All small businesses go through their share of rough patches.

But for the Trep Cafe, a nonprofit student-run coffee shop at the University of Colorado, a seemingly small misstep led to hundreds of thousands of dollars in state fines that ultimately put the shop out of business.

The Trep Cafe, located on the second floor of the Leeds School of Business Koelbel Building, was notified in April of $224,200 in fines from the Colorado Department of Labor and Employment for not having workers’ compensation insurance for several months in 2011, 2015 and 2016.

The fine was so high because it was Trep Cafe’s second violation of workers’ compensation insurance rules.

The cafe, which takes its name from the word entrepreneur, also went without insurance coverage for employees who get injured on the job for several months in 2005, 2006, 2007 and 2008. The cafe was fined an undisclosed amount in 2009 and managers at the time promised that the lapse in coverage wouldn’t happen again.

When they learned about the most recent violation, the cafe’s managers sprang into action and got insurance the next day. They attempted to appeal the fine over the summer but learned in an Aug. 5 letter that they still had to pay the fine.

“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,” according to the letter from the Colorado Department of Labor and Employment, which was provided to the Daily Camera by the university.

The managers’ attempts to explain that the business was managed by undergraduate students also went nowhere.

“The statute does not provide exceptions for organizations which are ‘student-operated’ or for non-profit organizations,” according to the letter.

The cafe announced in a Facebook post this summer that it would be shutting down for good. For the last 10 years, undergraduate students ran the coffee shop, which also had a catering arm, holding positions such as finance manager, human resources manager and operations manager.

“A student-run business, while great in theory, comes with many complications and difficulties,” according to the July 26 post. “Due to miscommunications and frequent transitions in management throughout Trep’s existence, certain elements of running a small business were neglected and are coming to light now.”

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.

Cate Caldwell, a CU senior who started working at the cafe as a barista two years ago and was later promoted to operations manager, said the Trep Cafe was a staple of the Leeds community.

“Everyone who ever worked there and still worked there has a lot of pride in being what we call a Trep girl,” she said. “It did not feel like a job. All the employees were like my family. All the managers were so heavily invested.”

‘Liability for Leeds’

The cafe was founded in 2005 as a nonprofit, separate from the business school. According to the Secretary of State’s office, the nonprofit was registered at 995 Regent Drive, the address for the business school. The registered agent for Trep Cafe was always a business school employee.

The goal of the cafe was to give CU students hands-on experience running a small business. All the profits from the Trep Cafe were turned into scholarships for business students.

Caldwell said the fact that the cafe was run by students, who cycled out when they graduated, led to a lapse in communication about workers’ compensation insurance.

She said the managers running the cafe this year weren’t even CU students yet the first time Trep Cafe was fined for not having insurance.

This most recent fine alone was enough to put the cafe out of business, but student managers also said they were told that Leeds wasn’t interested in hosting Trep anymore.

“Basically there are just a string of incidents from Trep’s past that added up to CU’s legal advisers saying that 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.

Caldwell said the student managers of Trep are currently paying any outstanding bills. She said they plan to send whatever money is leftover to the state, but that it won’t even come close to covering the fine.

“I don’t know where it goes from there,” she said.

Though Trep Cafe was technically a separate nonprofit, campus spokesman Ryan Huff said the university will be working with the labor department to determine liability in the case.

Paul Tauriello, director of the Colorado Division of Workers’ Compensation, said he couldn’t give out information related to a specific company.

Generally speaking, because of the way the law is written, his office doesn’t have any room to negotiate fines for a business’s second offense. Once a charge leaves his office, however, it goes to the state’s collection office, which has more room to negotiate the fines or consider settlements.

The law is strict, in part because there’s no safety net for workers who are injured on the job while working for an employer that doesn’t have insurance.

“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 whatever else was going on. Oftentimes we find companies that are having trouble getting workers’ compensation insurance are not paying other bills.”

‘Let a great thing die’

In 2005, the university gave Trep Cafe a loan for $34,000 to cover the costs of some equipment. The nonprofit finished paying back the loan with interest in 2014. The university charged Trep Cafe $139.50 a month to rent the space in Koelbel Building.

Huff said the Trep Cafe provided valuable lessons to students “on both regulatory matters and the financial risk that comes with running a business.”

“In hindsight, it could’ve been better managed both as far as faculty mentoring and the students who were running it,” Huff said.

Though she wasn’t involved when the cafe was founded, Caldwell said she heard there used to be much more faculty oversight over the business. As faculty members retired, however, “everyone just assumed that the students were taking care of everything.”

“It definitely felt good at the time to be so responsible for something and not have anyone watching your decisions, but had we had more advisement, then maybe Trep would still be here,” Caldwell said.

Erick Mueller, faculty director for entrepreneurial initiatives in the Deming Center for Entrepreneurship, became an adviser for the cafe about a year ago.

He said the cafe’s failure was a good learning experience for students.

“The reality is that nine out of 10 startups go out of business,” Mueller said. “While this is a really hard lesson for our students, it’s a very real lesson.”

But Nicholas Kerner, one of the Trep Cafe’s founders, said he believes the university should have provided more oversight for the nonprofit. He said there used to be a board of community members and Leeds faculty to oversee the cafe.

“The university let a great thing die,” said Kerner. “It was such a great teaching tool and such a great marketing tool for the Leeds school to stand out from other business schools.”

Sarah Kuta: 303-473-1106, kutas@dailycamera.com or twitter.com/sarahkuta