Monthly Archives: January 2013

PAY IF PAID, PAY WHEN PAID, PAY WHEN THE GENERAL FEELS LIKE IT?

“Pay if Paid” clauses impose the risk of an Owner’s nonpayment upon the subcontractor, at least with respect to that portion of the work.  For example, if the Owner approves, accepts and pays the general contractor for 70% of the payment application, but withholds 20% due to a claim that the installation of the tile in the rotunda was defective, (and then holds 10% for retainage), every subcontractor that performed work within the 70% that was approved is entitled to prompt payment.  The tile subcontractor is entitled to Notice that its work was not accepted, specific information as to the basis for the rejection, and the prime contractor must follow the notice provisions for rejecting the work as set forth in the parties’ subcontract.

That analysis is not difficult.  But what happens when the Owner does not reject the work, but the subcontractor is advised that the Owner has simply not paid the prime contractor, and accordingly, the prime asserts that it does not owe the subcontractor?  Is the “pay if paid” provision sufficient to deny prompt payment to the subcontractor?  ANSWER:  It depends, but I personally believe that it is very risky for a prime contractor to refuse payment to a subcontractor absent specific evidence that the Owner has reasonably rejected the subcontractor’s work directly related to the payment being withheld.

A “pay if paid” clause must be very specific to be enforceable.  Amelco v. Drake, 20 Wn. App. 899, 583 P.2d 648 (1978)(a “pay when paid” clause means that payment is still due within a reasonable period of time).  Specifically, the phrase “condition precedent” must be used.  However, the issue of whether “pay if paid” contract clauses are valid has not yet reached the Supreme Court of Washington.  In W. States Paving Co. v. Pease & Sons, Inc., 132 Wash. App. 1034 (2006) the issue came up, but the Court of Appeals declined to address it directly.

The cases so far reflect that “pay if paid” clause and “pay when paid” clause are two contract provisions that Washington courts view skeptically, and interpret narrowly.  The evidence of the following questions should be reviewed in determined the course of action each party is entitled to take:

1.  Is the contract payment clause clear, certain and unambiguous?  [If not, then the court can consider the entire context of the parties’ negotiations, and can interpret any uncertainty against the party that drafted the agreement — usually, the prime contractor.  This is known as the Berg rule].   In Washington, several statutes require prompt payment of construction work, including:

a.  RCW 60.04 — mechanic’s lien statutes.  There is a specific statute invalidating any contract clause that would prohibit assertion of mechanic’s lien claims in advance of those claims arising.  Thus, a “pay if paid” clause would appear to be in contravention of that statute for all contracts on private construction.  This assumes that the anticipated work would otherwise be lienable (permanent improvements to real property and structures upon real property).

b.  RCW 39.04.250  is the Washington State Prompt Payment Statute governing public work.  While it doesn’t specifically prohibit any particular contract clause, the public policy to encourage good contractors to continue working upon public projects is only furthered when such contractors can be assured of reasonably prompt payment.  Contract clauses that subvert that purpose should be (and are) viewed very skeptically by the courts.

c.  RCW 4.24.360 prohibits any  “no damages for delay” clause  eliminating claims for delayed performance in advance of that occurrence.  The prime contractor’s performance includes payment to the subcontractor(s).  Therefore, any construction clause that prevents the subcontractor from asserting claims for delayed payment would be void.

d.  Cases governing sureties as insurance companies in Washington have imposed attorney fees upon payment bond sureties that forced claimants to file litigation to obtain the benefits of the bond.  The attorney fees are called, “Olympic Steamship” fees.  Washington law requires prompt investigation of payment bond claims, and a prompt “pay– or deny and explain” approach to claims handling practices.  See, e.g., RCW 48.01.030.  Payment bonds are typically available only on public work projects or very large private projects in Washington state.  They stand in the place of mechanic’s lien rights, available on private work.

