Back in January, management-side labor and employment lawyers in Colorado thought the biggest wage and hour compliance issue for 2020 would be limited to ensuring clients were up to date on the expanded meal and rest break requirements of the Colorado Overtime and Minimum Pay Standards Order #36 (COMPS #36). What has transpired in the months since then has been truly dizzying: a barrage of legal and regulatory developments ranging from drastically overhauled COMPS exemptions to an entirely new paid sick leave requirement. Considering the pace at which these changes have progressed, it is possible that by the time this article is published, new rulemaking or guidance will have taken us in a different direction, but the following are some of the most important wage compliance issues to consider for Colorado employers as the new year looms.

COMPS Order #37

COMPS #36, which went into effect in March 2020, represented a sea change in meal and rest break requirements in the Centennial State. Previously, meal and rest breaks were required in only a handful of industries, but COMPS #36 applied the requirement to practically every employer in the state. The Colorado Department of Labor and Employment (CDLE) allowed a short grace period for some of the COMPS #36 requirements, but by midyear employers already were grappling with lawsuits alleging violations of the meal and rest break requirements.

On November 10, 2020, the CDLE adopted the final version of COMPS Order #37 (COMPS #37), which will replace COMPS #36 and go into effect January 1, 2021. COMPS #37 provides some relief and clarification for employers while reemphasizing the agency’s focus on enforcing a stricter wage and hour regime than exists under federal law. Specifically, the CDLE deleted an incorporation by reference of the federal Fair Labor Standards Act (FLSA), clarifying that the CDLE did not intend FLSA interpretations to inform the interpretation of COMPS #37. In addition, the agency added a provision stating that the COMPS provisions governed in all respects, regardless of any reference to or incorporation of other rules or statutes. The upshot of these tweaks to the rule is that arguments by analogy to federal law are likely to carry less weight in the past, absent explicit language that federal law is to inform the analysis.

One of the most significant differences between COMPS #37 and federal law is the administrative employee exemption. Under the FLSA, the exemption applies to salaried employees who have a primary duty (1) involving “the performance of office or non-manual work directly related to the management or general business operations of the employer or its customers” and (2) including “the exercise of discretion and independent judgment with respect to matters of significance.” The corresponding Colorado exemption has always gone further, as it also requires the administrative employee to “directly serve[] an executive, and regularly perform[] duties important to the decision-making process of that executive.”

COMPS #37 provides helpful guidance that clarifies that the administrative employee must only serve “an” executive as opposed to “the” chief executive or president. However, the order narrows the exemption even further, by requiring that both “[t]he executive and [the administrative] employee must regularly exercise independent judgment and discretion in matters of significance, with a primary duty that is non-manual in nature and directly related to management policies or general business operations.” This revision creates an anomaly—the only exemption that requires an analysis of not only the subject employee’s duties, but those of an entirely different employee: the executive he or she serves. The change is further puzzling because an express requirement regarding duties or independent judgment is not included in the executive exemption; all that is required for an employee to qualify for that exemption is that the employee “supervise[] the work of at least two full-time employees,” with the attendant “authority to hire and fire, or to effectively recommend such action.”

Thus, when evaluating whether an employee qualifies for the administrative exemption, an employer must (1) determine what executive(s) the employee serves; (2) confirm the employee regularly performs duties important to the decision-making process of the executive(s); (3) confirm the employee regularly exercises independent judgment and discretion regarding matters of significance, with a primary duty that is non-manual and directly related to management policies or general business operations; and, finally, (4) confirm the executive(s) the employee serves regularly exercise(s) independent judgment and discretion regarding matters of significance, with a primary duty that is non-manual and directly related to management policies or general business operations. Employers must also beware the “trickle-down” effect of an executive that loses duties and authority over time, as there is the risk that such diminution in responsibility could jeopardize the exemptions for multiple administrative employees serving that executive.

This increased focus on a “discretion and judgment” duties requirement is also evident in revisions to the professional exemption in COMPS #37. Under COMPS #36 (and its predecessor minimum wage orders), the professional exemption applied to any employee employed in a field requiring advanced knowledge customarily acquired by a prolonged course of specialized intellectual instruction and study, such as engineering, medicine, or law. Importantly, COMPS #37 broadens the exemption to incorporate the federal “creative professional” exemption, covering employees with “invention, imagination, originality, or talent in recognized fields of artistic or creative endeavors.” However, this expansion comes with an additional requirement: the employee must consistently exercise discretion and judgment in his or her job. Thus, while the expanded exemption is a boon for employers in fields such as journalism and entertainment, we are likely to see significant litigation as to the level of discretion and judgment required to sustain the exemption for particular professional employees.

