Colorado Supreme Court Hears Case about The Colorado Employment Security Act

-Submitted by: Leni Plimpton

On Tuesday, October 16, 2018, the Colorado Supreme Court heard arguments in Colorado Custom Maid, LLC v. Industrial Claim Appeals Office.  The issue in the case is whether the Court of Appeals erred when it determined that individuals who worked for a cleaning service were employees of the service rather than independent contractors for purposes of the Colorado Employment Security Act (“CESA”).  In this case, the cleaning professionals were “matched” to a home by the Company, but the facts went both ways as to whether the company exercised control over the cleaners.

CESA is the Colorado law that provides people who lose their job with unemployment payments.  Under CESA, an employer must pay premiums into the fund based on wages paid to current employees and the amount of claims made by former employees.  The Colorado Division of Unemployment Insurance enforces these obligations and conducts audits.  If it determines that your company failed to pay for a worker who qualifies as an employee, it will come after you for the money during an audit.

It is important to recognize that the definition of an employee is unique to CESA, and this definition is not necessarily the same as any other law or for any other purpose (such as the definition of an employee for purposes of FLSA or the definition that the IRS uses).  Under the applicable subsection of CESA, an individual who performs service for your business will be deemed to be an employee for purposes of the statute “unless and until it is shown” that the person is (1) “free from control and direction in the performance of the service” and (2) “customarily engaged in an independent trade, occupation, profession, or business related to the service performed.”  C.R.S. § 8-70-115(b).  The statute then lists nine factors that may show that the person meets both elements of the test.  If you obtain a signed contract that satisfies these factors, you may benefit from a “rebuttable presumption,” that the person is an independent contractor, so long as you also include a crucial disclosure in underlined or bold font relating to the person’s ineligibility for unemployment insurance benefits.

The Supreme Court, in this case, will have an opportunity to revisit and perhaps refine the well-established “Softrock” “totality of the circumstances” test that illuminated the analysis of an independent contractor under CESA.

If you have questions about unemployment insurance or classifying workers as independent contractors, or if you need help drafting independent contractor agreements that meet the very specific standards required to obtain the rebuttable presumption under CESA, please contact Leni Plimpton or Chris Lamb.