The Colorado Supreme Court has turned aside a challenge to the state’s paid family and medical leave program, upholding the voter-approved expansion of the social safety net as constitutional and rejecting the claims from a Grand Junction-based construction company.
Nearly 58% of voters supported Proposition 118 in 2020, which required most employers to provide up to 12 weeks of paid leave beginning in 2024, plus job protections for those who choose to take the leave. The premiums on employer payrolls, which fund the benefits, begin next year.
But those premiums were the subject of the legal challenge from Chronos Builders, LLC, a home builder on the Western Slope. The company claimed the varying payroll percentages violated the Taxpayer Bill of Rights, a 1992 state constitutional amendment regulating taxation and spending. Specifically, Section 8(a) of TABOR requires that incomes be taxed at a flat rate “with no added tax or surcharge.”
“This fee is trying to get around the flat tax,” Daniel E. Burrows of the conservative advocacy group Advance Colorado argued to the justices in May on behalf of Chronos Builders.
Justice Monica M. Márquez, who authored the Supreme Court’s June 21 opinion, rejected those arguments and affirmed that Section 8(a) only applies to income tax law changes. The premiums imposed by Proposition 118, also known as the Colorado Paid Family and Medical Leave Insurance (FAMLI) Act, did not meet that description.
“The Blue Book characterized the Act as an update to federal and state labor and employment laws,” she wrote. “Neither the Blue Book nor the statutory language ever refers to the premium as a tax on income.”
Even if the FAMLI Act did amount to an income tax change, the justices found the payroll premiums were simply a fee allowable under TABOR.
Sen. Faith Winter, D-Westminster, a proponent of the FAMLI Act who also attempted to enact paid leave through the General Assembly, said the program is on track for implementation as scheduled.
“It’s not surprising that it is upheld as a fee and not a tax. It was intentionally and specifically designed that way,” Winter said. “I’m excited we can move forward.”
In contrast to the federal Family and Medical Leave Act of 1993, which allows up to 12 weeks of unpaid leave for eligible employees, Colorado’s law enables workers to receive up to $1,100 each week for 12 weeks. Reasons for taking the leave can include caring for oneself or a family member or taking “safe leave” from sexual assault and domestic violence.
Proponents of Proposition 118 argued it would help new parents bond with their children and would ensure workers could take time off for serious illnesses without fear of being terminated. Opponents worried the paid leave program would add costs onto businesses.
A new division of state government will administer the program, and funding will come through a 0.9% premium on each employee’s wages. Employers must pay at least half of that amount. Beginning in 2025, premiums can rise to as high as 1.2%.
When Chronos Builders filed its lawsuit challenging the premiums’ constitutionality, it employed eight people and was considering expanding. However, the company worried about crossing the threshold of 10 employees, when it would need to pay the full employer share of the premium.
In December, Denver District Court Chief Judge Michael A. Martinez dismissed the lawsuit. Section 8(a)’s prohibition on added surcharges outside of the state’s flat income tax applied only to any “income tax law change.” The paid leave premiums were not an income tax law change and, therefore, did not fall under TABOR, Martinez reasoned.
The Supreme Court agreed to hear the appeal directly. Some members of the court were skeptical during oral arguments that the premiums fell into the prohibited category.
“What is the tax law change to which this surcharge is appended?” asked Justice Richard L. Gabriel.
Several outside organizations wrote to the Supreme Court in favor of upholding the FAMLI Act. Good Business Colorado, the Small Business Majority and eight individual business owners argued that the law is critical for workers suffering from “long COVID” or other chronic conditions who could relapse on the job in the absence of sick leave.
The Colorado Attorney General’s Office also warned that voiding the paid leave premiums might also call into question the validity of the state’s unemployment insurance program, which operates in a similar fashion.
Márquez explained in the court’s opinion that the premiums did not operate like a tax intended to fund general government expenses. Instead, the premiums were a fee in exchange for the provision of paid leave.
“Also unlike a tax, businesses may decline to pay the premium if they offer a comparable service to their employees,” she added.
The attorney for Chronos Builders did not immediately respond to a request for comment.
The case is Chronos Builders, LLC v. Department of Labor and Employment, Division of Family and Medical Leave Insurance.