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Employment Law: Payment of An Employee Following Termination or the Employee Quitting

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When an interruption in the employer-employee relationship by volition of the employer occurs, the wages or compensation for labor or service earned and unpaid at the time of such discharge is due and payable immediately. If at such time the employer's accounting unit, responsible for the drawing of payroll checks, is not regularly scheduled to be operational, then the wages due the separated employee must be made available to the employee at the work site or mailed to the employee's last known address, whichever method is specified by the employee, no later than six hours after said unit would normally be operational.¹ When an employee quits or resigns his employment, the wages or compensation become due and payable upon the next regular payday.²

An employer has the right to set off any lawful charges or indebtedness owing by the employee to the employer.³

"Lawful charges or indebtedness" means:

(a) Deductions mandated by or in accordance with local, state, or federal law including, but not limited to, deductions for taxes, "Federal Insurance Contributions Act" ("FICA") requirements, garnishments, or any other court ordered deduction;

(b) Deductions for loans, advances, goods or services, and equipment or property provided by an employer to an employee pursuant to a written agreement between such employer and employee, so long as it is enforceable and not in violation of law;

(c) Any deduction necessary to cover the replacement cost of a shortage due to theft by an employee if a report has been filed with the proper law enforcement agency in connection with such theft pending a final adjudication by a court of competent jurisdiction; except that if the accused employee is found not guilty in a court action or if criminal charges related to such theft are not filed against the accused employee within ninety days of the filing of the report with the proper law enforcement agency, or such charges are dismissed, the accused employee shall be entitled to recover any amount wrongfully withheld plus interest. In the event an employer acts without good faith, in addition to the amount wrongfully withheld and legally proven to be due, the accused employee may be awarded an amount not to exceed treble the amount wrongfully withheld. In any such action the prevailing party shall be entitled to reasonable costs related to the recovery of such amount including attorney fees and court costs.

(d) Any deduction, not listed in paragraph (a), (b), or (c) which is authorized by an employee if such authorization is revocable including, but not limited to, deductions for hospitalization and medical insurance, other insurance, savings plans, stock purchases, voluntary pension plans, charities, and deposits to financial institutions.⁴

Questions from time to time arise whether vacation "pay" falls within the definition of "wages" or "compensation".

"Wages" or "compensation" means all amounts for labor or service performed by employees, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculating the same or whether the labor or service is performed under contract, subcontract, partnership, sub-partnership, station plan, or other agreement for the performance of labor or service if the labor or service to be paid for is performed personally by the person demanding payment.⁵

In 1979 the Supreme Court of Colorado in Hartman v. Freedman, 591 P.2d 1318, ruled that vacation pay falls within the definition of "wages" or "compensation" as the terms are defined in the statutes authorizing penalties for compensation wrongfully withheld.

A distinction apparently may be drawn for those employers that desire a "use it or lose it" policy concerning vacation time and pay. The approach is that vacation time is a benefit and as a benefit may be structured by the employer so that if it is not used it is lost. A better approach may be to place a limit on the amount of vacation time that can accrue.

Questions also arise concerning the payment of bonuses. The penalty statutes concerning non-payment of wages specifically excludes compensation payments due an employee under a profit- sharing plan, a pension plan or other similar deferred compensation programs.⁶

However, in 1988 the Colorado Court of Appeals in Rohr v. Ted Neiters Motor Co., 758 P.2d 186, ruled that a bonus was "wages" or "compensation" rather than "deferred compensation" where the bonus was vested and determinable, although not yet due; the bonus was much larger than the employee's salary; and the bonus was for service performed by an employee alone, rather than pursuant to a plan offered to all employees.

If an employer is paying a year-end bonus the employer should, to avoid penalties due to the non-payment of a bonus, for example:

(1) Pay a bonus to only those employees employed either at the company's year-end or employed at the time the bonus is paid;

(2) Make sure the bonus is significantly less than the employee's salary;

(3) Pay a bonus to all employees; and

(4) Establish a written Profit Sharing Plan.

If an employer refuses to pay wages or compensation upon request by the employee and without a good faith legal justification for such refusal, the employer is liable to the employee, in addition to the compensation legally proven to be due, as a penalty for such refusal the greater of an amount equal to fifty percent thereof or an amount equal to the amount of the wages payable per day to such employee not to exceed ten days. The wages payable per day shall be calculated at the same rate which the employee was receiving at the time of separation. However, the employee or his designated agent must make a written demand for the payment within sixty days from the date of separation and must state in the demand where such payment can be received. The daily wage penalty may not be imposed until the employer receives such written demand. The employee or his designated agent may commence a civil action to recover such penalty. Any employee or his designated agent who has not made a written demand for the payment within sixty days from the date of separation or who has otherwise not been available to receive payment shall not be entitled to any such penalty. A payment must be made in the form of a check draft or voucher in the name of the employee.

Violation of the payment of wages can result in significant costs, fines, and penalties that may be assessed against an employer. However, if an employee brings an action against an employer for failure to pay "wages" or "compensation" and loses, the employee may be responsible for payment of the employer's costs and attorney's fees.

¹See C.R.S. 8-4-104(1)(a), 2002. Back
²C.R.S. 8-4-104(1)(b), 2002. Back
³See C.R.S. 8-4-104(2), 2002. Back
⁴C.R.S. 8-4-101(7.5), 2002. Back
⁵C.R.S. 8-4-101(9), 2002. Back
⁶C.R.S. 8-4-105(3), 2002. Back

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