On May 17, 2024, Colorado Governor Jared Polis vetoed House Bill 24-1008, "Wage Claims Construction Industry Contractors." The bill applied only to the construction industry and went far beyond the usual remedies for failure to pay wages (such as penalizing employers who fail to pay their employees and awarding prevailing employees their attorneys' fees). The bill contained provisions allowing for "upstream liability," imposing liability for unpaid wages on parties which did not employ the unpaid employees, but who contracted, directly or indirectly, with the employer which failed to pay its employees.Thus, contractors which had no relationship with the employees, and may not even have known they were working on a project, could have been held liable for unpaid wages, even though they paid the employer in full and had no knowledge that the employer was not going to pay its employees. This is even more onerous than the ordinance adopted by the Denver City Council in 2023, which also provided upstream liability for unpaid wages in the City and County of Denver, but required that recourse first be sought from the employer before looking to upstream parties. {See January 9, 2023 blog post}.
Numerous business and employer advocates argued that this was not only unfair to the upstream parties, but didn't make sense. The construction industry protects its workers like few other industries do. Unlike most employees, workers in the construction industry have the ability to record mechanic's liens on the property where they worked. A lien clouds the title to a property, making it difficult to sell it. To complete a sale, the owner, or a contractor, often has to pay the claim upon which the lien is based, even if they disagree with it, or obtain a bond from surety, which can be time-consuming and expensive (and in some cases impossible). In addition, many construction contracts require subcontractors to certify, and provide proof, that they have paid their workers in order to be paid by the owner or the prime contractor. Furthermore, many construction lenders will not approve advances on construction loans without proof that workers have been paid. In light of this, one wonders why the proponents of the bill singled out the construction industry.
Targeting such an important industry with such an onerous law is not only unfair but unwise. Legislators of all parties publicly recognized that two of the most important issues facing Colorado at this time are affordable housing and homelessness. Construction contractors are indispensable to addressing these issues. However, if construction contractors stop building in Colorado, the affordable housing and homelessness crises will become even worse. And, quality construction contractors might think twice about taking on projects in states where they will be subject to Draconian laws, which impose liability on them, even where they had no control over whether an employee is paid, and might not even have known about the employee. This might well be counterproductive to the very issue this bill sought to address, failure to pay wages, because quality contractors, which are more likely to ensure that their subcontractors pay their employees, might choose not to do business in a state that treats them so poorly, leaving Colorado with lower quality contractors who are either unwilling or unable to ensure payment of workers.
Existing laws provide robust protection for Colorado employees. For example, under the Colorado Wage Claim Act, an employee who is not paid wages may recover from the employer the unpaid wages, plus a penalty of two times the amount of unpaid wages, and three times if they can prove that the failure to pay was willful, costs and attorneys' fees. Furthermore, they can bring such claims against those individuals who controlled the employer's decision not to pay (typically the owners and/or high-level executives). Thus, in addition to the company employing the workers, the individuals who controlled the payroll could be held personally liable for the wages, giving unpaid employees recourse against the individuals even if the employer itself is insolvent. The Wage Claim Act also provides for criminal liability for failure to pay wages and, if the amount of unpaid wages is $2,000 or more, the crime constitutes a class 5 felony, the penalty for which is up to three years in prison and a fine of up to $100,000. Misdemeanor wage theft also carries the possibility of fines and incarceration. Again, one wonders why was the construction industry was being singled out with such unusual and harsh penalties?
Despite all of this, the bill passed the Colorado House of Representatives, and then the Senate. The next step was the Governor's office.
But Governor Jared Polis disagreed. As he explained in his May 17, 2024 letter, "wage theft is a deplorable crime." In past sessions, the Governor signed several bills which provided additional protections for wages, including a bill which increased the penalties of the Wage Claim Act. However, the Governor felt strongly that this bill went too far. "Under the bill, the general contractor—even when not at fault under any reasonable standard—would effectively pay for the same work twice (in addition to fines, penalties, and interest)..." The Governor's office suggested alternatives to the bill's proponents, but they refused to adopt them. The letter concludes, "Wage theft is wrong, but punishment for any crime should focus on the wrongdoers. For the above reasons, HB24-1008 is disapproved and vetoed."
This bill was unfair and made no sense on many different levels. It was unwise. Legislators who supported it should reconsider their positions. The Governor should be commended for recognizing the bill's many faults and having the courage to veto it.
If wage theft is not being addressed appropriately by existing laws, as the proponents of this bill claimed, there are other alternatives to holding upstream parties liable. As discussed above, existing laws provide robust remedies for unpaid wages and severe penalties for those who fail to pay them, including criminal penalties. Employers, and those individuals in charge of payroll decisions, should be treated severely if they intentionally fail to pay their employees. In those cases, criminal enforcement authorities such as the Attorney General and the District Attorneys, should bring criminal prosecutions, seeking incarceration in extreme cases. Criminal prosecutions are likely to be more effective than civil actions because an employer convicted of the crime of wage theft can be required to pay the aggrieved employees as part of probation in a criminal sentence. If they fail to do so, the sentencing judge can impose additional penalties including incarceration. Legislators concerned with wage theft could consider bills increasing resources for law enforcement authorities to investigate and prosecute wage theft, perhaps earmarking funding for special wage theft units within prosecutorial offices. Civil actions are also an important part of the solution, and the Wage Claim Act and many local laws provide strong remedies, including attorneys' fees awards. Many employment attorneys are happy to accept legitimate wage claim cases, which promise not only recovery of wages and penalties for the employee, but an award of fees for the attorney. For smaller cases, the Wage Claim Act provides for administrative enforcement, which the Colorado Department of Labor and Employment has been pursuing diligently. No honest employer would deny an employee wages they have earned, or lament the prosecution of a dishonest employer (or those who control it) for intentionally failing to pay wages. But attempting to impose liability on upstream parties who were not at fault "under any reasonable standard," as the Governor put it, is not the answer.
This might not be the end for this bill. It is possible for the Legislature to override a veto. That seems unlikely this year, but many bills which fail in a legislative session are resurrected in future sessions, and some of those bills pass. The "POWR Act," which substantially changed Colorado law on workplace harassment, is a good example. {See May 8, 2023 post "Colorado Legislature Passes Significant Changes to Workplace Harassment Laws".} Those who think that this bill was unfair and unwise should pay close attention in legislative sessions to come. We may not have heard the last of upstream liability.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.