Posts Tagged ‘contractor’

PA Workplace Misclassification Act

In March 2016 the Pennsylvania Department of Labor and Industry produced a white paper report on the “Administration and Enforcement of the Construction Workplace Misclassification Act in 2015.” Under the Act, the DLI investigates and penalizes construction companies that misclassify employees as independent contractors.

Here’s a quick snapshot from the Report:

pic for 4-29-16 blog

But in 2013, under similar circumstances, the Pennsylvania Commonwealth Court held that the general contractor’s payments to the subcontractor did not afford protection, and the Prompt Payment Act did not shield the contractor and the surety from liability. Berks Products Corp. v. Arch Ins. Co., 72 A.3d 315.

Those are the cases of Workplace Misclassification that the Bureau of Labor Law Compliance has investigated in the past five years. Notably, there were more investigations in 2015 than the previous four years combined. Also, the investigations netted $217,450 in penalties, which is a 1,612% increase from the 2014 penalty amount. In fact, the Bureau only collected $12,700 in penalties in 2014. Point being, DLI is emphasizing the enforcement of this Act, and all construction companies should take a very close look at how they supply manpower to their projects.

The Workplace Misclassification Act applies to all construction companies working on all types of projects—public, private, residential, or commercial. The Act sets forth a checklist of considerations that are scrutinized when determining if a laborer on a project is actually an independent contractor. If the laborer is misclassified as an independent contractor—when in fact he is really an employee—DLI will levy a fine. In some instances, DLI has the authority to seek criminal prosecutions.

To comply with the Act, every independent contractor must have a written contract. Further, every laborer should be analyzed with consideration of the numerous other requirements under the Act. DLI generally receives its leads from (1) complaints filed by laborers; (2) findings made during construction site visits; and (3) referrals from other government agencies, particularly the Office of Unemployment Compensation Tax Services. To avoid penalties, it is best to review your laborers and seek legal advice as necessary.

What’s Happening Now . . .

11.2 % Increase

  • Increase in construction spending for first two months of year, comparing 2015 to 2016.
  • Construction spending for January & February 2015 was $141.3 billion.
  • Construction spending for January & February 2016 was $157.1 billion.

Source: U.S. Census Bureau News, February 2016 Construction at $1,144.0 Billion Annual Rate, U.S. Dept. of Commerce (Apr. 1, 2016).

Newsletter written by Jeffrey C. Bright, Esq. , an attorney licensed in Pennsylvania and Maryland. For more information, contact an attorney at Harmon & Davies, P.C.


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Trumbull and Berks Products Payment Bonds

Pennsylvania’s Prompt Payment Act states that “once a contractor has made payment to the subcontractor . . . claims for payment against the contractor or the contractor’s surety by parties owed payment from the subcontractor . . . shall be barred.” The Contractor and Subcontractor Payment Act provides similar (but slightly different) language. This is referred to as the “safe harbor” clause.

In 2001, to the pleasure of the bonding industry, the Pennsylvania Commonwealth Court opined that the general contractor’s payments to the subcontractor barred a claim by the sub-subcontractor on the payment bond. Trumbull Corp. v. Boss Const. Inc., 768 A.2d 368. The court held that the Prompt Payment Act’s language absolved both the contractor and the surety of liability. Even though the subcontractor failed to pay a sub-subcontractor, the claim on the bond was dismissed.

But in 2013, under similar circumstances, the Pennsylvania Commonwealth Court held that the general contractor’s payments to the subcontractor did not afford protection, and the Prompt Payment Act did not shield the contractor and the surety from liability. Berks Products Corp. v. Arch Ins. Co., 72 A.3d 315.

The 2013 Berks Products case was widely seen as abrogating the Trumbull decision, and taking away the “safe harbor” provided by the Prompt Payment Act. But a close reading of Berks Products indicates that the Prompt Payment Act’s barring of claims will still be enforced—so long as the bond language is carefully written:

[T]he payment bond drafted by [Surety] . . . provided that the bond shall remain in full force and effect until such time as both [General Contractor] and any subcontractor . . . make full payment for any labor and/or materials . . . .

* * *

[Sub-subcontractor] was entitled to seek recovery under the Bond Law, and the “safe harbor” provision would generally be applicable to [General Contractor]. However, an issue arose as to whether the language of the payment bond . . . waived this provision.

Point being: the Prompt Payment Act’s “safe harbor” clause is still effective. But the bond should be written carefully, to reflect that payment from the Contractor will extinguish the bond obligations. If the bond states that payment by the Contractor and all Subcontractors will extinguish the bond, then, the court might treat it as a Berks Products bond, and hold that it waived the “safe harbor” provision.

