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Giving Employees the Right Vacation Time

Are you following Colorado law when it comes to paying for vacation time when an employee leaves your company? What if you lump together vacation time, sick time and other time off into “Paid Time Off” (PTO)? What follows is a discussion of whether your current employee policies regarding PTO are following Colorado law, especially with regard to the limitation on the amount of time an employee can accrue PTO.

Colorado law states that employers do not have to offer their employees paid time off for vacations or sick leave. If you do offer vacation time or PTO and employee leaves, you are expected to pay the employee for any time that has “accrued”. So what happens if you have great employees who never take vacation? You are allowed to place restrictions on the amount of vacation pay an employee receives. For example, an employee earns 10 days a year of PTO. But the employee only uses 5 days and the other 5 days get forwarded to the next year. You can create a policy that an employee cannot accumulate more than 20 days of PTO. The Courts look at vacation time as a contract issue between a company and its employees. An employee handbook acts as a contract for purposes of this discussion. The Colorado Department of Labor provides: “An employer may establish a vacation policy in writing or by custom and practice. Employees must be made aware of the employer’s policy. Employers and employees must follow established policy unless and until that policy is changed.”

So, as an employer, you can provide in your employee handbook that an employee can accrue no more than 3 years of PTO (or a certain number of days). You have to make sure your employees are aware of the policies and usually employees sign acknowledgements that they have received copies of the handbook.

Here’s another example. Say an employee earns PTO each week. In other words, depending on seniority (some earn more PTO than others), an employee receives at least 3 hours each pay period for PTO. Putting a restriction on the amount of PTO time that can be accumulated is perfectly within the right of your company. A court case from 1998 that has not been overturned or received negative treatment has discussed this issue (City of Lamar v. Koehn, 968 P.2d 164 (Colo.App. 1998)). The case determined whether vacation time was to be included in the definition of “wages” for purposes of workers compensation. The Court state the following:

Both vacation and sick leave were subject to forfeiture if claimant accrued a specified maximum number of leave days. However, claimant did not forfeit any vacation leave under this policy and was paid his full entitlement. [The reason he did not forfeit any vacation was because he had not yet reached the maximum number of leave days.]

In this case, the Court discussed a prior decision where vacation time was looked at as a type of leave that had a reasonable, present-day, cash equivalent value, and that claimant had a reasonable expectation of receiving the benefits under appropriate reasonable circumstances. However, this Court found that because the employer policy had vacation time as capped and subject to forfeiture, it was not proper to be included in the definition of “wages” for determining workers compensation benefits.

Colorado wage law states that vacation pay (which would include PTO for purposes of this discussion), earned in accordance with the terms of any agreement, is classified as wages or compensation. If an employer provides paid vacation (or PTO) for an employee, the employer must pay, upon termination of employment, all vacation pay earned and determinable in accordance with the terms of any agreement between the employer and the employee. So take a look at your vacation and PTO policies. Are they similar to the following?

PTO Yearly Carry Over

Employees may carry up to two full years of accrued PTO leave into the following calendar year. This will allow employees the benefit to carrying up to three (3) years accrued PTO in their PTO banks. Any overage of PTO at the end of the year will be forfeited.

Payment for PTO Overages

If an employee accumulates more than 3 years of PTO and a calendar year is ending within 30 days, PTO for the final two pay periods of the calendar year shall be adjusted such that an employee can only earn 25% of the PTO that has accumulated over the 3-year cap for PTO for that employee. There will be no further accruals of PTO following the end of the calendar year until employee uses some of the accrued PTO. Upon retirement, termination or death during the year, the employee or his or her heirs or estate shall be paid for any accrued, but unused PTO.

The carry-over provisions in the second paragraph above may be a little complicated but they are perfectly within an employer’s rights. The company can cap vacation and PTO time to three years. This prevents a huge buildup of a company liability that will be incurred when an employee leaves the company. If an employee is not taking their earned PTO during the year, then management needs to encourage or force time off for those employees.

This is just one example of how employers can create vacation or paid time off benefits for their employees but everyone should be aware of the responsibilities employers have for properly structuring their vacation policies. Please give us a call if you would like us to review your employee manuals or handbooks about this issue.