2.  Additionally, even if the contract language itself clearly and unambiguously places the risk on the subcontractor, one will want to consider whether the subcontractor agreed to the “pay if paid” clause prior to submitting its bid and having its bid accepted?  IF NOT, did the prime contractor offer any specific new consideration to support this change in the contract terms?  (Usually, contract change orders require the parties to exchange something new for the contractual amendment to be effective).

3.  Do other circumstances indicate a wrongful purpose in the withholding of payment?  If so, any litigation will involve the facts and evidence to support or oppose such claims, making the liklihood that the litigation will be more costly and protracted for the parties.  This takes the profit out of delayed payment for the contractor and gives the payment bond surety or the Owner facing mechanic’s liens reason to believe that it will be paying claims, and seeking recovery from the possibly insolvent prime contractor.  Prompt payment of the legitimate documented claim is usually the wiser course for every party above the claimant on the contracting chain.

 

 

WRONGFUL TERMINATION BASICS

1. Do you work for a public entity (the federal government, state government, local government, school district, hospital district, etc.)? If not, then:

2. Do you have a written employment agreement such as an offering letter, an actual contract, a collective bargaining agreement? If not, then:

3. Do you have an employee policy manual that actually indicates you have the right to certain procedures before being fired? (This is very rare, by the way).

IF NOT, then:

A. You are likely among the majority of Americans who have no “right” to continued employment.

B. This is true even if you have done an excellent job and have stellar performance evaluations and reviews.

C. The exception is if you have actual evidence that your termination was based upon a protected status. This is also fairly rare.

Review the facts before calling an attorney. Be honest with yourself. Termination from employment is difficult, disappointing, and financially crushing. However, an attorney will want the facts before meeting with you, and may require $100 to $250 just to meet and review your facts.

Review your payroll records. Ensure that you were properly paid, including prompt payment by the next payroll cycle for your final wages, and any benefits that you are entitled to be paid even after termination. (This often does not include vacation pay, sick pay, and other benefits except in special cases).

Cheaper counseling, to tell your story and get it off your chest, is available. Talk to a therapist (usually less expensive, often more effective in this situation).

If you remain convinced that your termination was wrongful, gather ALL of your documents. Write to your employer, and send your letter by certified mail, requesting a fully copy of your employment file (including any supervisor’s files). You also have the right to request a written reason for your termination. Keep a signed copy of your letter, and staple the green mailing receipt to it when you receive it back from the post office.

If you truly believe your termination was wrongful, and you believe it was discriminatory, IMMEDIATELY report your belief and the evidence supporting it to the EEOC or state HRC. Both have excellent websites.

After securing your administrative rights by filing your discrimination complaint, contact experienced employment counsel. Do not make a bad impression by calling before you have taken the above steps. The factual, direct, concise approach will be more compelling to your potential counsel.

Be honest concerning any problems with your case. If you had numerous warnings about being late, or absent, or with your performance…say so. Otherwise, you will simply waste your time and the attorney’s. This will not make your case impossible, but it is something that must be dealt with immediately. Your attorney cannot confront what s/he is unaware needs to be managed.

PROMPT PAYMENT ACT – PUBLIC WORKS CONSTRUCTION

All subcontractors in Washington state should be familiar with our “Prompt Payment Act,” below.

It grants the subcontractor a right to be paid within TEN DAYS of the prime contractor’s receipt of payment from the public body owner for that scope of work.

If not, both attorney fees and interest are conferred by this statute, even if the contract is silent on those rights.

Today, “pay if and when paid” clauses are abundant in public works contracts. If you have performed work on a public project, and your work has been accepted, use this statute in every demand letter.

Remember to copy the prime contractor’s surety. If they are from out of state, they may not know about this law.

Also, do not forget to file your payment bond claim with the public owner. After 30 days, you can file suit and have a second statutory basis to recover your attorney fees. This increases your legal team’s ability to negotiate from a position of strength, and to get full recovery for you should negotiation fail.
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39.04.250
Payments received on account of work performed by subcontractor — Disputed amounts — Remedies.

