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Owners' Personal Liability for Wage Violations
Editor's Note
Owners' Personal Liability for Wage Violations
We were just talking about criminal liability for wage hour violations as "wage theft." Now, Colorado joins California, New York, and Illinois (there may be more) in imposing personal liability for business owners for wage violations.
In Colorado, anyone who has at least 25% ownership of the employer can be personally liable for almost any wage violation.
In California, any "owner, director, officer or managing agent of the employer” can be held personally liable for wage violations. (It's only a matter of time before someone sues an AI provider as a "managing agent." It is such a bad idea to call AI "agents.")
The law in California was enacted in 2016 because poorly funded startups were closing abruptly and leaving employees without pay. That's still a concern. In most states, employees are super creditors when dealing with claims against the business. But personal liability means that if there aren't enough assets in the business, the owners have to pay out of their own pockets.
It hits different when the employees could take your house. And personal liability is better than criminal liability because putting owners in jail doesn't get employees paid. But selling their assets can.
Want to sleep at night? Adequate capitalization is good. Then make sure your employees are paid what they are owed, on time, and with the right withholdings and pay stubs. Even better, outsource your payroll to a trusted company who will make sure it always goes right and help you fix it when there's a glitch.
Last, flowers to Snell & Wilmer for crediting their summer associate (law student), Ainsley Hill, on this article. We know you actually wrote it. Nice work!
- Heather Bussing
Owners May Have Personal Liability for Violations of Wage and Hour Laws in Colorado
by Bill Ojile
[co-author: Ainsley Hill1 ]
I. What Happened
Owners with a 25 percent or greater stake in an employer-entity, regardless of company form, may have liability for the employer-entity’s wage and hour matters under a new Colorado law. On May 22, 2025, Governor Polis signed HB25-1001, which among other measures includes a material change to the definition of “employer” for purposes of the wage and hour laws in Title 8, Article 4 of the Colorado Revised Statutes.
Currently, Article 4 defines “employer” using the same definition in the federal Fair Labor Standards Act of 1938, along with a few industry-specific additions. HB25-1001 expands the definition of employer to include “each individual who owns or controls at least twenty-five percent of the ownership interests in an employer.” The bill specifically excludes minority owners, but only those who “fully delegate authority to control day-to-day operations of the employer.” HB25-1001 becomes effective on August 6, 2025.
II. What HB25-1001 Means
- This change will expose shareholders and LLC members to liability for wage and hour claims: People who own between a 25 percent and 50 percent interest in an employer entity, and who have any active role in the entity’s operation, are now included in the definition of “employer”. People who own over a 50 percent interest in an employer entity, regardless of whether they have an active role in operation, are also included in the definition. Only people who own less than 25 percent of the employer-entity can avoid employer designation. HB25-1001 applies only to natural persons. Therefore, this statutory change does not apply to entities with an ownership interest in an employer-entity.
- Some Owners will have exposure for Colorado Wage Act violations: The change in the definition of “employer” in HB25-1001 applies only for purposes of wage and hour law compliance; significantly, this change does not apply to other aspects of Colorado employment law (e.g., laws prohibiting discrimination, harassment). Owners meeting the new definition of “employer” will face personal liability for the employer-entity’s failure to pay wages and compensation due to employees, provide pay statements, post notice of regular paydays, as well as any excessive payroll deductions made by the employer. Employees can bring administrative and civil actions against Owners, and the Owners may face fines, damages, or even criminal penalties. Finally, Owners could face liability for claims of retaliatory or discriminatory behavior towards employees challenging wage and hour practices.
- The test for determining whether an Owner is an “employer” is easier to meet: HB25-1001 makes it easier to categorize an Owner as an employer. Previously, owners were only personally liable if they were employers as a matter of “economic reality,” meaning they were involved in matters such as hiring and firing employees or supervising employee work schedules. HB25-1001 replaces the economic reality test with the “fully delegate authority” test, which should create an easier standard for employees to prove in pursuing administrative and civil actions against the employer.
III. What Owners and Employers Can Do
Affected owners face new risks and responsibilities as employers. Owners and employer entities that are concerned about the implications of HB25-1001 should consider contacting legal counsel to understand how they can minimize these risks and ensure they are ready to comply with Colorado wage and hour laws on August 6, 2025.
Footnotes
- Snell & Wilmer 2025 Summer Associate Ainsley Hill provided material assistance in the production of this article. Ainsley Hill is not a licensed attorney.
