Managing University Relationships: The Balance Between Oversight and Autonomy
$224,000 is a lot of money.
You could buy four Porsche Boxsters, five years of college tuition at Harvard University, and 173,643 McDonald’s McChicken nuggets priced at $1.29 each.
You could also pay off the whopping $224,000 fine that Trep Cafe had to pay to the Colorado Department of Labor and Employment.
Trep Cafe, a completely student-run coffee shop previously located at the University of Colorado Boulder, was founded in 2005 as a separate entity from the university and was created to give CU Boulder students a different learning experience in addition to their business school curriculum. All employees were from the business school, and any form of profits became scholarships for other business school students. However, in 2016 the cafe permanently closed due to $224,000 in-state labor fines leveled on the company by the state labor department. A “seemingly small misstep” resulted in this massive number of fines that accumulated for the business and ultimately led to its closure.
Essentially, the fine was remarkably high due to the business failing to pay workers’ compensation insurance for multiple years. Certain businesses employing individuals to conduct certain tasks while at work must have some form of insurance. This protects the company and the employee in case of an injury while working for the company. Most student-run businesses must have some form of workers’ compensation insurance.
When the business was first started, employees were without coverage for several months of the first year and then on multiple occasions throughout the next year until 2008. The company was then fined an undisclosed amount in 2009, which prompted student managers to obtain insurance the very next day and promise this would never occur again. However, due to the high turnover in student-run businesses, managers’ promises have a short shelf life. Although the previous management knew this matter was of extreme importance, due to the chaotic nature of the business, it is easy to not properly document important events such as this.
In the summer of 2016, the business was notified once again that it would be forced to pay state fines for not having workers’ compensation insurance for several months in 2011, 2015, and 2016. Because this was the second offense, the resulting fine was much larger, and the Trep Cafe was forced to pay $224,200 in fines to the Colorado Department of Labor and Employment.
As news carried about the store’s closure, the Colorado Department of Labor and Employment issued some statements about the store’s operation in a letter to the store: “While the director appreciates the steps respondent is taking to ensure that it remains compliant, it is unclear why respondent did not make these changes sooner, as respondent was fined previously for failing to maintain workers’ compensation insurance. The statute does not provide exceptions for organizations that are ‘student-operated’ or for nonprofit organizations.”
After the second sanction, the store announced it would be closing that summer for good. It had operated for over 10 years, and undergraduate students had run different segments of the company, such as the finance, HR, and purchasing roles for its entire operational life.
The unfortunate events surrounding the closure of Trep Cafe lead to a very important lesson in institutional memory and adhering to business law and policies. Because of the frequent turnover, small but important business aspects can become neglected and result in massive repercussions for the business.
Cate Caldwell, a barista at Trep Cafe for over two years, reiterated the complexity of student transitions and the lapse of communication about the insurance. She said the managers running the cafe the year it was fined the second time were not even CU students when the Trep Cafe was first fined for not having insurance.
David Ikenberry, dean of the business school, wrote in an email that the college is searching for a replacement vendor to serve on-site coffee and snacks. He said he hoped to find a vendor that would hire CU students and fund student scholarships. However, the university was adamant about not implementing any future student-run ventures.
Caldwell claims this refusal was due to previous negative encounters the university had with the student-operated business. “Basically there are just a string of incidents from Trep’s past that added up to CU’s legal advisers saying we were a liability for Leeds, even though we were not fully affiliated with Leeds, that they needed to separate themselves further to avoid legal problems,” Caldwell said.
Trep Cafe sent all available funds to the collection agency. However, it was nowhere near the full amount of the fine owed, according to Caldwell. Even though Trep Cafe was technically a separate nonprofit, campus representatives ended up collaborating with the labor department to determine liability in the fine. No further information was provided about the final details of the case. However, it is important to note that the university may still have been partially liable for part or most of the remaining fine that Trep Cafe owed.
Paul Tauriello, director of the Colorado Division of Workers’ Compensation, explained that because of how the law is written, there isn’t much room for the business to negotiate out of a second offense. The law is strict in order to protect workers and ensure they will be compensated for any potential injury.
“There’s nobody on my staff that is personally invested in destroying a business although some might see it that way,” Tauriello said. “I take it with a big grain of salt when somebody says, even before their issue is final, ‘They put me out of business.’ I would look very closely at any company that says that and ask them what else was going on.”
Tauriello has an excellent point here. If the company wants to learn and gain real-world business experience for students, they need to treat the business according to the same laws. This is a harsh reality that the students were forced to face. Erick Mueller, faculty director for entrepreneurial initiatives in the Deming Center for Entrepreneurship, said the cafe’s failure was a good learning experience for students. “The reality is that nine out of ten startups go out of business,” Mueller said. “While this is a really hard lesson for our students, it’s a very real lesson.”
However, as a student manager, it is not easy to balance all of these priorities. Trep Cafe certainly found it challenging, and ultimately it resulted in its business closing due to crucial errors. For an SRB to succeed for years to come, students need to properly handle all aspects of the business, because as the real world taught them, there’s no easy way out.
