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Construction

Project Labor Agreements are Now Required for Large Federal Construction Projects

Last week, I wrote a blog post predicting that President Biden may be requiring project labor agreements (PLAs) on projects funded by the Infrastructure Investment and Jobs Acts, effective November 15, 2021 (link here).  That prediction has now become reality. On Friday, February 4, 2022, President Joe Biden signed Executive Order 14063 (EO 14063).  EO 14063 requires PLAs on federal large-scale construction projects. A “large-scale construction project” means a federal construction project for which the total estimated cost of the construction contract is $35 million or more.  Federal agencies, awarding any contract in connection with a large-scale construction project, must require every contractor or subcontractor engaged in construction on the project to agree, to negotiate or become a party to a project labor agreement with one or more appropriate labor organizations. Any project labor agreement reached pursuant to EO 14063 must: Bind all contractors and subcontractors on the construction project through the inclusion of appropriate specifications in all relevant solicitation provisions and contract documents; Allow all contractors and subcontractors on the construction project to compete for contracts and subcontracts without regard to whether they are otherwise parties to collective bargaining agreements; Contain guarantees against strikes, lockouts and similar job disruptions; Set forth effective, prompt and mutually binding procedures for resolving labor disputes arising during the term of the project labor agreement; Provide other mechanisms for labor management cooperation on matters of mutual interest and concern, including productivity, quality of work, safety and health; and Fully conform to all statutes, regulations, Executive Orders and Presidential Memoranda. EO 14063 contains some exceptions to the PLA requirement.  A senior official within an agency can grant an exception by providing a specific written explanation of why as least one of the circumstances described in EO 14063 exist: Requiring a PLA would not advance the federal government’s interests in achieving economy and efficiency in federal procurement. Such a finding must be based on the following factors: The project is of short duration and lacks operational complexity; The project will involve only one craft or trade; The project will involve specialized construction work that is available from only a limited number of contractors or subcontractors; The agency’s need for the project is of such an unusual and compelling urgency that a PLA would be impracticable; or The project implicates other similar factors deemed appropriate in regulations or guidance which may be issued pursuant to EO 14063. Based on inclusive market analysis, requiring a PLA on the project would substantially reduce the number of potential bidders so as to frustrate full and open competition. Requiring a PLA on a project would otherwise be inconsistent with statutes, regulations, Executive Orders, or Presidential Memoranda. President Biden stated that nothing in the Executive Order prohibits an agency from voluntarily requiring a PLA even though they are not required to do so by EO 14063. EO 14063 is effective immediately and will apply to all solicitations for contracts issued on or after regulations are issued by the Federal Acquisition Regulatory Council (FAR Council).  The Order states that the FAR Council must propose implementation regulations within 120 days of, February 4, 2022. Both union and non-union contractors should be alert to this significant new requirement for large-scale federal construction projects.  Union contractors should be aware that a PLA could apply certain working conditions to the project which are not contained in the contractor’s existing collective bargaining agreement(s). EO 14063 is a dramatic shift from the Executive Order President George H.W. Bush issued in 1992, which was rescinded by President Bill Clinton in 1993, and the Executive Order President George W. Bush signed in 2001, which was rescinded by President Barack Obama in 2009, both prohibiting the use of PLAs for federal construction projects. Please see Phyllis Karasov’s explanation of what a PLA is here.

February 8, 2022

Construction

Project Labor Agreements and Government Funded Infrastructure Projects: What You Need to Know Now

Update:  On February 4, 2022, President Joe Biden signed an Executive Order requiring the use of PLAs on federal construction projects for which the total estimated cost is  $35 million or more. As many construction contractors are aware, the new Infrastructure Investment and Jobs Act, effective on November 15, 2021, includes significant monies for transportation, roads, bridges, rail, and other infrastructure construction.  President Biden has encouraged public governmental agencies to use project labor agreements (PLAs) on these government-funded infrastructure projects. What is a PLA? A PLA requires that all contractors and subcontractors working on the project, whether union or non-union, sign and be bound by a PLA with the local building and construction trade council for work performed on the project.  Members of a building and construction trades council include most labor unions in the construction industry including the operating engineers union, the carpenters union, and the laborers union.   PLAs are intended to cover the period during which the public project is under construction and ends when the project ends.  PLAs result from a public agency including a requirement for a PLA in a construction project’s bid specifications. For projects which require a PLA, the contractor must sign the PLA and agree to be subject to specified provisions in the collective bargaining agreement of the union(s) which traditionally represent the classification of employees employed by the contractor. For example, the operating engineers’ local union would traditionally represent heavy equipment operators and in this case, an excavating subcontractor would be subject to the wage and benefit provisions of the local operating engineers’ collective bargaining agreement.  Many public agencies have been requiring PLAs for years, but we can expect to see an increase in the number of projects that will require a PLA in light of the current political environment.  One advantage to public agencies is that a PLA promises that none of the union members of the local building and construction trades council will engage in a strike during the project.  Obviously, this commitment from the unions avoids the delays and disruption that a strike can cause to a project. Today, nearly 87% of the construction industry is non-union.  A PLA, which covers both union and non-union contractors, subjects the non-union contractors to many of the requirements of an applicable union collective bargaining agreement.  The contractor or subcontractor is not required to sign the actual collective bargaining agreement; however, the PLA makes the contractor/subcontractor subject to certain provisions of a collective bargaining agreement, such as wages and benefits. Why Should a Contractor or Subcontractor Care? Although many non-union contractors believe that a PLA is not something they need to be concerned about, the fact is that if a non-union contractor wants to work on a public project, they should expect that they may be required to sign a PLA. Contractors who bid and are awarded work on a public job may not always be aware that the job is going to be governed by a PLA. Among other things, a PLA requires the contractor to agree to pay the applicable union wages, to contribute to union fringe funds, to use a union hiring hall, and to comply with both governmental and union rules on payroll and recordkeeping.  Employees of a non-union contractor cannot be required to pay full union dues and become union members, but they can be required to pay a monthly agency fee to the union in lieu of union dues. Union hiring halls are prohibited from discriminating between union and non-union members when referring employees to projects but, obviously, it is not always easy to identify when discrimination occurs. Minority and women affirmative action goals, as well as requirements that a percentage of subcontractors be Disadvantaged Business Enterprises (DBEs), can conflict with a contractor’s obligation to hire from a union hiring hall.  For many contractors and subcontractors, the requirement that they hire employees from a union hall makes it difficult to meet affirmative action and DBE goals. We have worked with many non-union contractors’ signatories to a PLA and have seen how the application of a PLA can discourage the subcontractors a construction company normally works from agreeing to work on a PLA project. In that case, contractors have to find different subcontractors, with whom they have little or no familiarity, but who are willing to sign a PLA. Further, the PLA typically allows union business agents to enter a project and talk to employees, and many non-union contractors do not want to expose their employees to continuous visits from union representatives.  Contractors often view a PLA as an open door to a union petition for representation of their employees. Construction contractors can expect a significant flow of public work as a result of the Infrastructure Investment and Jobs Act but should be aware that many of these jobs will be governed by a PLA.

February 2, 2022

Construction

Undue Hardship for Religious and Medical Exemptions From a Mandatory COVID-19 Vaccination Policy

Many employers are adopting a mandatory COVID-19 vaccine policy, or they are required by owners, contractors, developers, or state, local or federal government to adopt such a policy for employees working on particular projects.  The recognized exceptions to mandatory vaccination policies are for employees who have a medical condition, or employees who have a religious objection to the COVID-19 vaccination. If an employee is entitled to an exemption from a mandatory vaccine policy because of a medical condition, the employer must determine if a reasonable accommodation exists so that the employee can continue to work without the vaccination.  Similarly, when an employee is entitled to an exemption because of a sincerely held religious belief, the employer should determine if a reasonable accommodation exists. Title VII prohibits religious discrimination and requires an employer to provide a reasonable accommodation for an employee’s religious beliefs.  A similar obligation to provide a reasonable accommodation exists under the ADA for a qualified employee’s known physical or mental limitations.  “Undue hardship” is the limitation on the obligation to provide a reasonable accommodation under both Title VII and the ADA.  However, the criteria for “undue hardship” are very different between Title VII and the ADA. Under the ADA, undue hardship means an action that requires significant difficulty or expense.  Accommodations may cause an undue hardship if the accommodation is unduly expensive, substantial, disruptive, or will fundamentally alter the nature or operation of the business.  The factors that are to be considered in determining whether an undue hardship exists include (1) nature of the accommodation; (2) the cost of the accommodation; (3) the employer’s financial resources; (4) the size of the business; and (5) the operation of the business. Another important aspect of the analysis under the ADA is whether the presence of an unvaccinated employee in the workplace poses a direct threat to the employee or others.  A direct threat is defined as “a significant risk of substantial harm to the health or safety of the individual or others that cannot be eliminated or reduced by reasonable accommodation.”  Assessment of whether there is a direct threat is very fact-based and dependent upon individual circumstances.  Among the factors to be considered is the type of work environment, whether the employee works with others, the ability to social distance, the extent of contact an employee has with co-workers, and whether the employee works indoors or outdoors. If an unvaccinated employee poses a direct threat to themselves or others, the employer must ascertain if a reasonable accommodation is possible.  If the employee does not pose a direct threat, the employer must allow the unvaccinated employee to perform their work at the employer’s location. In contrast, there is a much lower standard for undue hardship under Title VII when dealing with a religious belief.  Under Title VII, an undue hardship requires only “more than de minimus cost.”  Thus, the burden on an employer to accommodate a religious objection to a COVID-19 vaccination is lower than the burden to accommodate a disability-related objection to a COVID-19 vaccination. Despite the difference in the criteria for determining undue hardship in the case of religious objection vs. medical exemption, the accommodations for an unvaccinated employee are most likely the same.  Reasonable accommodations for both exceptions could include social distancing, working remotely, masking, weekly COVID testing, moving the employee to an isolated work location, reassignment, or changing work hours.  The difference is that if a reasonable accommodation for a sincerely held religious belief results in more than a minimal cost, the employer does not have to provide that accommodation.  On the other hand, if the accommodation is requested because of an employee’s medical condition, the burden the employer must accept is much higher under the ADA. An employer should engage in an interactive dialogue with the employee requesting an exemption, whether the request is based on a medical condition or a religious objection.  Regardless of the basis, the employer must consider which accommodations may be possible and discuss the options with the employee. Conclusion Employees have the right to request an exemption from a mandatory COVID-19 vaccination policy because of a disability or because of a sincerely held religious belief.  When a request for an exemption is made, employers must assess whether a reasonable accommodation exists such that an unvaccinated employee can continue to work, or whether such accommodations pose an undue hardship to the employer.  While the standards for undue hardship are different when analyzing a religious objection vs an exemption for a medical condition, the accommodations may not be that different.  Regardless of the basis for the exemption request, an employer should document the request, the reason(s) for the request, any documentation submitted by the employee, and the accommodations which were considered.  An accommodation can be reasonable for one employee, but not reasonable for another employee because of the nature of their jobs and the location of their work areas. For more information regarding reasonable accommodations for religious exemptions please see: An Employer’s Guide to Addressing Requests for Religious Exemption From a Mandatory COVID-19 Vaccine Policy. Please reach out to Phyllis is you have any questions regarding your labor and employment issues.  Phyllis can be reached at pkarasov@larkinhoffman.com or 952-896-1569.