As notable as the administrative and professional exemption revisions are, the most drastic exemption change in COMPS #37 is a complete overhaul of the exemption affecting drivers and driver’s helpers. COMPS #36 presented massive compliance issues for employers involved in transportation and shipping, as it rejected the Federal Motor Carrier Act (MCA) exemptions those employers had relied on for decades in favor of a much narrower exemption covering only drivers, driver’s helpers, loaders, or mechanics when the employee actually crossed state lines in the course of the employee’s work. In response to strong pushback from transportation industry groups, COMPS #37 deletes this entire exemption and replaces it with a new one covering only drivers and drivers’ helpers “while and to the extent they are” (1) subject to the MCA and exempt from FLSA overtime requirements; (2) working on MCA-covered vehicles (but not vehicles that do not require a commercial driver’s license, such as landscaping or construction vehicles); and (3) paid compensation of at least 50 hours at the Colorado minimum wage plus overtime ($677.60 per week in 2021). While the new exemption is welcome news for transportation employers that had struggled with compliance for employees assigned to intrastate routes, it is not a panacea. First, the exemption does not cover loaders or mechanics at all. Second, the compensation requirement means that employees with reduced hours in a given week may need to have their pay supplemented to meet the $677.60 minimum to remain exempt from COMPS #37’s meal and rest break requirements.

COMPS #37 also implements the increased minimum wage and white-collar exemption minimum salary thresholds set forth in COMPS #36. Effective January 1, 2021, the Colorado minimum wage will increase to $12.32 per hour for nonexempt employees. Similarly, the minimum salary threshold for exemptions requiring a salary (such as for administrative, executive, and professional employees) will increase to $778.85 per week ($40,500.20 per year). The order requires that all employers comply with the COMPS notice and posting requirements, utilizing the new COMPS #37 poster published by the CDLE. As was the case with COMPS #36, employers must not only display the COMPS #37 poster in central areas of their workplaces, they must also distribute the poster or copies of COMPS #37 to employees if (1) “work site or other conditions make a physical posting impractical” or (2) “the employer[s] publish[] or distribut[e] to employees any handbook, manual, or written or posted policies.” Further, if employees are required to sign a receipt acknowledgment of a handbook or policy manual, they must also specifically acknowledge receipt of the COMPS #37 poster at the same time or shortly thereafter.

Paid Sick Leave as Implemented by the Wage Protection Rules

On July 14, 2020, Governor Jared Polis signed into law the new Healthy Families and Workplaces Act (HFWA). The immediate impact of the HFWA was to require practically all Colorado employers to provide the emergency paid leave set out in the federal Emergency Paid Sick Leave Act through December 31, 2020, regardless of how many employees they had. However, the HFWA also established the requirement for Colorado employers with 16 or more employees to provide paid sick leave to their employees beginning January 1, 2021.

On November 10, 2020, the CDLE published its final Wage Protection Rules, implementing the Colorado Wage Act as amended by the HFWA. While the Wage Protection Rules answer some coverage questions regarding the looming paid sick leave requirements of the HFWA, they conspicuously leave some unanswered, and in a few respects actually create more confusion. To begin, the rules clarify that the 16-employee coverage threshold depends on the total number of employees within the United States, regardless of how many employees are in Colorado. Thus, the HFWA would cover an employer with only one employee in Colorado and 15 employees outside the state beginning on January 1, 2021. Notably, the 16-employee threshold is only in effect for 2021; the HFWA applies to all employers starting in 2022.

The rules go on to provide, consistent with the HFWA, that covered employers must allow Colorado employees to accrue a minimum of one hour of paid sick leave (PSL) per 30 hours worked, up to a 48-hour annual cap. As set forth in the HFWA, an employee may use PSL for any of these reasons:

1. the employee has a mental or physical illness, injury, or health condition; needs to obtain a medical diagnosis, care, or treatment related to such illness, injury, or condition; or the employee needs to obtain preventive medical care;
2. the employee needs to care for a family member who has a mental or physical illness, injury, or health condition; needs to obtain a medical diagnosis, care, or treatment related to such illness, injury, or condition; or the employee needs to obtain preventive medical care;
3. the employee or family member “has been the victim of domestic abuse, sexual assault, or harassment” and needs to be absent from work for related purposes; or
4. a public official has ordered the closure of “the school or place of care of the employee’s child” or of the employee’s workplace due to a public health emergency.

Employers must allow employees to carry over up to 48 hours of PSL from year to year, but employers need not allow the usage of more than 48 hours in a year. This has the potential to create strange results, with employees accumulating large PSL balances over multiple years that they can never use in full.

