Supreme Court to Hear TABOR Challenge to Family Leave Program

The Colorado Supreme Court announced on Monday it will hear a Grand Junction company's case alleging that the state's paid family and medical leave program violates the Taxpayer Bill of Rights. / Law Week file.

The Colorado Supreme Court announced Feb. 7 it will hear a TABOR challenge to the state’s new family and medical leave program, which voters approved by ballot measure in November 2020.

Chronos Builders, a Grand Junction-based home builder, alleges that the premiums employers will have to pay starting next year to fund a state-run family and medical leave insurance plan violate the state constitution. The premium amount is based on a percentage of each employee’s wages starting at 0.9% in 2023.

Under the Taxpayer Bill of Rights, changes to income tax laws must tax all taxable net income at one rate, without an added tax or surcharge. However, Chronos argues, the Family and Medical Leave Insurance Act taxes employers with fewer than 10 employees at a different rate than larger employers. Employers with 10 or more employees will be required to remit 100% of the premium to the state but may deduct up to half of the premium from the employee’s wages. Employers with fewer than 10 employees must remit 50% of the total premium amount for an employee, all of which may come from the employee’s wages.

Chronos sued the Colorado Department of Labor and Employment and Colorado Department of the Treasury in July. The company argued the premium violates TABOR because it amounts to an added tax or surcharge and doesn’t apply uniformly to all employers and employees. In its complaint, the company noted that it had eight employees and was looking to hire. It recently had more than 10 employees, according to the complaint, but “the increased premium for companies with ten or more employees has made Chronos hesitant to cross that threshold again.”

The CDLE Division of Family and Medical Leave Insurance moved to dismiss the lawsuit, arguing TABOR doesn’t apply because the family and medical leave law doesn’t make an income tax law change and the premium is a fee, not a tax. Denver District Court Chief Judge Michael Martinez agreed that TABOR was inapplicable and dismissed the case with prejudice in December.

In January, Chronos filed a notice of appeal with the Colorado Court of Appeals. The company and the division then filed a joint petition on Feb. 4 asking the Colorado Supreme Court to take up the case directly. In the petition, they agree the case “has imperative public importance” but give different reasons for why it’s important.

Chronos says it’s important because the family and medical leave program will affect many Colorado employees and employers, who are expected to pay $1.2 billion in premiums in the program’s first year alone. The division says the case is important because it concerns the constitutionality of a voter approved program to provide a safety net for workers. “This is especially important given the public health concerns of our time,” the petition states.

The parties agree the matter needs to be resolved quickly. The petition notes that the division must start collecting premiums by Jan. 1, 2023 and must start processing claims a year later. The division needs $57 million in funding to build a premium and benefits system and cover other startup costs. It had hoped to secure financing by November 2021, the petition states, but banks have been unwilling to lend to the division while litigation is pending. And from an employer perspective, the “impending deadline will require Colorado businesses to perform substantial financial and operational planning,” the petition states.

Nearly 58% of Colorado voters cast their 2020 ballots in favor of the family and medical leave program. The initiative’s success with voters followed years of failure at the state capitol, where Democratic lawmakers had pushed for a paid leave program. The law allows employers to opt for a private plan, rather than the state plan, if the private plan provides all the same rights, protections and benefits as the state plan.

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