November 1, 2021

Construction

An Employer’s Guide to Addressing Requests for Religious Exemption From a Mandatory COVID-19 Vaccine Policy

Employers mandating that employees be vaccinated against COVID-19 should know how to respond to an employee’s request for a religious exemption from the vaccination policy.  In this post, I discuss the process an employer can use to distinguish an employee’s personal opposition to a vaccination from a sincerely held religious belief that qualifies as a religious exemption and what options an employer has to protect its business. Sincerely Held Religious Belief When an employee requests a religious accommodation, the first question to ask is whether the employee has a sincerely held religious belief, practice or observance which prevents them from being vaccinated.  Title VII of the Civil Rights Act, states that sincerely held religious beliefs “include moral or ethical beliefs as to what is right and wrong which are sincerely held with the strength of traditional religious views.”  This vague statement means that employees who have a personal or philosophical disagreement with a vaccine are not entitled to a religious exemption. However, it is difficult to distinguish a personal or philosophical belief from a moral or ethical belief held with the strength of traditional religious views.  The religious belief does not have to be based on traditional religions and could derive from a religion or ethical or moral code with which the employer is unfamiliar. The U.S. Equal Employment Opportunity Commission (EEOC) has stated that employers should generally assume that an employee’s stated religious belief is sincerely held unless the employer has a good faith and objective basis for questioning the religious nature or the sincerity of the stated belief.  There is little guidance as to the definition of a “good faith and objective basis” for questioning a claim of religious belief. Documentation of a Request for Religious Exemption We recommend that employers require employees who claim they have a sincerely held religious belief and request an accommodation, to submit the request in writing explaining the basis for the sincerely held religious belief.  The employer is entitled to request information relating to the accommodation request and require a certification from the employee that the statements, documents and information provided to the employer are true and correct. An employer who has a good faith and objective basis for questioning the religious nature or the sincerity of the stated belief, can request documentation of the religious belief.  Examples of good faith and objective bases for questioning the validity of a claim for religious exemption include: when an employee has never requested an accommodation in the past for religious reasons; an employee has made statements to others that they distrust the vaccine; an employee quotes an online news article challenging the efficacy of the COVID-19 vaccine. These statements reflect personal opposition to the vaccine and are inconsistent with the claim that the vaccination is contrary to the employee’s religious belief.  The types of documents that an employer can request could include: Explanations from the employee about the nature and principles of the employee’s asserted beliefs and information about when, where and how they follow the practice or belief. Religious materials which describe the religious belief or practice. Written statements from others, such as religious leaders, with whom the employee has discussed his or her beliefs or who have observed the employee’s past behavior that evidences this religious belief. Each employee’s request for an exemption should be assessed on a case-by-case basis.  The individual reviewing the request for the religious exemption is entitled to consider whether the employee has engaged in any previous behavior or conduct that either deviates from or is consistent with the principles of his or her beliefs.  For example, perhaps the employee has made previous requests for accommodations for their religious beliefs.  The person reviewing the request is entitled to consider all previous statements made by that employee which may help to ascertain whether the employee’s objection is truly based on a sincerely based religious belief or, rather, is a personal or philosophical objection to the vaccine.  It is advisable for the same person to review and decide all requests for religious accommodation to ensure that these determinations are consistent and objective. An Interactive Process Should be Used to Determine if an Accommodation is Feasible If the religious exemption is granted, the employer should engage in an interactive process with the employee to determine whether the exemption from the COVID-19 vaccine requirement can be accommodated without creating a safety risk for other employees or the public.  Examples of possible accommodations include: Weekly COVID-19 testing; The employee is required to wear a mask at all times; Requiring the employee to maintain social distancing from co-workers and/or others; Move the employee to a more isolated work area where they will be more than six feet apart from co-workers; Reassign the employee to another available position which will allow the unvaccinated employee to work in a more isolated manner. Employers should discuss the possibility of these options with the employee if they are feasible; an employer is not required to give the employee the specific accommodation the employee has requested. Whether any accommodations are feasible depends upon the unvaccinated employee’s job duties; the physical set-up of the work place; whether the employee interfaces with the public; and other characteristics unique to the employer and to the unvaccinated employee’s job responsibilities.  There are situations where accommodations are not possible and, in that case, employers have the option to exclude employees who refuse to be vaccinated from the workplace.  In this situation, the employee could be terminated or placed on an unpaid leave of absence until the pandemic subsides.  Employers should not, however, exclude an employee from the workplace without consulting legal counsel. Accommodations Creating an Undue Hardship Employers can determine that the accommodation requested by an employee for religious reasons is an undue hardship for the employer.  The existence of “undue hardship” in the context of religious accommodation uses a lower standard than is used to determine “undue hardship” under the Americans With Disabilities Act (ADA).  An undue hardship in connection with a religious accommodation is one that would require more than a de minimis (minor) cost or burden to the organization or the business operations.  In contrast, the standard for undue hardship under the ADA is “significant difficulty or expense.”  Certainly, a safety risk or impact on the business operations or objectives can be considered in determining whether there is an undue hardship. Conclusion Religious objections to a mandatory vaccination policy can be very difficult to evaluate.  Employers should be alert to statements which employees make to other employees or to management concerning their personal views of the vaccination. These statements may evidence either a sincerely held religious belief, for which an accommodation may be appropriate, or a personal or philosophical objection to the vaccine, for which no accommodation is required. If you have questions about your vaccine policies or other workplace policies during this challenging time, I am available to help.  Please feel free to phone or email pkarasov@larkinhoffman.com with any questions you may have.

September 13, 2021

Construction

Tamara O’Neill Moreland Moderates Bisnow Minneapolis Construction & Development Webinar

Skyrocketing construction material costs have been front-page news in recent months. Tamara O’Neill Moreland moderates a wide-ranging discussion with Ari Parritz, Managing Principal of Afton Park, and Chris Osmundson, Director of Development at Alatus, on the many trends in construction that are changing the development of projects now and into the future. Developers have been dealing with substantial cost increases over the past year and some increases, such as lumber, have gone off the charts for periods of time. As a result, developers have been engaging in “value engineering” to reexamine ways to keep costs in line. In addition to a great deal of collaboration with all parties involved in a project, developers have been reconsidering construction methods, the elimination of features (e.g., parking spaces) and the use of financial instruments to keep a project moving forward. There is a nationwide shortage in housing. Both Ari and Chris agreed that there simply hasn’t been enough housing construction in the country in the past few years. Workers who now have the flexibility live anywhere, are experiencing a shortage of housing everywhere. Chris and Ari applauded efforts to promote wage growth, something they felt was long overdue but noted that affordable housing is not getting any easier to build especially with the required lower rental rates mandates in some cities. While neither felt that there would be long-term cost problems with building affordable housing, both felt that a rent increase could be likely. Community involvement in construction is very different today than it was in the past. Today, it is essential that all voices in the neighborhood be heard. Developers need to disclose project costs, likely revenue, expenses and profit margins. Developers must also make it clear to community groups that a project won’t be completed if demands for features can’t be accommodated in the budget. To learn more and watch the full Bisnow Minneapolis Construction and development webinar, go to:  https://www.bisnow.com/webinar/minneapolis/construction-development/minneapolis-construction-development-update-7028. Tamara O’Neill Moreland advises clients on complex litigation involving land use, environmental issues, construction, real estate and appellate advocacy. For over 20 years, she has litigated cases to successful conclusions against city and state agencies in state and federal court and successfully handled a wide variety of appeals. Tamara is a Minnesota State Bar Association Board-Certified Real Property Specialist, was named to Best Lawyers in America in 2020-present for Land Use and Zoning Law and has been chosen by her peers as a Super Lawyer for many years.