Other than the odd carryover nuance, the rules’ implementation of the regular PSL requirements is generally unremarkable. However, things get interesting after that. The rules provide that “on the day a public health emergency is declared,” employers are required to immediately provide employees with … a one-time supplement with the number of hours needed” to bring full-time employees up to 80 total hours of paid leave and part-time employees up to the amount of paid leave corresponding to the amount they work in a two-week period. For example, a full-time employee with 20 hours of accrued PSL would be entitled to 60 supplemental hours of emergency paid leave (EPL), while a full-time employee with 35 hours of accrued PSL would only be entitled to 45 supplemental hours of EPL. Unlike PSL, an employee may only use EPL for the following reasons:

1. the employee needs to self-isolate due to either being diagnosed with, or having symptoms of, a communicable illness that is the cause of a public health emergency;
2. the employee is seeking diagnosis, treatment, or care (including preventive care) of such an illness;
3. the employee is being excluded from work by a government health official, or by an employer, due to the employee’s exposure to, or symptoms of, such an illness (whether or not the employee is actually diagnosed with the illness);
4. the employee is unable to work due to a health condition that may increase susceptibility or risk of such an illness; or
5. the employee is caring for a child or other family member who is in category (1), (2), or (3), or whose school, child care provider, or other care provider is either unavailable, closed, or providing remote instruction due to the public health emergency.

The provisions of the rules related to EPL are curious, as the HFWA provides that a full-time employee should be able to take a full 80 hours for public health emergency reasons and that an employer would be able to count an employee’s unused accrued PSL toward this requirement. The rules contradict, as they only permit usage of the EPL supplement for the public health emergency reasons. This will likely create some odd results, as some reasons for EPL are not permissible reasons for PSL. For example, an employee who has only 10 hours of PSL and is excluded from work by the employer due to a suspected COVID-19 exposure would enjoy entitlement to 70 hours of paid leave, while an employee so excluded while having 40 hours of PSL in her bank would only be entitled to 40 hours of paid leave for this reason.

Perhaps even more confusing is the fact that the rules make the trigger for the provision of the EPL supplement “the date on which the [public health] emergency is declared.” Since Colorado has been under a public health emergency declaration for months, it is unclear whether (1) the EPL requirement will automatically trigger on January 1, 2021, given the active public health emergency declaration or (2) a new public health emergency declaration will be required to trigger the EPL requirement. The CDLE appears to be aware of the confusion, so it is possible clarity will come soon via the issuance of an Interpretive Notice & Formal Opinion, as the agency did with respect to the HFWA’s 2020 requirements. For now, employers may want to prepare for the possibility that the EPL supplement will be required on January 1, 2021, especially considering that the newly published HFWA poster repeatedly indicates EPL is required “in” or “during” a public health emergency, without any reference to a declaration trigger date.

Also of note is the fact that EPL is not based on an annual benefit year as PSL is. Rather, the supplement is required for the duration of a public health emergency, creating (1) the need to track EPL carefully from year to year for public health emergencies of extended duration and (2) the possibility of multiple required EPL periods in the case of more than one public health emergency declaration in a given year.

Further, while employers may require reasonable documentation of the need for PSL taken for four or more consecutive working days, the rules expressly forbid employers from asking for any documentation whatsoever of the need for EPL.

Finally, while it is possible for employers to use existing paid time off (PTO) policies to comply with the HFWA and rules, there are significant practical and procedural hurdles to this. First, the PTO policy must provide leave (1) of at least the same amount of hours and pay, (2) for all the same purposes, and (3) under all the same conditions as the HFWA and the rules. As many PTO policies have managerial approval prerequisites, documentation requirements, and accrual caps that are not present in the HFWA and the rules, this means many PTO policies will require significant revision even if they are more generous than Colorado law with respect to the amount of leave and permissible reasons for leave. In addition, the rules require employers to provide written advance notice to employees that not only advises them of the policy’s compliance with the HFWA and the rules, but also specifically warns that additional leave will not be provided if employees use all their available PTO for non-HFWA-qualifying reasons (such as vacation), unless a public health emergency is declared and EPL is required. This notice is in addition to the HFWA poster, which must be displayed along with the COMPS #37 poster and also distributed to all employees.

Key Takeaways

These two pieces of rulemaking by the CDLE create a tall compliance order for Colorado businesses already struggling to satisfy new Colorado requirements in the pay equity and whistleblower arenas. Before the ball drops in Times Square on December 31, 2021, employers will likely want to consider the following:

• ensuring compliance with the COMPS and HFWA notice and posting requirements;
• engaging in appropriate duties audits of exemptions affecting administrative employees, learned and creative professional employees, and drivers/driver’s helpers;
• verifying that state minimum pay requirements have been met (both minimum wage and minimum salary/compensation for exempt employees); and
• developing plans for compliance with PSL and EPL requirements, whether through existing or new policies.