(1) When payment is received by a contractor or subcontractor for work performed on a public work, the contractor or subcontractor shall pay to any subcontractor not later than ten days after the receipt of the payment, amounts allowed the contractor on account of the work performed by the subcontractor, to the extent of each subcontractor’s interest therein.

(2) In the event of a good faith dispute over all or any portion of the amount due on a payment from the state or a municipality to the prime contractor, or from the prime contractor or subcontractor to a subcontractor, then the state or the municipality, or the prime contractor or subcontractor, may withhold no more than one hundred fifty percent of the disputed amount. Those not a party to a dispute are entitled to full and prompt payment of their portion of a draw, progress payment, final payment, or released retainage.

(3) In addition to all other remedies, any person from whom funds have been withheld in violation of this section shall be entitled to receive from the person wrongfully withholding the funds, for every month and portion thereof that payment including retainage is not made, interest at the highest rate allowed under RCW 19.52.025. In any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to costs of suit and reasonable attorneys’ fees.
[1992 c 223 § 5.]

LIENING FOR PROFESSIONAL SERVICES

Architects, engineers and others may provide services that are vital to a construction project.

Whether residential, commercial, industrial, or public works, the professional is entitled to secure payment for the services provided.

However, those services are often “invisible” to anyone monitoring the construction project.

Therefore, Washington law (RCW 60.04) requires that professionals file a pre-lien notice. The statutory mandate is quoted here:
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Every potential lien claimant providing professional services where no improvement as defined in RCW 60.04.011(5) (a) or (b) has been commenced, and the professional services provided are not visible from an inspection of the real property may record in the real property records of the county where the property is located a notice which shall contain the professional service provider’s name, address, telephone number, legal description of the property, the owner or reputed owner’s name, and the general nature of the professional services provided. If such notice is not recorded, the lien claimed shall be subordinate to the interest of any subsequent mortgagee and invalid as to the interest of any subsequent purchaser if the mortgagee or purchaser acts in good faith and for a valuable consideration acquires an interest in the property prior to the commencement of an improvement as defined in RCW 60.04.011(5) (a) or (b) without notice of the professional services being provided.
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This is a more burdensome requirement than notices required of material suppliers and others, who simply need to mail their pre-lien notices to the owner and general contractor.

If you have questions about this, please do not hesitate to contact us.

PRIVATE MECHANIC’S LIEN BASICS

Be aware that the RIGHT to file a mechanic’s lien must be secured, in some cases, BEFORE you begin the work.

The law of mechanic’s liens is different in every state. DO NOT rely on forms, advice, or internet posts relating to mechanic’s liens that are not specific to the state in which you performed the project.

Residential projects for four (4) or fewer homes / units, require a “Notice to Owner” – RCW 18.27, and at http://www.lni.wa.gov.

Commercial projects for less than $50,000, may also require pre-lien notices.

This is a SEPARATE requirement from the mechanic’s lien statutory notice requirements found at RCW 60.04.

Be safe. Send out both the RCW 60.04 and the RCW 18.27 pre-lien notices on every project. It is good business, not a comment on your customers’ integrity. Arguing about whether notice was required in court and through attorneys is expensive.

IF YOU WISH TO FILE YOUR OWN LIENS, AND YOU HAVE SENT ANY REQUIRED NOTICES:

1. Review RCW 60.04 at http://www.leg.wa.gov. Then find the lien form on http://www.lni.wa.gov

2. Sign and date the claim under penalty of perjury before a notary.

3. Lien only for work that is a permanent improvement to the property — not cleaning, mowing, advertising, etc. Separate property parcels require separate liens.

4. File the lien(s) within 90 days of your last work ON EACH SITE (removing the job trailer or tools doesn’t count).

5. Send the lien by CERTIFIED MAIL to the property owner, general contractor (if that isn’t you), and any financing bank for the construction project of which you are aware. You must do this within 14 days of filing your claim, or you lose the right to claim attorney fees.

