Terms of Employment: Colorado
Federal law and guidance on this subject should be reviewed together with this section.
Authors: Stuart R. Buttrick, Thomas W. Carroll, Susan W. Kline and Mary L. Will, Faegre Baker Daniels LLP
- Misclassification of independent contractors is receiving increasing attention and Colorado has its own enforcement mechanism for misclassifying workers. See The Employment Relationship.
- Colorado is an at-will employment state. However, Colorado recognizes contract, tort and statutory exceptions to the at-will employment doctrine. See The At-Will Employment Relationship.
- Colorado has a statute that governs covenants not to compete and some covenants not to solicit that employers must comply with in order to enforce restrictive covenants. See Restrictive Covenants in Employment.
- Colorado courts have described factors for employers to consider when analyzing whether an employer's information is a trade secret. See Uniform Trade Secrets Act.
The Employment Relationship
Determination of Whether an Employer-Employee Relationship Exists
Colorado, like the federal government, has been placing an increasing emphasis on the importance of properly classifying workers. The Employee Misclassification Act imposes fines for willful misclassification of employees as independent contractors. Upon the first willful misclassification, the fine may reach $5,000 per misclassified employee and a second or subsequent willful misclassification may result in fines up to $25,000 per misclassified employee. +C.R.S. 8-72-114.
There is no single, precise test for determining whether a worker is an employee or independent contractor. The Colorado Wage Act, Colorado Employment Security Act and Colorado Workers' Compensation Act all address the issue, as do the United States Department of Labor and the Internal Revenue Service. As with the federal tests, the Colorado tests ultimately seek to determine whether the employer "controls" the worker or not. See Types of Employers and Workers > Independent Contractors: Colorado.
Colorado Employment Laws Affecting Terms of Employment
Colorado has various laws affecting an employee's terms of employment. Among the more prominent and broadly applicable laws are:
- The Colorado Anti-Discrimination Act (CADA);
- The Colorado Wage Act;
- The Colorado Minimum Wage Act; and
- The Colorado Minimum Wage Order.
Colorado Anti-Discrimination Act
The Colorado Anti-Discrimination Act (CADA), +C.R.S. 24-34-402, prohibits employers and employment agencies from discriminating on the basis of disability, race, creed, color, sex, sexual orientation, religion, age, national origin or ancestry. See Employee Management > EEO - Discrimination: Colorado. Employers cannot terminate employees on the basis of marital status.
The CADA is intended to mirror Title VII and is frequently interpreted with reference to federal law. However, the CADA is broader than Title VII in two respects.
First, the CADA's definition of employer includes both public and private employers and applies to employers regardless of size. Unlike Title VII, which generally only applies to employers with 15 or more employees, the CADA applies to all employers except religious organizations and associations that do not receive support from tax money or public borrowing. In other words, there is no exception from CADA coverage based on number of employees.
Second, the CADA is broader than Title VII because it prohibits discrimination on the basis of sexual orientation, ancestry, creed and marital status.
In addition to preventing discrimination, CADA prohibits retaliation against employees who engage in protected activity under the statute. See +C.R.S. 24-34-402.
Discriminatory or Unfair Practices
The CADA prohibits discriminatory and unfair practices. Employers may not do the following on the basis of disability, race, creed, color, sex, sexual orientation, religion, age, national origin or ancestry:
- Refuse to hire;
- Promote or demote;
- Harass during the course of employment; or
- Discriminate in matters of compensation, terms, conditions or privileges of employment.
Wage and Hour Laws
The Colorado Wage Act, Minimum Wage Act, and Minimum Wage Order govern wage and hour terms of employment in Colorado. Their provisions generally include requirements relating to how much and when employee must be paid minimum wage or overtime. See +C.R.S. 8-4-103; +C.R.S. 8-6-101; +7 CCR 1103-1.
The At-Will Employment Relationship
Colorado is an at-will employment state. As such, either employers or employees may terminate the employment relationship at any time, except employers may not terminate the employment relationship for certain improper reasons. See Cont'l Air Lines, Inc. v. Keenan, +731 P.2d 708 (Colo. 1987). Colorado follows the general rule that employment is at-will for both employee and employer, but that there are certain circumstances in which an employer cannot terminate an employee at-will. Exceptions to the at-will employment doctrine are found in contract, tort and statutory claims.
An employment at-will relationship may be altered by a contract or agreement between the employer and the employee. Although not all employment agreements alter the at-will nature of employment, employment agreements may change the nature of an at-will relationship. Colorado recognizes both implied contracts and claims for promissory estoppel/detrimental reliance. Generally these are claims that an employer owes an employee something according to a promise that does not rise to the level of a contract. Employment contracts in Colorado are subject to the statute of frauds and must be written and performable within one year. +C.R.S. 38-10-112; Chidester v. E. Gas & Fuel Assocs., +859 P.2d 222 (Colo. App. 1992).