July 14, 2021

Construction

Twin Cities Industrial Market Remains Strong

Industrial markets have been in the unique business position of becoming increasingly more valuable during the pandemic.  The value of e-commerce, same-day delivery, and infill development is more important today than it was a year and a half ago. I recently moderated the Bisnow webinar panel Minneapolis Industrial Updatewhich included developers of industrial facilities from United Properties and Ryan Companies. The panelists Connor McCarthy, Development Director at United Properties, and Eric Morin, National Director of Architecture, Industrial at Ryan Companies both confirmed that the pandemic has accelerated an already growing industrial sector. Eric stated that “the reasons we are seeing the growth and explosion in the market aren’t new, they have all been here for several years, those trends have just been accelerated (by the pandemic), studies suggest maybe by five years in terms of acceleration and adoption for e-commerce especially for e-groceries and other items.” Both panelists agree that many of the challenges other sectors have faced due to the pandemic have not been as big of an issue to overcome in the industrial sector. Many of these businesses were deemed essential, workers needed to be on-site, and the naturally distanced workplace lent itself well to continued operations. Connor points out that businesses that figured out how to ramp up distribution like “Amazon, Target, and Walmart all did very well during this pandemic”.  The rapid growth in this industry is also opening up new opportunities for construction companies who are being called upon to modify existing warehousing and develop new buildings in an effort to meet increasing demand. Submarkets in the Twin Cities Emerging as Hot Industrial Hubs The Twin Cities submarkets are running hot in the industrial sector agreed the panelists. The northwest quadrant is seeing the most active development due to access to both labor and roads but that doesn’t mean the other markets aren’t also doing well.  They both noted that labor is absolutely the number one concern for businesses across the board in their sector. Cold storage is in high demand and is increasing in primary and secondary distribution markets.  As grocery stores move direct-to-home, increased demand for cold storage space creates a big opportunity for development but it also has its challenges. Trying to get the right mix on a speculative basis is difficult, particularly when it comes to cold storage and freezer space.  In addition, the city approval process is often more difficult due to the build specs needed up front which can be difficult to nail down in the early stages of development.  It costs 2-3 times more to build a cold storage facility than other spaces.  In addition to this, a very small number of companies own the majority of cold storage sites in the US creating a barrier to entry. The last-mile delivery trend is also creating an opportunity in the market, however, conducting due diligence and identifying the risk and opportunities a particular site provides is very important.  The panelists agree that in-depth traffic studies are needed to determine adequate access to highways and the surrounding community. These particular facilities also have naturally high parking needs for both employees and delivery vehicles.  The combination of traffic, parking, and labor issues require developers to become increasingly creative with their site selection.  Historically, developers would look to farmland outside of the cities, but with the trend in customers wanting everything sooner, site selection is more crucial than ever before. Pain Points for Developers are Real Developers must conduct increasingly complex due diligence and take into account issues of remediation, re-zoning, or re-entitling a site as risk issues.  In addition, close proximity to a city will increase a site’s cost.  The market rent for a first-tier suburb vs. a third-tier suburb vs. a business district, all affect the premium someone pays, which in turn factors into project budgets and the offerings developers are able to provide to the marketplace. Design changes to help mitigate these costs are being explored and implemented but a big issue that developers face today is a shortage of steel.   Connor points out that “in Oct 2020, the lead time for steel from the date of commitment to showing up on-site was around 12-16 weeks and today it’s 36-40 weeks…and costs are up 50% as well in this same time period”.  As a result, build-to-suit development is becoming increasingly challenging with the timeframe needed to order steel for a fully designed building now sitting at 12-18 months ahead of time. Trends in Industrial Supply chain weaknesses have been identified during the pandemic which could result in businesses needing more space.  There is also a trend in reshoring manufacturing to the US creating a sense of security that manufacturing at home provides.  With this in mind, good land, sites, and specs will continue to be in high demand.  Automation is increasing in manufacturing and warehousing facilities and the current labor shortage amplifies this need. Finally, another important trend in the industrial space is a greater need to have access to data.  Getting high-quality fiber to a site is just as important as electricity these days. Outlook Long-term demand in the industrial space is growing consistently year on year.  Developers are meeting current needs but new design opportunities will open up for distribution centers with more development, construction, and design which is good news for Twin Cities developers. To watch the full webinar and hear much more about industrial sector development including thoughts on repurposing shopping malls, what to do about ghost kitchens, and more, please listen to the full webinar at: https://www.bisnow.com/webinar/minneapolis/minneapolis-industrial-update-7027. About the Author Brandi Kerber focuses her practice on real estate law, nonprofit law, and corporate law. She advises clients in connection with all aspects of real estate transactions including development projects, commercial and residential sales, and leases, cellular tower leases, commercial loan transactions, construction contracts, easement agreements, title registrations, zoning matters, and lot splits. Brandi advises nonprofit organizations on a wide range of matters including organization, income tax exemption, property tax exemption, and sales tax exemption. She also represents closely-held businesses in corporate matters as well as mergers and acquisitions.

June 14, 2021

Construction

What to Do about Vaccinations: Employer Recommendations

On May 28, 2021, the Equal Employment Opportunity Commission (EEOC) updated its Technical Assistance Questions and Answers (Technical Assistance) about COVID-19 and Equal Employment Opportunity laws, including the Americans with Disabilities Act (ADA).  In the Technical Assistance, the EEOC addressed many questions concerning the right of employers to screen for COVID-19 and/or for symptoms of COVID-19.  Much of the Technical Assistance had been previously published but on May 28, the EEOC updated its answers to many of the questions.  One question which had not been clearly answered by the EEOC until the Technical Assistance came out was whether an employer can require all employees physically entering the workplace to be vaccinated for COVID-19.  This question was added in the May 28, 2021 version of the Technical Assistance. The EEOC stated that federal Equal Employment Opportunity (EEO) laws do not prevent an employer from requiring all employees physically entering the workplace to be vaccinated for COVID-19, subject to reasonable accommodation provisions.  Attorneys have been advising clients for many months that it is permissible to enact a mandatory vaccination policy, and the May 28 Technical Assistance confirmed the lawfulness of such a policy.  The purpose of this article is not to discuss reasonable accommodation although obviously, it is an important concern if an employer mandates that all employees must be vaccinated.  A mandatory vaccination policy must allow for exceptions if an employee is suffering from a medical condition that prohibits the employee from being vaccinated, or if an employee has religious objections to being vaccinated.  Rather, this article will discuss a few issues that we have seen with respect to vaccinations. In the updated Technical Assistance, the EEOC also stated that employers can encourage employees and their families to get vaccinated, without violating any discrimination laws. Again, employers have been offering such incentives for many months, but the updated Technical Assistance provides additional regulatory support for this position.   It is also lawful for employers to provide educational information to employees to address concerns about vaccinations, and to raise awareness of the advantages of being vaccinated. Is it legal to ask employees for documentation that they received a COVID-19 vaccination? Normally, it is unlawful for an employer to make inquiries concerning an employee’s medical treatment or condition, unless such an inquiry is job-related and consistent with business necessity. However, the updated Technical Assistance makes it clear that when an employer asks employees whether they obtained a COVID-19 vaccine, the employer is not asking a question that is likely to disclose the existence of a disability.  Thus, requesting documentation of vaccination is not a disability-related inquiry under the ADA.  Employers should not forget that vaccination documentation is medical information about an employee and must be kept confidential. Can an employer publicize which employees have not been vaccinated? The Technical Assistance provides that information about an employee’s COVID-19 vaccination is confidential medical information under the ADA.  Employers must keep this information confidential, as they would any other medical information.  Employers cannot publicize who has and has not been vaccinated. What can an employer do if an employee refuses to be vaccinated? Employers are struggling with the proper way to handle an employee who refuses to be vaccinated and is not refusing because of a medical condition or a religious objection.  Many companies, particularly those which interface with the public, want the public to know that employees have been vaccinated and it is safe to be in physical contact with their employees.  Some companies, faced with the knowledge that a significant number of employees will refuse to be vaccinated, have offered incentives to motivate employees to be vaccinated, and education about the risks associated with COVID vs. the benefits of being vaccinated. Suggestions for dealing with employees who are not vaccinated: Implement alternative work situations for those employees who are not vaccinated.  An example is to stagger employee schedules so that employees who work in close proximity are not in the office on the same days. Allow employees who are not vaccinated to continue to work from home. Continue to require social distancing. Require that all employees wear masks, or request that unvaccinated employees wear a mask. Just last week, a client called asking what to do with a minor rebellion he was encountering where many unvaccinated employees were refusing to wear masks. This employer requires that all employees wear masks.   He asked what he could do?  We told him that, assuming the employees are not refusing to wear a mask because of a medical condition or religious objection, the employer can terminate the employees for refusing to wear a mask. What if vaccinated employees feel uncomfortable being exposed to unvaccinated employees? The General Duty Clause of the Occupational Safety and Health Act requires that an employer provide employees with a work environment free of recognized hazards that are causing or likely to cause death or serious physical harm to employees.  If an employer fails to take precautions to protect employees from the risk of exposure to an unvaccinated employee, they could be violating the General Duty Clause.  Therefore, we recommend that employers continue to require that unvaccinated employees wear masks and that social distancing continue to be enforced.  In addition, the employer should consider the alternatives discussed above.  These actions will help demonstrate the concrete steps an employer has taken to protect workplace safety. What is an employer’s obligation to unvaccinated employees being harassed by other employees? If an employer does not mandate that all employees be vaccinated, the employer should make sure that unvaccinated workers are not harassed or made to feel isolated.  It is permissible to offer incentives to employees who voluntarily receive a COVID-19 vaccination.  The incentive should not be so substantial that it is deemed to be coercive.  Employers should be cautious about conditioning access to training, career development activities, or other work-related events, on being vaccinated.  Employers should enforce their policies concerning harassment, bullying, respect and civility when unvaccinated employees are harassed or mocked because they are unvaccinated. Conclusion As COVID case numbers are going down, and government agencies are reducing mask and social distancing requirements, employers are grappling with how to bring employees back to work, and what COVID health and safety rules will be applied to the workplace. Whether to require that employees be vaccinated is one of the challenging questions for all employers.  The EEOC, the CDC, and state and local governments are loosening up the requirements and giving businesses more flexibility in what they can demand of their employees.  In making these important decisions, employers must balance safety, employee preference, and the impact of mandating vaccinations.