6. Public works projects have a different form and different requirements. You must file your lien on the retainage and/or payment bond claim within 30 / 45 days after the project is closed and accepted. Contact the owner to find out if the project has closed. Look on the L&I website (URL above) under “prevailing wage” to see if any affidavits have been filed. If it closed more than 30 days ago, you are left with only a private lawsuit against the party with whom you contracted –an entity that may or may not be solvent.

7. On private work, you must file suit within 8 months of filing your lien. On public work, you must file suit within 4 months of filing your lien claim / bond claim.

*Mechanic’s liens can be tricky, and the above basics are exactly that — very basic. But many contractors routinely file their own mechanic’s liens.

You may want to have an attorney walk through the first one with you, then update your notices and forms on your own computer, and take it from there.

Lien and bond claims are the best protection for contractors performing work in a complicated financial construction industry. When you do the work, you deserve to be paid. Protect your rights!

Independent Contracting Guidelines

Most people know that there is a distinction between becoming an employee and becoming engaged as an independent contractor. When the lines are not clear, problems arise. The distinction matters with:

*taxes
*insurance
*overtime pay
*liability
*statutory penalties for failure to pay properly
*attorney’s fees in litigation

It is VERY important to be clear about each of these issues at the outset of a relationship. With mandatory health insurance becoming a requirement for large employers, the temptation is strong to convert traditional employees into independent contractors. The temptation should be carefully scrutinized, and usually, avoided.

A review of Washington law is available at http://www.lni.wa.gov (workplace rights). The federal equivalent is found at: http://www.dol.gov.

The “old” rule was governed primarily by who had the right to control the manner, means, and methods of the work. The more control that was exerted by the party paying for the service, the more that relationship looked like traditional employment and less like an independent contractor relationship.

However, savvy employers seeking to avoid payroll taxes, liability for accidents involving employees, insurance costs and higher wages for overtime drafted contracts that, on paper, gave the service provider the look of an independent contractor. They created:

*Contracts
*Invoices
*Business entities

However, the ability to earn more money was governed solely by the ability to work more hours, and only if the employer deemed those hours necessary and available.

Today, courts follow the “economic realities” test. The inquiry focuses on whether one company is the sole source of an individual’s income. If so, the economic reality is that this individual does not really function independently.

The existence of a written agreement calling the relationship one of independent contractor does not change the economic realities. Nor would creating invoices instead of time cards. Nor would absence of hours worked, pay rate, or taxes on a check stub convert the payment into one for contract instead of an employee paycheck.

Accordingly, when faced with your own decision to hire or be hired as an independent contractor, ask: (1) What is the purpose of the arrangement? (2) Would a written contract really matter given the new economic realities test? (3) Does the service provider have other customers or accounts? (4) Is this to be a lengthy relationship? (5) Is there a better way to account for and deal with issues of taxes, insurance, liability, overtime and scheduling?

Care should be taken to consult with a legal professional that has a strong employment background before proceeding.

5 TIPS FOR KEEPING LEGAL FEES REASONABLE

1. Arrive on time for every appointment. Stay focused on the purpose of the meeting. Avoid the temptation to argue your case to your own attorney, or to belittle the other side.
2. Organize your documents before providing them to the attorney. Provide ALL of your documents, and do not destroy any or hold them back from your attorney. What you view as harmful to your case, or irrelevant, may actually contain very helpful and useful information. Even if not, it is legally and ethically mandatory to provide all non-privileged documents to the other side promptly upon their request for them (if you are already in litigation).
3. Make a list of all witnesses or “players” in your case that includes their full name, and job title or “role” in the cast of characters. Full contact information, including work phone, cell phone, and home phone along with a physical address and a brief description of what you believe their involvement in your case is or may be. Give that to your attorney as soon as possible.
4. Construct a chronology (time line) of important or significant events in your case. This should be easier once your documents are organized. Start with the earliest event, and do it in a table format. If there is a document that relates to that event, you could make index tabs and place a copy of that document behind the tab for the same event. Give this to your attorney as soon as you can. Example:

1) January 16, 2011. Hired to work on project by Felicia Jones. [Tab 1 – contract dated Jan. 16, 2011].
2) February 3, 2011. Met Vice-President of general contractor. [Tab 2 – email confirming meeting date and place].