Colorado courts have recognized an implied contract based on an employment offer letter. Accordingly, employers must be careful when writing such letters. In order to avoid an implied contract claim, employers are strongly encouraged to include language in offer letters emphasizing that an employee's employment is at-will. See Dorman v. Petrol Aspen, Inc., +914 P.2d 909 (Colo. 1996). Specifically, employers should state that employment is at-will and not guaranteed for any period of time and that employment may be terminated by either the employer or the employee at any time, with or without notice and with or without cause. Employers should avoid any language relating to time periods that could imply a contractual term of employment.
Handbook Disclaimer of Contractual Intent
Colorado employers may protect against handbooks becoming employment contracts by including an express, clear and conspicuous disclaimer stating that employment is at-will and that the handbook is not intended to form a contract. Such disclaimers may protect employers against the finding that a handbook creates an implied contract. See, e.g., George v. Ute Water Conservancy Dist., +950 P.2d 1195 (Colo. App. 1997). A handbook disclaimer should be clearly written and conspicuously displayed in the handbook, such as by using capitalized, bold, and underlined letters or larger font and by placing the disclaimer on the front of the handbook, by itself. Further, employers should have all employees sign an acknowledgement that the handbook does not alter the at-will relationship and the acknowledgement should also contain the clear and conspicuous disclaimer language.
Language of Handbook Policies
Colorado courts recognize that even if a handbook contains a clear and conspicuous disclaimer, an employer can still alter the at-will employment relationship by the policies in the handbook. See Evenson v. Colo. Farm Bureau Mut. Ins. Co., +879 P.2d 402 (Colo. App. 1993). Thus, employers wishing to maintain the at-will status of their employees must carefully draft handbook policies to avoid making promises to their employees.
Permanent Employment Contracts
Colorado courts may enforce a contract for permanent employment, but only under certain very limited circumstances. An employee seeking to enforce a permanent employment contract must show that there is "special consideration or an express stipulation as to the length of employment." See, e.g., Schur v. Storage Tech. Corp., +878 P.2d 51 (Colo. App. 1994). Special consideration means that the employee gives the employer something additional to the services incident to the employee's employment and includes, for example, the employee's agreement to reduced compensation. If such special consideration from the employee is present, Colorado courts may find that the employee has basically "purchased" the job and should not be deprived of it easily. Employers must carefully consider whether any special consideration from an employee is worth giving up the right to terminate the employee at-will.
Covenant of Good Faith and Fair Dealing
Covenants of good faith and fair dealing in the employment context may be either express or implied. In Decker v. Browning-Ferris Industries of Colorado, Inc., +931 P.2d 436 (Colo. 1997), the Colorado Supreme Court recognized that an employer and its employees may form an express covenant of good faith and fair dealing. Such an express covenant, for example, the promise to "treat the employee fairly," is simply another term in an employment contract and an employee can sue for its breach. Courts analyzing an alleged breach of an express covenant of good faith and fair dealing must consider whether a contract exists, what the contract promises, and whether it has been breached.
Colorado courts have not expressly extended the doctrine of implied covenant of good faith and fair dealing to the employment relationship. In other words, the covenant of good faith and fair dealing is not automatically part of employment contracts; employers and employees must expressly include the term. The status of the implied covenant of good faith and fair dealing in Colorado is somewhat unclear at this time.
Even if an employee does not have an express or implied contract limiting the nature of the employee's at-will employment, employers may not terminate an employee for illegal reasons. Many of those reasons are based on torts, or wrongs based on common law as developed by the courts. Colorado recognizes a number of employment torts that may be related to termination, which are generally in accord with other states. See Recruiting and Hiring > Employment At-Will Doctrine > Tort Exceptions.
Wrongful Discharge in Violation of Public Policy
Employers cannot terminate employees in violation of public policy. The Colorado Supreme Court set forth the following requirements for a wrongful termination in violation of public policy claim:
- The employer directed the employee to perform an illegal act as part of the employee's work related duties or prohibited the employee from performing a public duty or exercising an important job-related right or privilege;
- The action directed by the employer would violate a specific statute relating to the public health, safety, or welfare, or would undermine a clearly expressed public policy relating to the employee's basic responsibility as a citizen or the employee's right or privilege as a worker;
- The employee was terminated as the result of refusing to perform the act directed by the employer; and
- The employer was aware, or reasonably should have been aware, that the employee's refusal to comply with the employer's order or directive was based on the employee's reasonable belief that the action ordered by the employer was illegal, contrary to clearly expressed statutory policy relating to the employee's duty as a citizen, or violative of the employee's legal right or privilege as a worker.
Martin Marietta Corp. v. Lorenz, +823 P.2d 100 (Colo. 1992). In short, an employee cannot be terminated for refusing to violate public policy, or for engaging in civic or work-related activities that are important to public policy.
In addition to contract and tort claims, Colorado has a number of laws that limit the at-will employment doctrine. Some of the more unique Colorado statutory limits on at-will employment are below. In Colorado there are a number of additional statutory prohibitions on terminations. Therefore, employers should consult legal counsel when considering an employee termination.
- Colorado Anti-Discrimination Act (CADA). See +C.R.S. 24-34-402.