June 4, 2021

Construction

Larkin Hoffman Ranked Highly for Real Estate and Construction by Chambers USA

Larkin Hoffman was recognized as a leading real estate firm in the 2021 edition of Chambers USA: America’s Leading Lawyers for Business, an annual guide identifying the top attorneys and firms in the United States. The publication also recognized five of the firm’s attorneys as leaders in their fields. Real Estate Chambers notes that Larkin Hoffman’s real estate practice is known for its “litigation expertise, [which] includes handling eminent domain, construction and tax disputes.” Tim Stoltman and Gary Renneke were both recognized for their practices in real estate.  Peter Coyle and Bill Griffith received top rankings for their practices in zoning and land use. Larkin Hoffman is a go-to law firm in Minnesota and throughout the region, advising on all aspects of real estate, including acquisition, approvals, assembly, construction, development, financing, leasing and litigation. The firm serves clients in residential and commercial development. Commercial development includes office complexes and major facilities in the retail and hospitality industries. Construction David Hammargren was recognized as a leading practitioner in construction by Chambers. David leads the Larkin Hoffman construction and surety practice. The firm counsels clients on every aspect of the construction process, from procurement and contracting to government regulations and high-stakes litigation. The construction team represents construction contractors, subcontractors, developers, commercial building owners and sureties. Chambers USA is one of the world’s leading publishers of guides to the legal profession, ranking leading firms and lawyers in an extensive range of practice areas throughout the United States.

May 20, 2021

Construction

The Legal Fundamentals Series: The Mechanic’s Lien

The mechanic’s lien is one of the most powerful remedies available under the law.  A mechanic’s lien is a right afforded to general contractors, subcontractors, and suppliers that, when preserved by following certain steps, grants the right to record a lien against benefited real property, foreclose on that property by action, be compensated out of the sale proceeds, and recover the attorneys’ fees and costs incurred in the action.  A mechanic’s lien is a strong incentive for landowners to ensure that contractors and suppliers are promptly and fully compensated for their services. This is the third article in a series explaining the fundamentals of the most critical aspects of real estate law.  In this piece, I focus on the mechanic’s lien remedy under Minnesota law.[1]  Three distinct topics are considered below.  First, what are the threshold criteria necessary to have a mechanic’s lien.  Second, what are the three steps that must be followed to preserve a mechanic’s lien.  Third, what court process governs a mechanic’s lien foreclosure. Essential Elements of a Mechanic’s Lien Minnesota statute provides a comprehensive and lengthy statement of the circumstances that create a mechanic’s lien.[2]  Most critically, there must be a “contribut[ion] to the improvement of real estate by performing labor, or furnishing skill, material or machinery . . . whether under contract with the owner . . . or at the instance of any agent, trustee, contractor or subcontractor of such owner[.]”  Mechanic’s liens may be created by, among other things, alterations or repairs to land, fixtures, or buildings. The person asserting the lien must show that the services rendered, or material furnished, relates to one of the criteria recognized by statute.  Provision of supplies or equipment for one of the improvements identified in the statute may be lienable.  For example, furnishing petroleum to a contractor for use in construction would be lienable.  On the other hand, furnishing services necessary to the continued operation of a business is likely not lienable (e.g., the regular removal of waste from a business is not lienable). The Three Steps Required to Preserve a Mechanic’s Lien Step 1: The Pre-Lien Notice The general rule is that every person who enters into a contract with an owner of real property, or who has contracted with a subcontractor or material supplier to provide labor, skill, or material to improve real property, must provide a pre-lien notice to the landowner.  Subcontractors and suppliers must generally provide this notice within 45 days after first furnishing labor, skill, or materials for the improvement.  The language to be included in the notice is provided by statute.[3]  The notice must be served by personal delivery or certified mail. There are certain exceptions to the pre-lien notice requirement.  Exceptions to the notice requirement include, but are not limited to, (a) where the general contractor is managed or controlled by substantially the same person as the owner, (b) for certain multi-family developments, and (c) for certain improvements to nonagricultural land. Caution should be exercised in relying upon these exceptions.  The exceptions have been construed by judicial decision(s) and they are interpreted narrowly.  Moreover, there is no penalty for providing more notice than is required by law.  The cost and expense of providing unnecessary notice pales in comparison to the expense and time required to litigate the applicability of an exception. Step 2: Recording the Mechanic’s Lien Statement After the last item of work on the project is complete, the subcontractor or supplier must prepare and record what is known as a “mechanic’s lien statement.”  This must be recorded with either the county recorder or registrar of titles (depending upon whether the real estate is abstract or Torrens) and served within 120 days of the last item of work.  The statement must be served personally or by certified mail on the owner or the owner’s authorized agent.  The mechanic’s lien statement must include numerous items of information, including the first and last date of work, and the amount due to the subcontractor or supplier.  The lien will cease to exist if the lien statement is not properly and timely recorded and served. Step 3: Initiating the Foreclosure Action The third and final requirement to preserve a mechanic’s lien is to file a foreclosure complaint with the district court within one year of furnishing the last item of work (as identified on the mechanic’s lien statement).  The complaint should identify all parties having an interest in the land.  Shortly after the complaint is filed, a lis pendens must be recorded in the county land records.  This document provides notice to the world that there is a pending action in which the ownership of the property is contested. Failure to take any of the three steps identified above may result in invalidity of the lien.  If a step is missed, the subcontractor or supplier would still have a claim against the general contractor for breach of contract, but there will likely be no recourse against the landowner or the land itself. The Lien Foreclosure Action The defense most frequently raised in a lien foreclosure action is that the work or material was defective and that there should be offsets to the amount of the lien.  There will be a phase of the lien litigation where the contractor or supplier can conduct discovery on any defenses raised by the owner.  A judge will hold a trial and determine the amount due and whether offsets are appropriate.  There is no right to a jury trial in a lien foreclosure case. If the court determines that there is an amount due on the lien, the court will direct a sale of the real estate and a distribution of proceeds to satisfy the amount of the lien.  If there are multiple liens on the property, the Court will determine the priority of payment of the liens. A contractor or supplier that successfully prosecutes a mechanic’s lien action is entitled to recover reasonable attorneys’ fees.  By contrast, a landowner that defeats a mechanic’s lien is ordinarily not entitled to recover its attorneys’ fees.  This difference gives contractors and suppliers substantial leverage in settlement negotiations. [1]     Requirements governing mechanic’s liens vary among the States.  States require different forms of notice and/or allow a shorter or longer period to sue to foreclose a mechanic’s lien. [2]   SeeMinn. Stat. § 514.01. [3]   SeeMinn. Stat. § 514.011, Subd. 2.

April 23, 2021

Construction

Liens on Wind Farms?

