On February 20, 2025, in 303 Beauty Bar LLC v. Division of Labor Standards and Statistics, the Colorado Court of Appeals addressed the legality of employer wage deductions for business expenses. The Court of Appeals held that the salon improperly deducted business expenses from employees’ pay, in violation of the Colorado Wage Act.
Case Background: Wage Dispute and Unlawful Deductions by Employer
303 Beauty Bar LLC employed a cosmetologist, compensating her with wages and commissions based on her sales. The salon and cosmetologist entered into a written agreement allowing the salon to deduct fees from her pay for hair care products used in providing services to clients. These wage deductions varied over the years, including a flat fee per service and a percentage of wages.
The cosmetologist filed a Colorado wage complaint with the Colorado Department of Labor and Employment’s Division of Labor Standards and Statistics (“CDLE”), asserting that the salon failed to pay all earned wages due to improper product fee deductions. The CDLE agreed and ordered the salon to pay $7,500 in unpaid wages and $22,500 in penalties for willful violations of the Colorado Wage Act. An administrative law judge (ALJ) upheld the finding of improper deductions but reduced the penalties on a finding that the salon had not acted willfully. A Colorado district court affirmed the ALJ’s decision.
Court’s Legal Reasoning: Protecting Employee Wage Rights in Colorado
The central legal question was whether the salon’s deductions for product fees were permissible under CRS § 8-4-105(1)(b) of the Colorado Wage Act, which allows deductions for “loans, advances, goods or services, and equipment or property provided by an employer to an employee pursuant to a written agreement,” provided such deductions are enforceable and not in violation of law.
The Court of Appeals held that the wage deductions were impermissible, reasoning that:
- The hair care products were primarily for the salon’s business benefit, as they were necessary for providing services to clients.
- Allowing such deductions would effectively shift the cost of doing business onto the employee, contrary to the purpose of the Wage Act.
- Even with a written agreement, deductions that violate the Colorado Wage Act are unenforceable under § 8-4-121, which voids any agreement waiving or modifying an employee’s rights in violation of the Act.
The court emphasized that Colorado employers cannot deduct costs that are part of their general overhead or necessary for the employee to perform their job duties.
What Colorado Workers and Employers Should Know About Wage Law Compliance
This decision reinforces the principle that employers in Colorado must bear the costs of doing business and cannot transfer these expenses to employees through wage deductions, even with a written agreement.
For employees, this case highlights how the Colorado Wage Act protects them from losing pay to deductions that should be covered by their employer. For employers, it’s a warning: even mutually agreed deductions can lead to wage claims, CDLE penalties, and potentially civil litigation if they are inconsistent with Colorado law.
Preventing and Responding to Illegal Wage Deductions in Colorado
The 303 Beauty Bar case highlights that employers may make deductions from employees earned compensation only under limited circumstances, as set forth in the Colorado Wage Act. Impermissible deductions may not only lead to liability for underpaid wages, but may also lead to the imposition of automatic and willfulness penalties that may double or even triple the employee’s liability.
If you’re an employee who believes your pay has been improperly reduced, or an employer unsure if your payroll practices comply with the Colorado Wage Act, consult with one of our knowledgeable Colorado wage attorneys here at Baird Quinn. We can help you protect your rights or avoid costly mistakes.