5. Finally, do not call or email your attorney daily. If you are not receiving status reports, copies of correspondence, emails, or pleadings, then a call is in order on a weekly or bi-weekly basis. It is cheaper to ask that you be kept informed of events in your case then to call when nothing is happening. Sometimnes, the law requires specific periods be given to the other side. An example is that the other side has 30 days in most cases to respond to your attorney’s written discovery requests. The other side has two weeks or so to respond to a motion for summary judgment. Your attorney will seldom have the right to rush these legally-imposed time frames.

Americans with Disabilities Act – Allergies Unlikely to Support Claim

Q:  I have been suffering severe migraine headaches and other symptoms for the last year or so.  My doctor and I have slowly figured out that it is a perfume allergy triggered by my work environment.  My sister advises me that I can demand that my employer accommodate my severe allergies as a disability under the Americans with Disabilities Act (ADA).  My husband found several articles on the Internet indicating to me that this information is correct.  However, I demanded that my employer insist on a scent-free workplace, and they have refused to do anything.  Now what should I do?  If I quit, can I still file a claim under the ADA?  Can I collect unemployment?

A:  By:  Saphronia Young

In my opinion, you do not have a claim under the Americans with Disabilities Act.  Although this federal law was amended in 2008 to make filing claims a bit easier, a claimant still must prove that the condition or disability substantially impairs a major life activity.  Several published federal cases have held that allergies do not constitute a disability.

You also need to know whether your employer would even be covered by this federal law.  This will depend upon how many employees work for the company, the dollar volume of business, and whether the company engages in interstate commerce.

However, Washington state law is more generous than federal law.  For Washington, the Washington Law Against Discrimination protects more employees in more situations than does the federal law, and more employers come within its coverage.  Additional details about your situation would be needed to analyze whether you have any basis to demand accommodation under State law.

As for quitting and receiving unemployment, there are some circumstances where an employee can still receive unemployment after quitting, but it is a gamble.  The employee must claim that the employer’s actions constituted a “constructive discharge.”  Some situations in which this has been found would be where: (a) the employer’s payroll checks were returned for insufficient funds; (b) the employer failed or refused to pay the correct prevailing wage (on public works projects) or minimum wage (for private work); (c) the employer otherwise behaved in a manner that was so unreasonable that the employee could not be expected to remain (such as severe and ongoing sexual harassment).  Failure to accommodate an employee’s sensitivity to fragrance may very well NOT meet the test.

The problem with quitting a position and hoping to have unemployment is that the employer will probably contest unemployment.  Then, an administrative hearing examiner would weigh the evidence and decide if a reasonable person would have behaved as the quitting employee did.  Many of our clients have been surprised to learn that what seemed obvious to them…that a person could not possibly work for this employer under these circumstances…was not nearly as obvious to the hearing examiner.  All “quits” should be undertaken with extreme caution, if the employee intends to rely upon unemployment during the transition to new work.

What is the solution?  Attempt to “self accommodate” the allergy by taking daily medications, ensuring that your non-work environment is allergen free, and even attempting to use a small, quiet, energy efficient air cleaner at work (you may need to obtain permission, where computers and other equipment could be impacted by additional electrical loads, however small).  There may even be some relief by using commercial sprays that eliminate odors from the air.  Again, ensure that such sprays would not adversely affect others in the office who may have asthma or other conditions.