Windfarms proliferate in response to the growing need for renewable energy.  At the same time, their birth and death can create collateral issues.  For example, disposing of damaged turbine blades is a challenge.  The blades are more than 100 feet long and could need to be cut to even fit on a semi-trailer for disposal. The birth of a wind farm can create other issues not only for the landowners but also for the multitude of contractors and subcontractors needed to build them.  A modern windfarm may include dozens of individual towers and turbines spread over several miles, and connected by underground cables. The developer probably does not actually own the land where each tower is located.  The developer may have no more than a lease or an easement on an area big enough to construct the base and tower itself which likely stands in the middle of a field belonging to a third party. Developers are also leveraging the large sums of credit each construction tier is extending to build the bases and towers.  If anything goes wrong from manufacturing mistakes to weather delays, there will be a ripple effect in the flow of payments to the contractors and subcontractors prompting calls to lawyers about mechanic lien protections. The lawyers’ response may not be what the caller expected. If a payment problem develops for a party on one or more towers, it may be expensive to attempt to specifically identify the tower location for any effort to file a mechanic lien, let alone find dozens of such parcels.  Each individual tower sits on its base, but that is likely to be a relatively small area in a larger parcel well-spaced from the next tower connected only by its miles of cable.  The developer’s rights in the location of that tower base and cables are defined in its agreements with landowners and may include language to the effect that the base and tower could eventually be removed.  While actual removal would be problematic at best, such provisions further undercut the ability to make a traditional mechanic lien claim.  At least one court in Illinois was faced with similar facts and decided that the base and tower are removable trade fixtures and not lienable at all. Minnesota, at least, may have an answer in Minnesota Statutes Section 514.04.  The statute provides: 514.04 LINES OF RAILWAY, TELEGRAPH, OR SIMILAR PROJECTS. If such contribution be thus made for the construction, alteration, or repair of any line of railway, or any structure or appurtenance of such railway, or of any telegraph, telephone, or electric light line, or of any line of pipe, conduit, or subway, or any appliance or fixture pertaining to either, the person performing such labor, or furnishing such skill, material, or machinery, shall have a like lien upon the lines so improved, and upon all the rights, franchises, and privileges of the owner appertaining thereto. This particular statute has been part of Minnesota’s mechanics lien laws for well over 100 years.  As with the whole of Minnesota’s lien statutes, it is an expression of public policy to protect the rights of those providing labor and materials and to address what were then newly developing types of improvements.  This section was conceived to provide a means to secure payment to contractors and suppliers for projects like railroads, telephone and electric lighting which did not fit the “standard” mechanics lien model of private improvements to particular real estate. These works are the parts of systems or networks that cross many parcels including county lines. This section creates a different kind of lien right for projects that may include a mixture of real and personal property rights. This variation of lien right applies to labor and materials claims which may cover an extended distance and cross county or state boundaries.  Such works may or may not relate to specific real estate but they represent a bundle of “rights, franchises, and privileges” which have substantial value.  The statute creates a recordable claim comparable to a Uniform Commercial Code (UCC) security interest a bank would take in contract rights or other intangible property rights.  To perfect the lien, the lien statement is recorded in the office of the Secretary of State in much the same way as a UCC financing statement.  This lien would be enforced with a suit in state court in much the same way as the more traditional mechanic lien claim would be enforced. Absent a new statute to specifically address windfarms this concept of a lien on the bundle of “rights, franchises, and privileges” would seem to be well suited not only to windfarms but to similar connected networks like fiberoptic internet cables.  It is also an important means to support and protect the tiers of credit that the whole construction industry relies upon to function smoothly.

April 19, 2021

Construction

Do You Need a Teleworking Policy?

Before the COVID-19 pandemic, most employers were reluctant to allow employees to work from home on a continuous basis.  Many companies prohibited all teleworking or allowed employees only to work remotely when recovering from an illness or when required as a reasonable accommodation.  When COVID-19 hit, many employees began working remotely and it appears that working from home is now, for many employees, a permanent situation.  I, myself, have seen the advantages of working from home although I miss the collegiality and professional dialogue with other attorneys in my firm. It has been estimated that about half of employed adults are currently working from home.  Job applicants have indicated that they place a high value on the ability to work from home.  Flexible scheduling is a significant perk that younger workers prefer, even more than a higher salary. Many employers developed written policies regarding teleworking once it became clear that employees would be working from home for some period of time.  Other employers, thinking that remote working was a temporary situation, do not have written policies on teleworking but instead issue periodic directives, instructions, and procedures to employees who are working from home. Key Elements of a Teleworking Policy If an employer expects that all or a segment of its employees will continue to be working from home, even after the pandemic ends, it may be time to consider developing a teleworking policy.  Although allowing employees to work from home may retain or attract employees, the ability to work outside the office can also create nightmares for an employer.  Whether employees work full-time from home or partially work from home, it is important that employers and employees have the same expectations as to productivity, communications, and compliance with company policies.  Below I have highlighted some key elements of a telecommuting policy: Specify what positions are eligible to work from home. Identify those persons responsible for making the decisions as to whether particular employees or positions can work remotely and how often the employees can work remotely (i.e. how many days per week). Identify the expectations and requirements for employees who will be working remotely.Are employees expected to participate in any meetings in the office?  Do they have flexibility in their work hours?  How often do they need to communicate with their supervisors?  Employers may have concerns about the diligence and reliability of employees who work from home, so the expectations need to be clearly stated.  It may be appropriate to remind employees that when they are participating in video meetings, such as Zoom or Teams meetings, they need to dress appropriately.  How many of us have seen others in Zoom meetings wearing pajamas, sweatshirts or other clothing that they would never wear to an in-person meeting involving the same people as those in the Zoom meeting? Discuss expected communications protocols. Employees should be told when they are expected to be available for telephone conferences, video meetings and other group confabs.  Should employees regularly check-in? Should employees inform their supervisors when they are ready to start their day at their computer?  Will employees have to list the specific tasks they will complete or have completed during the day or during the week? Discuss the equipment which an employee will need for their work and who will provide it. The policy should describe what equipment and supplies the employer will be providing versus the employee, and if provided by the employee, whether the employer will be reimbursing the employee for these supplies and equipment.  Explain what personal use an employee can make of equipment which is provided by the employer, such as a printer and scanner.  Outline the accepted use of a personal device and if or when it is acceptable to download or access company files on a personal device. Security is a critical element of the arrangement for an employee to work from home. Firstly, if employees are accessing a company network or other confidential information, what procedures must they follow from their home office to ensure the security of company networks and communications.  Will the company be providing a shredder or is it up to the employee to discard paper generated during the workday?  What safeguards should the employees be setting up against potential hacks, breaches or theft?  The policy should describe the need to password protect all devices used for work purposes. Expectations of work hours. Many employees working remotely have children at home because their daycare or schools are closed. How much flexibility will employees have to extend their work hours to accommodate taking care of their children, or assisting their children with schoolwork?  Are there specific hours during which employees must be working?  How do employees keep track of the hours they work? Consequences of abuse of the policy. The policy should state that employees can be disciplined for violation of the teleworking policy or any other company policy while working remotely. At some point, an employer may decide to withdraw an employee’s right to work remotely because that employee has been abusing the privilege of working from home. Workers Compensation and Remote Workers Employees who are injured while working at home may be covered by the employer’s workers compensation insurance.  Over 10 years ago, the Minnesota Workers Compensation Court of Appeals considered the question of whether an employee’s injury while working at home was covered by the employer’s workers compensation insurance.  The employee was taking a short break from his computer to get a cup of coffee.  While he was walking down the stairs, he slipped and landed on his back on the steps.  He suffered a fracture of his T9 vertebra and eventually required surgery.  The employee filed a claim for workers compensation insurance alleging that his fall arose out of and in the course of his employment.  The employer and insurer disputed the employee’s claim.  The Workers Compensation Court of Appeals held that when he left his home office to go to the kitchen for a cup of coffee, the employee was no different from an employee who, while working at the office, goes to a kitchen for a cup of coffee.  The court found that the injury arose out of the employee’s employment and therefore was covered by workers compensation insurance. To possibly control workers compensation liability for remote workers, an employer should consider establishing guidelines for a home office such as requiring a designated work area and provide training related to setting up a workstation and appropriate safety measures.  When feasible, conduct periodic checks of employee home offices to identify and eliminate work area safety hazards. This suggestion may not make sense for many, if not most employers, but companies should understand that an injury because of hazardous conditions in an employee’s home may be covered by workers compensation insurance.   Consider setting fixed work hours and meal and rest periods for telecommuters.  This may help establish whether an injury was “in the course of employment.” Conclusion If an employer has a written teleworking policy, the employer should periodically discuss with supervisors and managers whether the teleworking policy is effective and whether it is addressing all issues that arise when employees are working from home.  Employers should also check with the remote employees to discuss how isolated they may feel from the rest of the company, whether they feel they are working at their most effective and efficient level and what adjustments may be appropriate for their schedule and/or in the teleworking policy.  Employers should consult with their attorneys to ensure that their teleworking policy complies with all state and federal requirements.