Increasing Access to Legal Services – Process Improvement and Automation

I went to law school because I wanted to make a difference. Initially, I though I would focus on environmental issues, but through a variety of courses and internships, my focus shifted to economic inequality and access to justice. This new focus piqued my interest in how technology could expand access to legal services and led me to Michigan State University College of Law’s LegalRnD program. The program offers several courses, and as a 3L I took a course call Litigation: Data, Theory, Practice and Process, with Daniel W. Linna Jr. I had no idea what to expect, but I was excited for a hands on, practice focused class. I was not disappointed; Professor Linna introduced new concepts and challenged the traditional ideas about legal services throughout the class. We experimented with several process improvement techniques including Lean Six Sigma, Kanban Boards, design thinking, and process mapping as tools to solve for inefficiencies in legal processes. He challenged us to think about legal issues and client needs from a process point of view and was constantly asking how our proposed improvements would add value for clients. By understanding the process, we could remove most of the inefficiencies without technology and when we did employ technology, we had a crystal-clear understanding of why it was necessary and how it improved the process.

As part of the class we were asked to re-imagine a legal process and automate it using ThinkSmart’s (a legal software developer) legal workflow automation tool, TAP. I chose to create a new system for referring pro bono work to attorneys. I created an automated workflow that aggregated attorneys’ availability for pro bono work, areas of legal expertise, contact information, and location into a database that would be hosted by the State Bar Association. The rest of the process is automated with inputs from legal aid offices looking to refer clients out and attorneys in the State Bar database. ThinkSmart spotlighted the project on their blog in February.

I’ve carried many of the skills I learned in the Litigation course into my daily practice. I look forward to continuing to leverage process improvement and technology to deliver better services to our clients, create organizational documents that are legally sound and user friendly, and to evolve the practice of law for the 21st century.

 

Electing Public Benefit Corporation Status as a Limited Cooperative Association: Limiting Director Liability

All certified Colorado B-Corps, organized as Colorado Corporations or Cooperatives, are required to become Public Benefit Corporations (PBCs) by April 1, 2018. Since a number of our clients are B-Corps, we’ve been immersing ourselves in the finer points of the Colorado Public Benefit Corporation Act (PBCA), particularly as applied to Limited Cooperative Associations (LCAs). As originally enacted, the PBCA did not allow LCAs to elect PBC status despite Article 55 and Article 56 cooperatives being able to do so. It appears that the omission was simply an oversight by the drafters that was recently corrected in an amendment that allows LCAs to elect PBC status. While this was a needed amendment to the PBCA, the PBCA is not as cleanly applied to LCAs as to Article 55 and Article 56 cooperatives.  Unlike Article 55 and 56 cooperatives, the Colorado Business Corporation Act (CBCA) is not used as a gap filler for the Uniform Limited Cooperative Association Act (ULCAA), which governs LCAs. This presents a challenge to limiting director liability for LCAs under the PBCA. The PBCA is written with the corporate form in mind and references the CBCA with regards to director liability, but is silent as to how use of the PBC form will affect director liability when the entity is an LCA.

Section 7-101-506 of the PBCA lays out the duties of the directors of a PBC:

(1) The board of directors shall manage or direct the business and affairs of a public benefit corporation in a manner that balances the pecuniary interests of the shareholders, the best interests of those materially affected by the corporation’s conduct, and the specific public benefit identified in its articles of incorporation.

(2) A director of a public benefit corporation:

     (a) Does not, by virtue of the public benefit provisions of section 7-101-503 (1), have a duty to any person on account of an interest of the person in the public benefit identified in the articles of incorporation or on account of an interest materially affected by the corporation’s conduct; and

Additionally, it permits a PBC to expressly state in its articles of incorporation that a “disinterested director’s failure to satisfy this section does not, for the purposes of section 7-108-401 or 7-108-402 or article 109 of this title 7, constitute an act or omission not in good faith or breach of the duty of loyalty.” The problem for LCAs is that this provision only contemplates a corporation using the PBC form as evidenced by its reference to “articles of incorporation” and the statutory references to the CBCA. The concern for an LCA organized using the PBC form is that its directors may not be protected by the limiting language as it is currently written in the statute. Further, simply altering the express language provided in the PBCA to reference the analogous sections in the ULCAA could render the language unenforceable because it does not track the statutory language of the PBCA. This is not a concern for cooperatives organized under Article 55 or Article 56 because both Articles use the CBCA as a gap filler. ULCAA, on the other hand, was enacted as a stand-alone statute and there was no intent to use the CBCA as a gap filler.

The ideal solution is an amendment to the PBCA that makes the limiting language inclusive of LCAs. In the interim, it is prudent for LCAs using the PBC form to include the limiting language as it is written in the PBCA and include another provision that clearly expresses the intent of the LCA to apply the ULCAA provisions that are analogous to those CBCA provisions regarding limiting director liability. This statement of intent should be drafted to give parties, a court and other interpreters clear guidance to resolve conflicts of interpretation between the PBCA, ULCAA and the Articles of Organization. As a firm, and a PBC, we are invested in the implementation of this statute and look forward to following and participating in its evolution to meet the needs of the businesses that are utilizing the PBC form.