When issues pertaining to payment bonds arise, it is best to seek legal advice early and often.


What’s Happening Now . . .

Residential Construction

  • Indicators of new residential construction were improved, comparing Feb. 2016 to Feb. 2015.
  • Building Permits: Feb. 2016 is 6.4% above Feb. 2015.
  • Housing Starts: Feb. 2016 is approx. 30.9% above Feb. 2015.
  • Housing Completions: Feb. 2016 is 17.5% improvement.

Source: U.S. Census Bureau News, New Residential Construction in February 2016, U.S. Dept. of Housing (Mar. 16, 2016).

Newsletter written by Jeffrey C. Bright, Esq. , an attorney licensed in Pennsylvania and Maryland. For more information, contact an attorney at Harmon & Davies, P.C.

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Legal Punchlist November 2015

Legal Punchlist Newsletter (Nov. 2015)

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Legal Punchlist Newsletter

Legal Punchlist Newsletter (Oct. 2015)




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Legal Punchlist Newsletter

Click to read our Legal Punchlist Newsletter4-30-15 Legal Punchlist Newsletter (Apr. 2015)



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The U.S. District Court for the Eastern District of Virginia recently held that a laborer hired by a subcontractor cannot sue the construction project’s general contractor for same-sex harassment. In the lawsuit, Matthew Allen alleged that an unidentified man from another company made sexual advances towards him. After reporting the incident to the general contractor, D.A. Foster Company, Inc., the man who allegedly made the advances was ejected from the worksite. Allen alleged, however, that he was continually harassed by coworkers who had heard about the incident. Allen filed suit against the general contractor, and Barnes Excavating, the subcontractor, alleging, among other counts, discrimination, hostile work environment, retaliation, and retaliatory termination in violation of Title VII of the Civil Rights Act.

The court held that claims against an employer under Title VII may only be brought by an employee, not an independent contractor, against an employer. To determine whether the claimant is an employee or independent contractor, courts weigh several factors of the conventional master-servant relationship. While no one factor is determinative, several factors are considered, including: the workers skill required; who provides the tools required; location of the work; duration of the relationship; the hiring party’s right to assign additional projects to the hired party; the extent of the hired party’s discretion over working time and hours; the method of payment; and whether the work is part of the regular business activities of the hiring party.

In the case at hand, D.A. Foster was the general contractor who subcontracted excavating work to Barnes. Barnes directly hired Allen as a laborer and assigned Allen to work on the project supervised by D.A. Foster. Although D.A. Foster provided some guidance and training for the project, and the company does regularly perform work in this industry, the level of control over Allen did not rise to the extent necessary to establish an employee-employer relationship. The court held that, with respect to D.A. Foster, Allen was an independent contractor. Most tools were provided to Allen by Barnes Excavating, not Foster. Allen worked under the direct supervision of and was paid by Barnes. The court found that Allen could not reasonably believe that he was an employee of D.A. Foster. Thus, the court granted summary judgment in favor of D.A. Foster.

While in the case at hand the general contractor was not subject to liability on the claim, employers still need to be weary of the current trend to try towards expanding the definition of who is the “employer.” Particular attention should continue to be paid to the IRS independent contractor test and, in particular, the most recent movement of the NLRB to redefine joint-employer status. The consequences of misclassifying an employee as an independent contractor can be significant. The case should also serve as a reminder to all contractors that they need to take steps to make sure that their jobsites are free from any kind of harassment.

This article is authored by attorney Lori L. Buntman and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice.  Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.


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Legal Punchlist Newsletter

Click to read our Newsletter 4-1-15 Legal Punchlist Newsletter (Mar. 2015)


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New Mechanics’ Lien Law Amendments

Last month, the General Assembly amended the Pennsylvania Mechanics’ Lien Law. The amendments will go into effect on September 7, 2014, which is 60 days after the passage date.

New Homeowner Protections. It has long been the law in Pennsylvania that subcontractors could lien property, even if the owner already made payment to the general contractor for the work. See Fahringer Corp. v. Newman, 1 Pa. D.&C.3d 115, 118 (C.P. Somerset Co. 1976). Under this old law, because an owner’s payment to a general contractor is not a defense to a lien, an owner could ultimately pay twice for the same work.

The revised Mechanics’ Lien Law changes this. Now, a subcontractor cannot lien residential property if the owner paid the full contract price to the general contractor. 49 P.S. § 1301 (effective September 7, 2014).

This new law is only applicable to residential properties. Regardless of this new protection, it is still advisable for owners to require lien waivers and diligent payment-tracking processes. For subcontractors, it is now very important to immediately address any delinquent payment issues.