February 19, 2021

Construction

Land Development: Not for the Faint of Heart

Anyone experienced with developing land realizes that the regulatory process one must complete for a given development is daunting, at once complicated and cumbersome and surely expensive.  I often tell landowners who want to become “developers” in order to capture more value in the price of their land, that it is not for the faint of heart or the risk averse–I’m usually proven right. The most consistent regulatory challenge associated with developing land is regulatory inefficiency or regulatory “creep”.  It is not unusual that a given development application will require a review for possible stormwater or wetland impacts; developers accept this and realize there are costs associated with this process.  However, what frustrates them to no end is the multiple layers of government that are involved with even the most routine development application.  In the case of stormwater and wetlands, an application likely will have to be reviewed by multiple agencies with overlapping and maybe even conflicting jurisdictions, such as the U.S. Army Corps of Engineers (USACE), local watershed districts, department of natural resources and pollution control agency, as well as the local jurisdiction in which the development is proposed.  It is typical for each agency to have a permit process with their own requirements for submission and review.  In fairness, they do try to coordinate their review but some are more cooperative than others.  What is certain is that each will have its own technical professionals involved, often aided by private consultants; moreover, there is no prescribed timeline to reach a conclusion so any hold-out delays the process for everyone.  And, of course, no application is ever perfect; invariably someone will want additional details or alternative plans created and submitted—another source of delay and added cost.  Developers frequently lose the entire building season due to simple delays even if they made a timely submission for review.  The crazy thing is that most developers would gladly incur the cost of the redundant process if they had an assurance that the process itself would be completed in a predictable and reliable manner.  Instead, they get the cost and frustration of an inefficient process without assurance of anything. I’ve been working with a client for several years on a wetland permit for expansion of a mining operation.  In 2019, after extensive back and forth with the state and local agencies involved with their permit review, the company thought they were nearly finished based on statements from the state’s lead permit reviewer.  My client had been expecting its permit to be approved by the end of that year but instead, out of nowhere, they learned that the permit reviewer had retired at the end of the year; instead of receiving the promised permit, his replacement announced summarily that not only would my client not get the expected permit but that the state agency was unilaterally giving itself 6 months more to review the permit.  Essentially, they were starting over with no explanation given.  So here we are in early 2021 and still we have no permit; instead the process continues to drag on and more recently has gone backward.  More on that below.  The point is that the applicant is held hostage to a process that is time-consuming, very expensive and offers very limited due process.  It is not for the faint of heart. Closely connected to the cost of delay is the risk of a shifting regulatory environment.  Developers accept their responsibility to protect wetlands, erodible slopes and water bodies.  Any setbacks or restrictions on the use of their land is a cost that must be borne by the balance of the development.  It is not unusual to see a third or more of a development tract placed off-limits by setbacks, open space requirements, dedications or sensitive environmental conditions.  Again, experienced developers recognize this as a cost of doing business.  They build their project proformas around these assumed costs.  You can imagine that it makes a developer very unhappy when a regulator moves the goal line while an application is being reviewed. I’ve seen state and local agencies change their position on setbacks, density or land preservation requirements on the fly with no regard to the added cost to the applicant or whether they will get a demonstrably better regulatory result in the end.  This frequently happens when a project has generated controversy; for elected officials the easiest thing for them to do, short of an outright denial, is to impose additional conditions on a development to appease angry objectors.  If a 25-foot setback is good, a 50-foot setback must be a lot better.  The unfortunate truth is that the regulatory bodies have so much discretion in these areas that challenging them is often more time-consuming and expensive for the developer than actually achieving the desired outcome; the pragmatic response is to accept the added conditions and cost, if possible, and move on with an approval.  The cost implications are not the regulator’s concern; the developer, on the other hand, needs to recalculate its proforma to absorb the loss of additional usable area and hope the project remains viable.  The development business is not for the risk-averse. Back to the mining permit; after several years of review, the company recently received a written determination by the state agency confirming a new restriction on their property: no prior notice, no prior input from the company.  This sort of regulatory creep is unfair and essentially unchecked short of a permit applicant’s willingness and ability to push back.  In most cases the risk of challenging, not to mention the cost of delay, often forces the permit applicant to swallow their pride along with the newly imposed condition in order to simply be done. Experienced developers try to complete their due diligence on their development projects in advance of initiating the public review process.  They understand that once they commit to a site and have incurred the cost of tying up the property and preparing the necessary applications, there is great risk in the public process.  One would wish that the process itself would provide more confidence in the anticipated outcome.  Unfortunately, the state and local regulatory bodies control the process.  This means they control not only the clock but also the rulebook itself.  It’s not for the faint of heart or the risk averse.

February 5, 2021

Construction

The Changing Landscape of Union Organizing and Worker Activism

Union organizing is down as compared to previous years, but that does not mean employers should believe that support for labor unions has decreased.  NLRB records indicate that the number of representation petitions filed in 2020 is dramatically down from each of the previous four years.  This reduction in representation petitions can be attributed to the challenges for union organizers to personally meet with employees, as well as the fact that for many employees, their primary focus has been on retaining their jobs, looking for jobs, and keeping food on the table.  Joining a union may not be the highest priority for many employees. We are seeing a lot of signals that union activity will be strong once the vaccine is widely available and employers are able to return to their former production and service levels.  Many employees question whether their employers are implementing adequate safety precautions or providing sufficient personal protective equipment.  Some employees have experienced a layoff, are concerned about a layoff, or feel they should be given more flexibility for leaves of absence due to the illness or vulnerability of their family members.  Employees may believe these problems can be addressed by electing a union to represent them.  We have heard that some employees want their employers to advocate for social activism and be involved in championing organizations seeking to promote racial justice, such as Black Lives Matter.  Again, they think a union will buoy these efforts. What steps can an employer take to prepare for a  possible increase in union activity?  Obviously, positive employee relations and human resources practices will go a long way to persuade employees their employer respects and values their contributions and reduce interest in union representation.  Other suggestions include: When the employer becomes aware of employee concerns, respond to them. Employees who feel ignored may be convinced that they need a third party to represent them. Supervisors should have a positive relationship with their employees. Treat subordinates with respect.  Listen to their problems. Management should be visible and show an interest in their employees. Walk through the workplace and talk to employees.  Welcome employees to come into their offices to talk to them.  Employees need to feel their opinions matter. Train supervisors about what they can say about labor unions and union representation. When a union petition has not been filed, there is far more flexibility in what supervisors can say to employees to educate them that a union will not make the workplace any better and that a union cannot carry out most of its promises.  Many supervisors feel uncomfortable when asked by employees about labor unions because they do not understand what they can legally say to employees. Be aware of the representation process when a petition is filed with the NLRB. There is a short time period between the date the petition is filed, and the election is held, so an employer should be ready to act once made aware a petition has been filed, rather than spending several days learning about the process. Supervisors should have their eyes and ears open so they can detect whether employees are interested in a union. Sometimes the petition is a complete surprise, but often, the supervisors are already aware of employee discontent.  Sometimes this discontent can be addressed so that employees do not feel they need a third party to represent them. Listen to the podcast of Phyllis Karasov, with assistance from her colleague Dan Ballintine, to learn about union organizing going on in the Twin Cities, as well as what to expect with union organizing when the pandemic is over.

January 11, 2021

Construction

Diversity Training Now a Construction Conundrum

The construction world is changing rapidly like everything else.  Tech is making its way ever deeper into the construction industry.  The shortage of labor has become chronic since the Great Recession.  Covid-19 has only made that problem worse.   At the same time, the pool of potential new hires is inexorably growing more diverse. Diversity is a buzzword in business generally, but the realities of the construction industry need to give it real life.  Contractors need to find ways to recruit and retain from non-traditional communities.  This is a challenge construction needs to meet in order to succeed.  Those potential hires also bring an expectation of a more inclusive and creative work environment than construction has traditionally offered.  Larger companies may hire trainers to talk about diversity and placement firms to search for hires, but much of the construction world really happens in smaller subcontractors that need to hire from the same diversifying pool. Hence the industry’s “diversity necessity.” How does a subcontractor or even a general contractor reshape itself to find and keep the talent it needs? The future construction industry workforce will need a broad range of tech skills in addition to strong backs.  As general contractors increasingly push more technical and management responsibilities down to subcontractors, even smaller firms will need to be able to understand and use document management systems, CRM systems and building information modeling (BIM) among others.  In recognition, construction can begin to look more and more like a real career path for young tech-oriented candidates. Construction needs to “re-brand” itself to overcome old workplace culture tropes.  Companies are already mandated to not discriminate, but it takes much more than that to make a company truly inclusive and welcoming to a diverse and inclusive workforce.  It will require active outreach and educating the existing workforce in the new more inclusive reality.  The Associated General Contractors is launching its new Culture of CARE program to help member firms develop their workplace environments to attract, nurture and retain the workforce of the future. Others in the industry should take note. While all of this may seem obvious and necessary for survival, there are other crosswinds blowing.  The economic impacts of Covid-19 are still playing out. The turbulent political environment may also create headwinds.  Recent Executive Orders have put into question the kinds of diversity and inclusion training sessions in use at the federal level.  The stated purpose of the Orders is to combat what is described as destructive pernicious and false ideologies. There are to be punishments for failure to implement the review and end offending trainings.  The Executive Orders take aim most directly at federal agencies which are acting to curtail their equal employment, anti-harassment, anti-discrimination, and diversity and inclusion training at the very time when they may be most needed.  The guidance on what training is acceptable is still developing as is the story of the future enforcement of these Orders. The contractors involved in federal work need to take note and watch how this develops.  The Orders as written appear to cover most federal contractors who do over $10,000 in Government business in one year.  Those federal contractors may be required to certify that they have complied.  If the Orders remain in force they will inevitably ripple down to subcontractors and suppliers who may, themselves, be called upon to certify.  One could foresee an adverse impact on workplace culture. Contractors in the federal sphere should consult counsel for guidance.  Those outside of federal contracting should probably stay the course for now with their diversity and inclusion training to grow their future workforce.  Navigating this environment in our turbulent times remains challenging but the future likely depends on it.

