Employee or Independent Contractor under Colorado Unemployment Compensation Laws

The Colorado Employment Security Act (CESA) is designed to help protect employees from the negative consequences of unemployment, not due to any fault of their own. The benefits available depend on whether or not the individual, under Colorado law, was an employee, or whether he was an independent contractor. An independent contractor is not entitled to unemployment compensation benefits under Colorado law. When a company engages the service of independent contractors, the company does not need to pay the State of Colorado the unemployment compensation tax required for its employees. Thus, the classification of the individual as either an employee or independent contractor has great financial ramifications.

In two cases handed down by the Colorado Supreme Court on May 12, 20143, the court provided some guidance to employers, as well as employees, in determining when an individual qualifies as an independent contractor rather than an employee. Those cases are Indus. Claim Appeals Office v. Softrock Geological Servs., 2014 CO 30 (Colo. 2014), and Western. Logistics, Inc. v. Indus. Claim Appeals Office, 2014 CO 31 (Colo. 2014). It has been often erroneously assumed that, if the individual performing services is not under the control and direction of the employer, that would be sufficient to constitute the individual as an independent contractor. That is not the case, as there are a number of other factors to be considered, including whether or not such individual is “customarily engaged in an independent trade, occupation, profession or business related to the service performed”.

Both of the decided cases involved the question of whether or not the employer had improperly misclassified employees as independent contractors, and thus avoided paying the unemployment tax required to be paid for employees. The Courts discussed the statutory provision allowing an employer and an individual, purporting to be a independent contractor of that employer, to enter into a written agreement relating to nine specific factors, to create a presumption of an independent contractor relationship. Those factors, found at Colorado Revised Statutes § 8-70-115(1)(c), require a signed document agreeing that the employer will not do any of the nine enumerated factors.

The Courts found that the question of whether or not an individual actually provided services for someone other than the employer is not conclusive proof of an employer-employee relationship. The Courts pointed out that one single factor should not be viewed as determining whether an employee is an employee or an independent contractor. Other factors such as whether or not the individual maintained an independent business card, listing, address or telephone, uses his own equipment, sets the price for the project, or employed others to complete the project, should also be considered in making the determination.

The Courts determined that, rather than requiring analysis of whether or not the nine factors have been met, a more accurate test would be to determine the nature of the working relationship between the parties, which may include the nine factors in the statute, but may also include other information relating to the relationship between the employer and the individual. In short, the determination must be tested by the totality of the circumstances, considering the dynamics of the relationship between the individual and the employer.

Based on this and other court decisions, an employer thinking about designating individuals as independent contractors, most carefully analyze all of the factors to determine if a true independent contractor relationship exists, in order to avoid penalties for improper classification and nonpayment of premiums required to be paid into the unemployment insurance fund. It is recommended that an experienced attorney be retained by the employer to help navigate this potential minefield. Nathan Davidovich is available for consultation on employment matters by email at nathandavidovich@talk-law.com or by calling him at 303-825-5529.

By: Nathan Davidovich
Copyright © June 2014

This article is intended for information purposes only. It is not intended as professional advice, and should not be considered as such.