Remember to document all conversations, emails, and communications with management that surround the issue.  Document all of your efforts through your own physician, medication, home environment, etc. to remain healthy.  Document all attempts to be the most productive employee that is possible.  Do not take company time to attempt your self-accommodation, if at all possible.  Document any accommodations that you observe being made for others, although one must be careful about assumptions based upon third-party observation.  Keep a policy of the employee policy manual, and ensure that you abide very strictly by its terms.  If the manual indicates a company attitude asserting that all efforts to ensure employee productivity, safety and comfort will be made, then you must ensure that you are complying with your obligations before then requesting your attorney to take action for the employer’s breach of such promises.

Finally, be aware that many materials found on the internet concerning legal issues are self-promotional marketing materials placed there by companies that charge law firms for advising that you “may have a claim.”

This summary is not intended to be legal advice. You should consult an attorney in regard to your particular situation.

McChrystal Needs Employment Law Primer

General Stanley McChrystal has gone from being the military savior of a nation to the disgraced poster-child for “lack of judgment” in a matter of months.  What went wrong?

Let me suggest that it is this:  Any employee worth her/his salt knows that the primary function of any job is to make the boss look good.  Can President Obama fire McChrystal for having made unflattering comments to a reporter?  In Washington state, the answer would be, “Yes.”  Even if those comments were made off the job site, after hours, and were merely McChrystal’s opinions?  Again, in Washington state, the answer would be “yes.”

Both employers and employees approach our firm with questions about where the line should be drawn between respecting an employee’s right to express opinions, make suggestions, and offer constructive criticism versus behavior that is negative, lowers morale, and is viewed as insubordination.  Uniformly, we advise clients (both employers and employees) as follows:

1.  It is the employee’s job to make the boss look good;

2.  Sometimes, the boss needs to be told difficult truths for the longer and larger objective of protecting the boss, and the company, from the boss’s own behavior;

3.  If the employee sincerely was advising the boss of difficult truths in order to serve the company’s larger goals and interests, the company should take into account that “slaying the messenger” is not always the smart thing to do, no matter how tempting.  HOWEVER, absent an illegal motive (such as racial, sexual, disability or other discrimination), bad management and poor business choices remain — largely — completely legal.

General McChrystal should have known what even most entry-level employees know:  you are expendable, and if you make your boss look bad, then your excellent job performance cannot alone save your job.  In this case, possibly cannot even save your career.

This summary is not intended to be legal advice. You should consult an attorney in regard to your particular situation.

Hiring a Contractor

Whoever you hire, make sure that you check them out at: www.lni.wa.gov

There is a lot of good information there about hiring contractors. Roofing and siding contractors have additional legal requirements, and that is because homeowners have had notoriously bad luck with fly-by-night outfits in those particular trades. They MUST enter into a written contract with you, whereas other trades can legally go forward on a verbal contract.

If you run the name in the L&I database, you will learn: (a) if their license is current; (b) if they have had any lawsuits filed against them — but be fair. Folks get sued all the time, and win at trial. So look for actual judgments, or payments by their bonding company, before deciding that you should or shouldn’t hire them.

The contractor should give you a document BEFORE they start, entitled: “Notice to Owner.” It is required under RCW 18.27. That document will advise you concerning liens, and what you can do to protect yourself against a lien filing on your property. If they don’t give you one, this is not necessarily an indication that they don’t do good work. It just means that maybe they don’t have a great lawyer (which may mean they haven’t had legal problems!). They can’t file a lien against your property if they don’t give you this notice, though (if the bid or contract is for more than $1,000). So…it isn’t necessarily a document you want to ASK for! [If you are a contractor reading this, and don’t know about this statute…it is relatively new, and it is separate from the notice requirements under RCW 60.04. You can email me or call me for a copy of the two separate notices and compare how they are very different].

However, if their license is not current, do not hire. They probably will not have a bond, that covers breach of contract. They may not have insurance, which covers accidents and negligence.

This summary is not intended to be legal advice. You should consult an attorney in regard to your particular situation.