New Lender Protections. The lending and title insurance industries was quite anxious after the 2012 Pennsylvania Superior Court decision, Commerce Bank v. Kessler, 46 A.3d 724. In Commerce Bank, the owner contracted to build a luxury home. The house was fully constructed; however, the owner failed to make payments to the homebuilder, and also failed to make payments on the mortgage. Both the bank and the homebuilder obtained default judgments. The bank believed its mortgage had priority lien rights against the property, based upon a provision in the Mechanics’ Lien Law.

The appellate court disagreed. It ruled that the mechanic’s lien took priority lien status over the mortgage. The court reasoned that the Mechanics’ Lien Law only affords priority lien status to open-end mortgages if the loan is used solely for “erection, construction, alteration, or repair.” As is typical, the loan in Commerce Bank included disbursements for tax claims, closing costs, pay-off of a prior mortgage, and other liens. Because of these other disbursements, the mortgage did not receive priority status.

Banks need not worry anymore. The amended Mechanics’ Lien Law provides that open-end mortgages take priority so long as 60% of the loan proceeds, at a minimum, go towards construction costs. The amendment also broadens the definition of construction costs to include common items paid by the loan, such as taxes, surveys, attorney’s fees, engineering fees, architectural fees, satisfaction of old mortgages, etc.

Entering contracts, getting paid, making payments, and litigating lien rights can be complicated. Owners, contractors, subcontractors, and lenders should double-check their contracts and seek proper legal advice.

What’s Happening Now . . .


Construction Industry Unemployment Rate (unadjusted).

  • The construction industry added 22,000 jobs last month. This is the lowest unemployment rate in the construction industry since November 2007.

Source: Bureau of Labor Statistics, Series ID LNU04032231.  

* This Blog is not legal advice. Unlike this Blog, legal advice is specifically tailored to the facts, law, and objectives unique to each circumstance. To join or remove yourself from the subscription list, email or call 717-291-2236.


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For those of you wondering, it is not okay to push a union official down the stairs of your jobsite trailer, which is precisely what a superintendent working for an Arizona building contractor did.  In the matter of Norquay Construction, Inc., the National Labor Relations Board held that such an assault interfered with the protection afforded to unions under the National Labor Relations Act (“NLRA”), which protection covers action taken in furtherance of enforcing or protecting area labor rights.  As a result of such interference, the National Labor Relations Board held the contractor liable to the assaulted union agent for lost pay and medical expenses resulting from the superintendent’s assault. 

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

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The Pennsylvania Field Guide for Construction Contract Review

There is no substitute for having a lawyer review your contract.  In fact, I encourage all contractors to have lawyers review their construction contracts.  However, I’ve practiced construction law long enough to know that doesn’t always happen.  Understanding this reality, I’ve prepared a general field guide of sorts to assist contractors with reviewing construction contracts when they “go it alone” against my recommendation.  I also note that this guide does not touch upon every contractual issue.  For example, I don’t elaborate upon insurance requirements or indemnification provisions, both of which require close review.

Here’s what contractors should look for:

 Scope of Work-Get the Wrinkles Ironed Out:   Examine whether the scope of work in your proposal and the scope of work as defined in the contract match-up.  Typically, the scope of work in the contract will be broader.  For example, the scope of work in the contract may require the contractor to perform the work set forth in the proposal and any necessary work “implied” by the drawings. If there is a conflict between what is set forth in your proposal and the scope of work in the contract, seek to eliminate the conflict.  Otherwise, the discrepancy could come back to haunt you.

Flow Down or Pass Through Clauses-Don’t Ignore ThisContractors/subcontractors need to understand what flow down/pass through clauses are.  Such clauses incorporate the terms of Owner/General Contractor agreement and bind the subcontractor to the general contractor to the same terms that the general contractor is bound to the owner.  Sometimes a prime contract requires general contractors to insert such a clause into all subcontracts.  Wherever such a clause appears, it is important for subcontractors to review the prime contract in addition to the subcontract to fully understand the terms that the subcontractor is agreeing to.  If there are conflicts between the prime contract and the subcontract, contractors need to seek clarity regarding which provisions control.  By failing to review the general contract, a subcontractor risks agreeing to terms that it knows nothing about, including termination clauses, claims processing clauses, indemnification clauses, and dispute resolution clauses.  I routinely advise my clients to insist on receiving a copy of the general contract and reviewing it before signing any subcontract that contains a flow down/pass through clause.