October 16, 2020

Construction

Multifamily Housing Shifts Focus to the Suburbs

Like most things in 2020, the multifamily housing market is in a state of flux. Recently, I had the opportunity to moderate the Bisnow webinar, Twin Cities Deep Dive: Multifamily Update. The panelists included Brent Webb, Development Manager, Mortenson, Christian Osmundson, Director of Development, Alatus, and Josh Brandsted, President of Greco Properties. These leaders of the multifamily housing market discussed the current state of the industry and made predictions for the future of the Twin Cities real estate market. The webinar began with a look at how the pandemic has changed the multifamily housing market. Most notably, the panelists discussed how developers are beginning to take a closer look at first and second-tier suburban markets. Many projects located in Minneapolis are not receiving the same attention from developers that they once received. The panelists discussed how vacancy rates in high-demand areas like the North Loop, North East, and South Minneapolis have remained steady while downtown vacancy rates have declined in recent months. Many rental properties in the suburbs that were hovering near 80% are now at full occupancy. Although migrating to the suburbs could be a short-term trend, the two leading factors for renters leaving downtown are home purchase and crime. These factors coupled with the closure of restaurants, land values, taxes, and a lack of parking have given investors pause when considering investing in the downtown market. A “new” inclusionary zoning policy went into effect the first of the year in Minneapolis and the country went into a state of lockdown shortly thereafter. It is hard to separate its impact from the pandemic, but the added challenge of supporting affordable housing seems to be a factor in development. Places like Edina and Saint Louis Park have more tools than Minneapolis to make the math work for new projects. Panelists agree the influx of remote workers has impacted the multifamily housing market. Buildings currently under construction are being modified to accommodate work from home offices and increase connection to outdoor recreation. Larger units and two-room apartments have also seen an increase in popularity since working from home has become commonplace. It may be too soon to see new projects being designed with pandemic restrictions in mind, but the panelists felt that there will be a significant change coming to future builds. A prioritization of wellbeing and amenities seems unavoidable with most of the population spending more time at home. The amount of leasable space vs. amenities in new buildings will become critical when creating an environment attractive to future renters. Finally, the panel discussed the eviction moratoria during the pandemic. There was a general consensus among the panelists that the moratorium is not impacting the market as the majority of renters dealing with financial hardships seem to be willing to create a plan with their landlords. There seem to be conflicting views on the best way to proceed, but all the panelists agreed that open communication is essential to creating a way forward. Click here to listen to the Twin Cities Deep Dive: Multifamily Update webinar. Jacob Steen part of the Larkin Hoffman real estate team. He is available to answer your real estate and land use questions. Jacob Steen, jsteen@larkinhoffman.com.

October 12, 2020

Construction

Pandemic Disrupts the Multifamily Housing Market

The global pandemic has affected every aspect of life in America and across the world, the multifamily housing market is no exception.  The impact of the pandemic is affecting every aspect of multifamily development from product design and selection, to getting deals done, to building management and operation. Over the last decade, there has been a strong trend in young professionals flocking to the Twin Cities, especially to amenity-rich areas of Minneapolis like the North Loop and Northeast. With the onset of the pandemic, many of these professionals are now working from home and have limited high-contact extracurricular activities. This new way of life is resulting in an increased demand for additional flex space within apartment units. Whether it be in the form of additional bedrooms, in-unit offices, or flexible workspace amenities, these new space demands have a strong potential to change product offerings as developers evaluate projects. Project evaluations and deal-making, like all traditional interactions, have also been forced to adapt to our changing circumstances.  Social distancing and work-from-home orders have encouraged, if not forced, changes while putting together projects.  Developers are using remote video and drone surveys to evaluate everything from site conditions to building envelope inspections.  Like many traditional in-person interactions, the days of the in-person marketing of projects to partners and other key players are over as meetings have moved to a video conferencing format. Unrelated to the pandemic, high taxes and costly land prices in Minneapolis has been a slow-moving trend in recent years as developers have sought more affordable land and lower taxes.  While the Minneapolis market has remained strong, these factors combined with incentives such as suburban TIF and opportunity zones are making the first and second ring suburbs more enticing. Managing tenancies has also changed over the past several months.  Existing tenants are protected by a residential eviction moratorium leaving some multifamily property owners stuck with tenants unable to pay rent and unwilling to leave without recourse.  Other landlords are struggling to get multifamily occupancies leased pushing concessions to renters in an effort to incentivize the signing of new leases.  Many properties outside of high-demand neighborhoods are offering two or three months of free rent, discounted parking, and other incentives. While changes in the multifamily housing market are the result of several factors and were in motion before the pandemic, the prospect of a lingering public health crisis well into 2021 and beyond will influence the direction of future trends.  Join moderator Jake Steen (Larkin Hoffman) with panelists Brent Webb (Mortenson), Chris Osmundson (Alatus), and Josh Brandsted (Greco) on Wednesday, September 30th, at 2:30 PM for a Bisnow panel to learn how pandemic lifestyle changes are affecting the multifamily market. To register for the Bisnow Webinar click on the link below: TWIN CITIES DEEP DIVE: MULTIFAMILY UPDATE: HOW THE LANDSCAPE WILL CHANGE POST-PANDEMIC

September 25, 2020

Construction

The Top Five Misperceptions About Use of Electronic Logging Devices For Businesses

