Corporations have been found to have free speech and due process rights like individuals do under the constitution. They also have Eighth Amendment rights like individuals, according to a new Colorado Supreme Court decision.
On June 10, the Supreme Court ruled that corporations enjoy the Eighth Amendment’s excessive fine protections that individuals do. It unanimously held that courts should consider whether a penalty the government imposes on a corporation is grossly disproportionate to the violation. The decision in Colorado Department of Labor and Employment v. Dami Hospitality might be a reassuring one for companies, however the Supreme Court did issue a key caveat. When dealing with per diem fines, courts will only look at whether each individual fine is grossly disproportionate, not the sum total of the penalties.
Dami Hospitality, a small motel operating company, was contesting the $800,000-plus in fines the state levied after the company let its workers’ compensation insurance coverage lapse for long periods between 2006 and 2014. The company had already paid a settlement with the CDLE Division of Workers’ Compensation in 2006 over a previous lapse. But Dami had gone without the state-required insurance for two more stretches after that, including one lasting nearly four years.
When an employer in Colorado fails to maintain insurance coverage for its workers as required by the Workers’ Compensation Act, the DWC can issue a fine for each day of noncompliance. The fine amounts escalate over time from $250 to $500 a day.
It was in February 2014 when the DWC discovered Dami had let its coverage lapse again, and it sent notices to the company until Dami finally acquired coverage in July 2014. But following an investigation, the DWC imposed 1,698 per diem fines on Dami carrying a total penalty of $841,200.
Citing its small size, Dami requested leniency. The DWC offered a settlement of about half the aggregate penalty — $425,000. The company declined, arguing it was entitled to a smaller fine under the Eighth Amendment and that the state didn’t give it timely notice of its noncompliance with workers’ compensation requirements.
After Dami’s case went back and forth between the DWC and the Industrial Claim Appeals Office, the Court of Appeals took up Dami’s appeal. It sided with Dami that in holding that the Eighth Amendment’s protections under its Excessive Fines Clause do extend to corporations.
The DWC appealed, and the Colorado Supreme Court too would agree that corporations have Eighth Amendment protections, though it would use a different test for determining whether fines are excessive.
“The clause is a directive to the government not to impose excessive fines,” according to the opinion by Justice Melissa Hart. “It does not include any limitation on who merits protection from the imposition of excessive fines.”
In determining whether a fine is excessive, courts should analyze “whether it is grossly disproportional to the gravity of the subject offense” as well as the company’s ability to pay, according to the opinion. Instead of using the Associated Business Products test that the appeals court used, the Colorado Supreme Court applied the U.S. Supreme Court’s test from U.S. v. Bajakajian.
But the court also held that the gross proportionality test should apply to each per diem fine, not the aggregate amount of those fines. Doing otherwise, according to the opinion, “would actually incentivize employers to forego workers’ compensation coverage for as long as possible, hoping that the DWC would not notice until the fines had accrued for an extended period of time so that they could then argue that the fine for noncompliance was excessive.” The court remanded the case back down to the DWC with instructions to use the Bajakajian test.
Damian Arguello, founder of the Colorado Insurance Law Center, said that in his experience per diem penalties “are really rare,” let alone daily fines for allowing state-required insurance coverage to lapse. That aside, Colorado’s workers’ compensation insurance requirements for employers aren’t substantially different from other states, he added.
“These penalties are steep because they really want employers to carry this insurance,” Arguello said.
In a partial concurrence and dissent, Justice Carlos Samour agreed that corporations are protected by the excessive fines ban, but he took the view that the gross proportionality test should in this case apply to the total fine amount, not just the daily penalties. He noted that the director waited more than seven years before contacting Dami about the lapses and levied the massive fine retroactively.
“I nevertheless find it troubling that, under today’s decision, if the Director retroactively imposes a ‘staggeringly high-dollar aggregate’ fine simply because he delayed taking action to correct a potential violation, the employer’s only recourse is to argue that the daily fine amount is excessive,” Samour said.
– Doug Chartier