- Lawful Off-Duty Activities. Colorado's lawful off-duty activities statute prohibits an employer from terminating an employee "due to the employee engaging in lawful activity off the premises of the employer during nonworking hours" unless it relates to a bona fide occupational qualification or other exceptions. See +C.R.S. 24-34-402.5.
- Medical Marijuana. Colorado passed a constitutional amendment regarding the use of medical marijuana by individuals with debilitating medical conditions. However, the amendment specifically provides that employers shall not be required to accommodate marijuana use in the workplace. Colorado courts have not decided this issue, but have pointed out that at least one court in another state interpreting a similar constitutional amendment has found that employers are not required to accommodate employees' off-site use of medical marijuana. See Beinor v. Indus. Claim Appeals Office, +262 P.3d 970 (Colo. App. 2011).
- Domestic Violence. Certain Colorado employers are required to grant employees up to three days' leave per twelve-month period if the employee is seeking to protect himself or herself from domestic abuse or violence, stalking or sexual assault. Covered employers cannot terminate, retaliate against, or otherwise discriminate against employees who exercise their rights under the statute. See +C.R.S. 24-34-402.7.
Restrictive Covenants in Employment
Colorado generally disfavors covenants not to compete. Noncompete agreements in Colorado are governed by statute. See +C.R.S. 8-2-113. Colorado's noncompete statute generally bans covenants not to compete, but allows them in the following limited situations:
- Contracts for the purchase and sale of a business or the assets of a business;
- Contracts for the protection of trade secrets;
- Contracts for recovery of the expense of educating and training an employee who has served an employer for a period of less than two years; or
- Where the individual subject to the covenant is executive and management personnel or an officer or employee who constitutes professional staff to executive and management personnel.
In the employment context, the most common of the exceptions are contracts for the protection of trade secrets and covenants relating to executive and managerial personnel and their professional staff. Courts will carefully scrutinize whether a given covenant falls under one of the exceptions. Like other states, Colorado noncompete agreements must also be reasonable in geographic scope and duration, which is determined on a case-by-case basis. Because of the different nature of the four allowable types of noncompete agreements, what is reasonable can vary significantly from case to case.
Colorado courts have developed robust case law interpreting and applying +C.R.S. 8-2-113, but their decisions are highly fact-specific. Employers should tailor their noncompete agreements to each individual employee they wish to bind in order to fit within the statutory exceptions and comply with the case law. For example, an agreement relying on the trade secrets exception should expressly state that the covenant not to compete is for the purpose of protecting the employer's trade secrets.
The following points are less dependent on the specific situation and are generally applicable:
- Although all covenants not to compete that restrict the right of a physician to practice medicine are banned, agreements between or among physicians may provide for the payment of damages in an amount that is reasonably related to the injury suffered by reason of termination of the agreement, including damages related to competition. +C.R.S. 8-2-113. However, after termination of the agreement, a physician may disclose his or her continuing practice of medicine and new professional contact information to any patient with a rare disorder as defined by the National Organization for Rare Disorders, Inc. (or a successor organization) to whom the physician was providing consultation or treatment before termination of such an agreement. Neither the physician nor the physician's employer will be liable for damages for such disclosure or treatment of such patients. +2018 Bill Text CO S.B. 82.
- Nonsolicitation agreements, may be subject to +C.R.S. 8-2-113 depending on whom the former employee is prohibited from soliciting. If the covenant bans solicitation of customers or clients, it is subject to the statute and the other requirements of noncompete agreements. See, e.g., Phoenix Capital, Inc. v. Dowell, +176 P.3d 835 (Colo. App. 2007). On the other hand, if the nonsolicitation applies to the employer's active employees, it is not subject to +C.R.S. 8-2-113. See, e.g., Atmel Corp. v. Vitesse Semiconductor Corp., +30 P.3d 789 (Colo. App. 2001).
- Continued employment is sufficient consideration for a noncompete agreement. Lucht's Concrete Pumping, Inc. v. Horner, +255 P.3d 1058 (Colo. 2011).
- The blue pencil doctrine allows Colorado courts to partially enforce a covenant not to compete or to reform the agreement to make its terms reasonable, but the power to modify covenants is entirely discretionary. E.g., Nat'l Graphics Co. v. Dilley, +681 P.2d 546 (Colo. App. 1984).
Uniform Trade Secrets Act
Colorado has adopted the Uniform Trade Secrets Act. See +C.R.S. 7-74-102. To merit trade secret protection, information must generally be secret and of value. Colorado courts may consider several factors to make the determination of whether a trade secret exists, including:
- The extent to which the information is known outside the business;
- The extent to which it is known to those inside the business, such as by the employees;
- The precautions taken by the holder of the trade secret to guard the secrecy of the information;
- The savings effected and the value to the holder in having the information as against competitors;
- The amount of effort or money expended in obtaining and developing the information; and
- The amount of time and expense it would take for others to acquire and duplicate the information.
See Saturn Sys., Inc. v. Militare, +252 P.3d 516 (Colo. App. 2011). In addition to claims for misappropriation of trade secrets, trade secret analysis under the Colorado Uniform Trade Secrets Act is applicable to the trade secrets exception of +C.R.S. 8-2-113.
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