Colorado’s Construction Trust Fund Statute – What is it and Who does it Protect?

Construction lawyers often receive calls from property owners, subcontractors, sub-subcontractors, vendors, and suppliers about difficulties related to obtaining payment on construction projects. Prudent owners, contractors, subcontractors, and material vendors are constantly attempting to allocate risk, obtain payment and maximize profit margins. Colorado’s Construction Trust Fund Statute can be a useful tool for Owners, Subcontractors and Suppliers to obtain relief for non-payment on construction projects. 

The statute requires funds distributed under a construction contract be held in trust for the subcontractors, sub-subcontractors and vendors.  If a contractor does not distribute funds received from the owner due to a subcontractor or supplier, the owner, subcontractor or supplier may use Colorado’s Construction Trust Fund Statute to obtain payment.

For example, an owner distributes funds to a contractor for work on the owner’s project. The contractor, being a contractor on multiple projects, uses those funds to pay obligations unrelated to the owner’s project. The contractor in turn does not pay the roofing subcontractor for the work performed because the funds were used elsewhere. Under this scenario, the owner and the roofing subcontractor would have a claim against the contractor for a violation of the Trust Fund Statute. The roofing subcontractor may not need to resort to filing a mechanic’s lien on the owner’s property for the contractor’s failure to pay. A variation to this example would produce a similar outcome. For example, once the general contractor pays its roofing subcontractor for the work performed the subcontractor has an obligation to disburse the funds owed to any of its sub-subcontractors.  Here, the sub-subcontractor may have a claim against the subcontractor for a violation of the Trust Fund Statute.

There are exceptions to the statute’s enforceability.  A contractor may withhold funds if there is a “good faith belief” that a subcontractor or vendor claim to payment is not valid due to the conduct or lack of proper performance entitled the contractor to a setoff.  There are additional potential exceptions for consideration.

When successful, the statute allows the claimant to recover its attorney fees, costs and three times the amount of damages.  Additionally, officers, directors, owners, managers and others who control funds subject to Colorado’s Construction Trust Fund Statute, and fail to pay pursuant to the statute, are exposed to personal liability.  It is important to also note that where a judgment is obtained against an individual for violation of Colorado’s Construction Trust Fund Statute, the judgment is not the type of debt typically subject to relief in bankruptcy proceedings.

Trust Fund Statute, C.R.S. §38-22-127

For more information about construction law and construction claims, contact Miller|Kabler, P.C. at 720-306-7733 or visit our website at www.millerkabler.com

Are You Hiring an Independent Contractor or an Employee?

Employees and independent contractors are different animals.  Improperly classifying employees as independent contractors can result in significant legal consequences.  When a person is hired they are presumed to be an employee.  It is not enough to simply label someone as an independent contractor, certain legal criteria must be met.  Generally, independent contractors exercise a higher level of control over the work to be performed,  the manner it is performed and may freely accept or reject work.  Control over the person for hire is key to this analysis.

The Colorado Wage Act (CWA) defines an “employee” as any person performing labor or services for the benefit of an employer in which the employer may command when, where, and how much labor or services will be performed.  The Fair Labor Standards Act (FLSA) defines “employee” as “any person acting directly or indirectly in the interest of an employer in relation to an employee.”

Several factors are used to determine the status of an individual under the FLSA: control exerted by the employer over the worker, the worker’s opportunity for profit or loss, the worker’s investment in the business, the permanency of the working relationship, skill required to perform the work, and the extent to which the work is an integral part of the employer’s business. An independent contractor is not subject to the FLSA requirements or the CWA. Therefore, someone employing an independent contractor need not provide workers’ compensation insurance, deduct payroll taxes, or pay overtime. Further, an independent contractor cannot claim workers’ compensation or wrongful termination.

There are numerous benefits of employing an independent contractor instead of an employee. However, the misclassification of a worker can be problematic and costly. To lower payroll costs or expenses an employer might misclassify an employee as an independent contractor.  Misclassification can open an employer up to additional liability including governmental audits, penalties and lawsuits.  Employers can protect themselves from such liability associated with misclassification by refining their hiring practices and procedures. Simply requiring a signed independent contractor agreement will not suffice. The actual performance of services will be analyzed.  If litigation occurs, the Court will look at the totality of the circumstances surrounding the services performed.

For more information about Independent Contractors and Employee Law, contact Miller|Kabler, P.C. at 720-306-7733 or visit our website at www.millerkabler.com