which prohibits employers from making improper classifications and imposes a penalty of up to $1,000 per misclassified employee and up to $5,000 per misclassified employee where the employer "knowingly" misclassifies.

Colorado House Bill 1310 was enacted to crack down on employers that misclassify workers as independent contractors to produce a cost savings for their businesses and avoid paying appropriate state taxes for properly classified employees. The law also seeks to ensure that employees are properly classified so that they have access to the protections against economic insecurity to which they are entitled. Other states have recently enacted similar statutes, including Illinois, Indiana, Minnesota, New Hampshire, New Jersey, Rhode Island, and Washington. As a result, Ballard Spahr labor attorneys are monitoring and reporting on legislative activity in this area, along with others, via their Workforce Legislation Tracking Service.

The Colorado Department of Labor and Employment, Division of Employment and Training is responsible for accepting and investigating complaints under the new law and for enforcement. The law provides that "[a]ny person may file a written complaint with the division alleging that a person engaged in employment is being misclassified by an employer as an independent contractor."  The director of the division must decide within 30 days of receiving a complaint whether an investigation is warranted.  If an investigation determines that there has been a misclassification, the director will order the employer to pay back taxes, plus interest. If the misclassification is willful, the director may impose the $5,000 penalty. 

The law provides the right to appeal. In addition, employers may preempt classification problems; the law entitles an employer to request a written advisory opinion from the director regarding an individual's classification.

Attorneys in Ballard Spahr's Labor, Employment and Immigration Group stand ready to assist  in employee classification matters and other workplace issues. Please feel free to contact Steven W. Suflas (856.761.3466 or or any other group member.

 Copyright © 2009 by Ballard Spahr LLP.
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This newsletter is a periodic publication of Ballard Spahr LLP and is intended to alert the recipients to new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and specific legal questions you have.