Colorado has again modified the state’s wage theft laws with the enactment of Senate Bill 22-161.  Among other things, the wide-ranging amendments increase penalties for employers that do not timely pay wages, allow employees to demand wages on behalf of a class of similarly situated employees, permit the Colorado Department of Labor and Employment’s Division of Labor Standards and Statistics (“Division”) to investigate such demands on a classwide basis, and severely limit employers’ ability to recover attorney’s fees for successfully defending a claim. The amendments also impose additional requirements on employers to be able to deduct from an employee’s final pay for the value of unreturned company equipment. While some provisions take effect August 10, 2022, the most significant changes are effective January 1, 2023.

Classwide Demands and Increased Penalties for Late Payment of Wages After Employee Demand

S.B. 22-161 increases penalties employers owe to employees if they fail to pay wages owed within 14 days after an employee makes a written demand or files a civil action or administrative claim. The current penalty is the greater of: (1) 125 percent of the first $7,500 owed and 50 percent of any amount above $7,500 owed; or (2) the employee’s average daily earnings for 10 days.  Beginning January 1, 2023, employers that do not pay wages owed within 14 days will face an automatic penalty of the greater of: (1) two times the amount of the unpaid wages or compensation; or (2) $1,000.  Thus, in most cases, the penalty will be increased from 1.25 to two times the amount owed. 

Although the current consequence for willful violations is a 50 percent increase in the penalty amount, under the revised law, if an employee can show that the employer’s refusal to pay was willful, the penalty is the greater of: (1) three times the amount of the unpaid wages; or (2) $3,000.

Also effective January 1, 2023, employees may make demands not only on their own behalf, but also on behalf of a group of similarly situated employees. The Division will likewise have the authority to investigate and issue determinations on a classwide basis.  

New Penalties for Failure to Timely Pay After Adverse Decisions

Employers that still do not pay within 60 days of receiving an adverse decision from the Division will incur additional liability, including the employee’s attorney’s fees incurred in enforcing the Division’s decision, a fine payable to the Division equal to 50 percent of the amount that is owed, and an additional penalty payable to the employee equal to the greater of: (1) 50 percent of the amount that is owed; or (2) $3,000.

Additionally, the amendments direct the Division to enforce the determinations it issues, including wages, penalties, and fines to the Division, including by authorizing the Division to issue administrative liens and levies when an employer is past due on payment.

Limited Ability for Successful Employer to Recover Attorney’s Fees

Currently, the prevailing party in a Colorado wage claim has the ability to recover its attorney’s fees.  This will become much more difficult for employers effective January 1, 2023.  Employers will be able to recover their attorney’s fees incurred in a civil action only if: (1) the employer pays all the amounts demanded in good faith for all employees within 14 days of receiving the demand; and (2) the employees ultimately recover less than the amount the employer paid.  Since the amended law also requires an employee to dismiss the action if the employer pays all amounts demanded, it presumably would be up to the aggrieved employer to file a separate suit seeking recovery of any amounts it paid but does not believe were actually owed, and to attempt to recover its attorney’s fees in that separate action.

In addition to the ability to obtain attorney’s fees in a civil suit, the amendments allow the Division to award attorney’s fees in an administrative claim to any employee who recovers more than $5,000 in unpaid wages.

Limited Ability for Employers to Deduct for Unreturned Property

Colorado law has historically permitted employers to deduct from an employee’s final pay for the value of unreturned company property, such as a laptop or other office equipment.  Effective January 1, 2023, however, in order to deduct such amounts from final pay, an employer must provide a notice to the employee within 10 days of separation containing: (1) a written accounting specifying the amount of money or the specific property that the employee failed to pay or return; (2) the replacement value of the property; (3) when the money or property was provided to the employee; and (4) when the employer believes the employee should have paid the money or returned the property.

If an employee pays the money or returns the property that was the basis for the deduction within 14 days of the employer’s notice, the employer must pay back the employee the amount of the deduction within 14 days of receiving the money or property from the employee.

Private Right of Action for Employees and Creation of Worker and Employee Protection Unit

Effective August 10, 2023, the amendments create a private right of action for employees who believe they have been discriminated or retaliated against for filing a wage complaint, testifying, or providing evidence.  Available damages will include back pay, reinstatement or front pay, 12 percent interest, a penalty of $50 per day per employee, liquidated damages equal to the greater of two times the amount of unpaid wages or $2,000, injunctive relief, and attorney’s fees and costs.  

Finally, this legislation updates procedures for employee misclassification. The amendments create the Worker and Employee Protection Unit within the Department of Law and under the control of the office of the attorney general and empowers their Unit to investigate alleged violations and bring actions against an employer.

Next Steps

Employers can continue to ensure timely investigation and response to any employee demands for payment of wages and proper classification of service providers as either employees or independent contractors, based on the facts and circumstances.  Before the January 1, 2023 effective date, employers should develop and provide employees with a notice before deducting for final pay for unreturned company property. In the event the Division issues an adverse determination against an employer, the company should timely pay any money owed to avoid increased penalties and enforcement.

*Grecia Santos is a summer associate in Littler’s Denver office.