Pay-if Paid Clauses-We’re Talking Money Out of Your PocketSubcontractors should learn to spot pay-if-paid clauses under which a subcontractor bears the risk of nonpayment and to know the difference between this clause and a pay-when-paid clause, which is merely a timing mechanism.  Pay-when-paid clauses do not condition payments to a subcontractor on the contractor’s receipt of payments from the owner while pay-if-paid clauses make the contractor’s receipt of payment from the owner a strict condition precedent to the subcontractor receiving payment.  In other words, pay-if-paid clauses shift the risk of nonpayment from the contractor to the subcontractor.  If words such as “condition,” “if and only if,” or “unless and until” are used to describe when payment to a subcontractor is due then chances are it’s a pay-if-paid clause.  If you are concerned that the subcontract could be interpreted as a pay-if-paid clause, I strongly recommend consulting with a lawyer, because the analysis is a bit more complex than I’ve described.  However, if you are seeing the words described above, that should serve as a warning that the contract may contain a pay-if-paid clause. 

While I typically advise clients against agreeing to payment terms that use the words “condition,” “if and only if,” or “unless and until,” the reality is that many of my clients frequently agree to these terms because they don’t have the bargaining power to insist on their removal and they want or need the work.  In such circumstances, subcontractors can lessen the potential impact of a pay-if-paid clause by adding a pay-if-paid clause into their subcontracts.  It’s a pass-the-buck tactic, and I’ve actually had clients object to doing this out of a sense of fairness, but this is the age we live in.

No Damages for Delay Clauses-Typically EnforceableTypically such clauses state that time shall be the only compensation for delay.  Although such clauses are typically enforced, Pennsylvania law refuses to enforce such clauses where: (1) there is an affirmative or positive interference by the owner with the contractor’s work; or (2) there is a failure on the part of the owner to act on some essential manner necessary to the prosecution of the work. 

Change Order Clauses-The Stumbling Block of Many ContractorsIf a contractor does not follow the process to perfect and preserve its claim in accordance with the contract, the contractor may have a difficult time receiving compensation.  Therefore it is vital that the contractor carefully examine and understand the contractual change order process. 

One common issue that arises with respect to change orders is that the contract specifies that only a certain person or persons can approve change orders.  During the project, contractors frequently receive approval for a change order from a field person, but not the person specified in the contract.  Having received such approval many contractors/subcontractors complete the change order work only to have the owner/contractor refuse to pay for the change order work because the change order work was technically not approved by the individual specified in the contract.  While we highly encourage our subcontractors to strictly follow the contractual change order process, our clients tell us that sometimes it is not feasible to engage in such a process because doing so will delay or disrupt the work.  In such cases, we encourage our clients to document change order approvals as much as possible, especially via emails.  If you get in a jam like this, you might want to consult with your attorney about what the email should say because I would word emails differently depending on the circumstances.

If a dispute arises, having a string of emails showing how the change orders arose, is better than relying solely upon your word that someone working for the owner/contractor orally approved the change order.  Again, if that happened, send an email confirming it, e.g., “per the [insert person’s name]’s direction, Company XYZ was directed to do [insert extra work], which work is outside the scope of work of Company XYZ’s contract.  Accordingly, such work constitutes change order work for which a Change Order will be submitted.”

Furthermore, don’t jeopardize your chances of being compensated for change order work by failing to give the required written notification for claims for compensation within the certain time period specified in the contract.  Failure to provide such notice can result in a waiver of your claim.   Finally, know how claims must be submitted and include all required information in your claims submissions.

Differing Site Conditions/Changed Conditions Clause-Exploring the Great Unknown:    This clause comes into play when a contractor discovers site conditions that were neither known, anticipated, nor disclosed to the contractor.  Typically, there are two types of changed conditions:  (1) Type I conditions are conditions that materially differ from conditions that were disclosed to the contractor in the contract documents at the time of bidding; and (2) Type 2 are the conditions that are “unusual, unknown, and unanticipated.” 

Keep in mind that if the contract also contains a site investigation clause, in order for the contractor to benefit from the differing site conditions clause to the maximum extent possible, the contractor should conduct a reasonable investigation of the site and review all relevant data.

Watch out for contracts that attempt to shift the risk of bearing the cost of differing conditions to the contractor by requiring the contractor to disclaim any claim for extras related to a differing site condition and watch out for contracts that don’t address differing site conditions.

Dispute Resolution Clauses-Who Is the RefereeKnow what is required.  For example, do you have to seek mediation before arbitration or litigation?  Know where you are allowed to litigate or arbitrate.  Also, pay attention to whether the owner/contractor has the sole discretion to elect to pursue the matter through arbitration or litigation. 

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.


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