By Mike Laszlo
Clark Hill
The Colorado Court of Appeals held that deducting product fees from an employee’s wages unlawfully shifts the burden of an employer’s business costs and reduces an employee’s wages.
In 303 Beauty v. Division of Labor, 303 Salon Lohi paid its employee cosmetologist wages and a commission based on her sales of services and retail products. Additionally, the salon and cosmetologist entered into a written agreement authorizing the salon to deduct from the employee’s pay fees for hair care products, such as hair color and dyes, that she used in the course of providing services to the salon’s customers.
The court determined that the agreement was improper, finding those expenses were part of the salon’s cost of doing business and could not be shifted to employees.
The court analyzed Section 8-4-105(1)(b) of the Wage Act which intends to protect employees from unlawful wage deductions. Section 8-4-105(1) states:
“[a]n employer shall not make a deduction from the wages or compensation of an employee except as follows:
. . .
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 the law.”
Because the Wage Act does not define “goods or services,” the court looked to other exceptions within the section that were defined. The court noted that “loans and advances – directly benefit employees, without an obvious benefit to employers.” In keeping with the statutory construction principle that terms within a list should be interpreted as having a related meaning, the court decided that goods and services should be interpreted as those business costs that benefit an employer.
When analyzing the products for which the deductions were made in this case, the court considered that the products charged were for customers’ use only, not for the employee’s personal use, and that the products were necessary for the completion of the work, for the benefit of the employer.
The court also recognized that the intent of the Colorado Wage Act is to protect employees’ paid wages and prevent contractual waivers or modifications, such as unlawful deductions. The court decided that product fees inherent to an employee’s job that benefit the employer, even if the employee mutually benefits as a byproduct of receiving payment for the service, are costs of business and thereby an unlawful deduction from an employee’s wages, regardless of a lawful written agreement.
The Colorado Court of Appeals affirmed the Colorado Department of Labor and Employment’s Division of Labor Standards and Statistics’ decision that deducting employer’s costs of doing business from an employee’s pay is unenforceable under Section 8-4-105(1)(b) as it shifts the cost of doing business from employer to employee.
Key Takeaway
Employers such as hair salons, where use of products in the provision of services to customers are therefore a necessary cost of business, and deductions from the employee’s wages is not permissible. Written agreements that contravene the Wage Act will not be enforceable.
Colorado employers should review their policies and agreements that concern product use and payroll deductions and consider whether those products are a cost of business and therefore not properly a pay deduction. This decision does not appear to apply to reimbursements to the business.
– Mike Laszlo is a member at Clark Hill’s Boulder office. He is a litigator and business counselor who focuses his practice on the food, beverage and hospitality industries.