This post is co-written by Bryan Huntington and Justin Gillette. Transporting supplies and equipment is an essential part of the construction industry. Electronic logging devices (ELDs) have made it possible for a business to monitor nearly all aspects of a truck’s daily activities. These technological guardians monitor a truck’s speed, location, sudden braking and even the sharpness of turns for review. For businesses using commercial trucks, having access to an ELD’s record is not just prudent, it is mandatory. Having a clear understanding of what an ELD does can save your construction site time and money in the future. Businesses required to use ELDs or those thinking of voluntarily using ELDs have two broad choices in systems. To meet the minimum requirements of the FMCSR, “location data must be recorded by an ELD at 60-minute intervals when the vehicle is in motion, and when the driver powers up and shuts down the engine, changes duty status, and indicates personal use or yard moves.”[i] A number of ELD manufacturers sell systems that track and record only the minimum data required. Conversely, many manufacturers sell systems that track and record a much wider array of location, engine and driver behavior data at intervals of seconds. This data can be used to provide feedback to drivers and improve driver behavior. The potential to improve driver behavior and reduce what, in many cases, is the largest safety-related risk is incredibly attractive to many businesses. However, some businesses are hesitant to adopt these systems because of the perceived legal risk. In litigation involving a commercial truck, a shrewd personal injury lawyer will cite an employer’s failure to maintain ELD data and/or failure to take prompt action against hazardous drivers as evidence of negligence. Confusion exists regarding when ELD devices must be implemented, how the electronic data must be retained, and the liability exposure that possession of ELD data creates for the business. This article addresses the five most common points of confusion. Common Misunderstanding No. 1: ELD is Permissive, Not Mandatory. Commercial drivers have long been required to keep and retain handwritten logs regarding their daily driving activities. Some businesses that transport goods have failed to implement ELDs, believing that the logs are sufficient to comply with federal requirements. The truth, however, is that federal law generally requires “motor carrier[s] operating commercial motor vehicles . . . [to] install and require each of its drivers to use an ELD to record the driver’s duty status[.]”[ii]  “Motor carrier” is defined to include both “for-hire motor carrier[s]” and “private motor carriers [.]”[iii] A “for-hire motor carrier” is a “person engaged in the transportation of goods or passengers for compensation.”[iv] A “private motor carrier” is “a person who provides transportation of property or passengers, by commercial motor vehicle, and is not a for-hire motor carrier.”[v] A “Commercial motor vehicle” means either: “a gross combination weight rating or gross combination weight of . . . 26,001 pounds or more, whichever is greater, inclusive of a towed unit(s) with a gross vehicle weight rating or gross vehicle weight of more than . . . 10,000 pounds, whichever is greater; or “a gross vehicle weight rating or gross vehicle weight of . . . 26,001 pounds or more, whichever is greater.”[vi] A notable exception to the mandatory ELD requirement is if a driver is required to complete a “record of duty status [ROD] on not more than 8 days within any 30-day period.”[vii] A driver must generally complete a ROD for each 24-hour period.[viii] The purpose of this exception is to “provide relief for drivers who intermittently needed to use RODS, for example, drivers in short-haul operations who usually use time cards or occasional CMV drivers.”[ix] It is sufficient for these drivers to record their driving activities manually, rather than using ELD.[x] Common Misunderstanding No. 2:Federal Regulations do not apply if drivers never leave the state. It is a mistake to presume that, just because a particular driver travels exclusively in a single state, he or she is not subject to the FMCSR. On the contrary, if a driver is transporting a product or material that is itself in the “interstate commerce stream,” a court may conclude the FMCSR applies to that driver.[xi] The FMCSR broadly define interstate commerce to mean “trade, traffic, or transportation in the United States:” Between a place in a State and a place outside of such State (including a place outside of the United States); Between two places in a State through another State or a place outside of the United States; or Between two places in a State as part of trade, traffic, or transportation originating or terminating outside the State or the United States.[xii] Thus, the FMCSR may apply—and installation and use of ELD may be obligatory—regardless of whether a given truck or driver crosses state lines. If the cargo or property being transported has or will cross state lines, that is likely sufficient to require the use of ELD. Common Misunderstanding No. 3:There is no duty to preserve ELD data. If the above prerequisites are satisfied and no other exception applies, businesses have a duty to preserve ELD data. At a minimum, the FMCSR requires that ELD data must be preserved and stored for six months.[xiii] The Federal Motor Carrier Safety Administration rejected the assertion that a six-month retention obligation was overly burdensome based upon evidence that six months of data from a single device totaled only 10MB of data.[xiv] If the business has reason to know litigation involving a truck with ELD is likely, failure to preserve the data beyond six months may lead to judicial sanctions for the spoliation of evidence. Courts will look at the specific facts of the accident to analyze whether the carrier had reason to believe litigation was likely.[xv] Relevant facts include whether a traffic citation was issued, whether any person involved had physical injuries, the extent of property damage and who the carrier believed was responsible for the accident.[xvi] Common Misunderstanding No. 4:ELD data cannot be discovered or used in civil litigation. The FMCSR is silent about the use of ELD data in civil litigation. No statute or rule specifically discusses the subject. One erroneous inference from this omission is that ELD data has no place in private litigation. Courts that have considered use of ELD data in civil litigation have uniformly rejected that idea. Courts have permitted discovery into ELD data.[xvii] Installation of ELD on a truck, though required by federal law, may be cited by a judge as evidence of a carrier’s control over a driver supporting the carrier’s vicarious liability or negligent supervision.[xviii] Experts have been allowed to offer testimony in court premised upon ELD data.[xix] Put simply, businesses should presume that ELD data may be discovered and used in court to the same extent as any other documents or record. Common Misunderstanding No. 5: There is no duty to audit ELD data. Although the FMCSR does not impose auditing requirements for ELD data, it is a significant mistake to conclude that a business cannot be punished for failing to do so. Neglect of ELD data may be used as evidence of the carrier’s indifference supporting a claim for punitive damages. At a minimum, the absence of ELD audits may create an issue that must be resolved at trial—necessitating substantial time and expense and subjecting the carrier to the risk of a major damages award.[xx] ELD Implementation and Ongoing Management For businesses currently utilizing ELDs or that have an interest in implementing a system to take advantage of the safety and compliance-related benefits, there are steps businesses can take to mitigate the legal risk related to recording and preserving ELD data. As discussed in misconception number five above, choosing not to audit ELD data presents a legal risk to an organization. It is common for leadership at a business using ELDs to be apprehensive about adopting a system that tracks more than the most rudimentary data required to meet federal regulations. In the construction industry, it is common for the foreman of a construction crew to be the assigned driver for their crew. Leadership may worry that the ELD data might reveal that a foreman, who is a top performer, is an aggressive driver. There are a number of ways to deal with this and other similar issues that may arise from tracking detailed ELD data. Many companies navigating these issues are starting to rethink their internal policies to strike a balance between the safety-related benefits of these systems and the legal risk of tracking extensive information. In the construction company example above, many companies are starting to ask themselves, “If our foreman is an aggressive driver, why can’t another member of the crew be the driver?” If the employer typically has three to four people traveling in a truck every day, it might choose to assign the second most senior person on the crew to be the driver. A foreman is typically on the phone or needed to respond to emails and texts regularly, which can lead to distracted driving.  In this example, it is probably best to have someone other than the foreman do the driving. Conclusion With a better understanding of the requirements related to ELDs and associated legal risks, the options businesses have when selecting ELDs, and the potential ELDs have to improve driver behavior and significantly reduce the safety-related risk for commercial vehicle fleets, corporate leadership should take time to analyze their current ELD strategy. Reach out to your Hays representative or to the article authors with questions or to begin facilitating internal discussions about ELD. Most businesses can craft an ELD strategy that strikes a balance between gaining the safety-related benefits of ELDs while minimizing the legal risk they present. About the Authors Bryan Huntington is a member of the construction and surety team at Larkin Hoffman. Contact Bryan at bhuntington@larkinhoffman.com. Justin Gillette is the Hays Companies Vice President and Construction Practice Leader at the Minneapolis office. Contact Justin at jgillette@hayscompanies.com. [i]    https://www.fmcsa.dot.gov/hours-service/elds/eld-functions. [ii]   49 C.F.R. 395.8(a)(1)(i). [iii]  49 C.F.R. 390.5. [iv]  49 C.F.R. 390.5T. [v]   Id. [vi]  49 C.F.R. § 383.5. [vii] 49 C.F.R. 395.8(a)(1)(iii)(A)(1). [viii] 49 C.F.R. 395.8(a)(1). [ix]  Electronic Logging Devices and Hours of Service Supporting Documents, 80 FR 78292-01, 2015 WL 8773414, (Dec. 16, 2015) pg. 78308. [x]   49 C.F.R. 395.8(a)(1)(iii)(A)(1). [xi]  Thoms v. ABF Freight System, Inc., 31 F.Supp.2d 1119, 1125 (E.D. Wis. 1998) (examining whether the transportation of property is “part of the interstate commerce stream.”) (citation omitted); Baez v. Wells Fargo Armored Service Corp., 938 F.2d 180, 182 (11th Cir. 1991) (concluding that armed security guards transporting financial instruments were engaged in interstate commerce, despite the fact the drivers never crossed state lines). [xii]  49 C.F.R. § 390.5. [xiii]  49 C.F.R. § 395.22(i) (“A motor carrier must retain for 6 months a back-up copy of the ELD records on a device separate from that on which the original data are stored.”). [xiv]  Electronic Logging Devices and Hours of Service Supporting Documents, 80 FR 78292-01, 2015 WL 8773414, (Dec. 16, 2015) pg. 78328. [xv]  Lee v. Horton, No. 2:17-cv-2766, 2018 WL 4600303, at **2-3(W.D. Tenn. September 25, 2018). [xvi]  Id. [xvii] Cabarris v. Knight Transportation, Inc., No. 17-CV-6259, 2018 WL 5650012, at *1 (W.D.N.Y. Oct. 31, 2018) (permitting discovery of ELD data). [xviii] See generally Soto v. Shealey, 331 F.Supp.3d 879 (D. Minn. 2018). [xix]  See Ferguson v. Nat’l Freight, Inc., No. 7:14-CV-00702, 2016 WL 1192702, at *4 (W.D. Va. Mar. 22, 2016) (”[T]he court has no difficulty finding that EDR data allows an expert to opine as to a vehicle’s speed at any given point in time.”). [xx]  See Pracht v. Saga Freight Logistics, LLC, No. 3:13-CV-529-RJC-DCK, 2015 WL 5918037, at *7 (W.D.N.C. Oct. 9, 2015).

September 3, 2020

Construction

Preparedness Plan Requirements Guidance for Construction Revised with Little Real Change

This post is co-written by Phyllis Karasov and Mike Schechter. On Wednesday, June 24, we wrote an article on the Minnesota Department of Labor and Industry’s guidance that requires a preparedness plan for the construction industry. The guidance was confusing and placed onerous responsibilities on contractors, owners and public entities, including ensuring that plans among owners, generals, subcontractors, and others align.  AGC of Minnesota and Housing First Minnesota have been advocating for meaningful clarification and change in the guidance on behalf of the construction industry. DLI updated its guidance on Thursday, June 25th. The effective date of Monday, June 29 has not changed.  Given the ongoing vagaries, late and continued updates, challenges to comply, and general confusion, AGC is working to delay this effective date to permit better dialogue with DLI, hopefully more workable guidance and communicate the guidance with the industry. As it stands now, the updated guidance does little to address the construction industry’s concerns.  The guidance lists most of its protocols as “required” with a few protocols described as “recommended.” Many additional mandates have been added.  The latest updated guidance also loosens the general contractor’s responsibility for compliance by subcontractors and others on the job site, although the general contractor is still responsible for ensuring that businesses performing work activities at the worksite have COVID-19 preparedness plans that meet the requirements of the guidance.  General contractors must also ensure diligent investigations are conducted at the worksite to evaluate and assess instances of exposure, whether actual or potential, involving workers who have COVID-19 or there is reason to believe may be COVID-19 positive. We recommend that construction contractors contact OSHA Consultation with their concerns and questions to elevate the significance of the challenges these requirements pose. OSHA Workplace Safety Consultation can be reached at OSHA.consultation@state.mn.us .  You can also contact Phyllis Karasov with questions or for assistance with the drafting of a Preparedness Plan. About the Authors Phyllis Karasov, Larkin Hoffman Phyllis Karasov is chair of the Larkin Hoffman labor and employment law practice group and advises businesses on labor and employment matters. Her clients come from a variety of sectors, including construction, manufacturing, higher education, K-12 private education, nonprofit and healthcare. She provides counsel in all areas of human resources, including hiring, handbooks, regulatory compliance, discrimination, sexual harassment, discipline and termination, Americans with Disabilities Act, OSHA rules and the Family and Medical Leave Act. As a former National Labor Relations Board attorney, Phyllis is often called upon to represent clients in labor union matters including arbitrations, collective bargaining agreements and union contracts.  Phyllis is also on the Board of Directors for the Associated General Contractors of Minnesota. Mike Schechter, Associated General Contractors of Minnesota Mike Schechter is the General Counsel and Director of Labor Relations for the Associated General Contractors of Minnesota.  AGC serves the construction industry to improve construction conditions, create jobs, promote safety, and benefit the communities.  It works with government, unions, community groups, and related businesses and associations.  You can learn more about Mike at https://www.linkedin.com/in/mikeschechter.

June 26, 2020

Construction

How Far Can the Governor Go On His Own? Part 2

Recently I commented on a growing level of concern regarding Gov. Tim Walz’s use of his statutory public safety “emergency” authority to promulgate wide-ranging and consequential executive orders affecting the state’s economy and citizens.  While many groups, including health care and service organizations, were required to suspend their operations for at least two months, the construction industry was deemed “essential” and, thus, allowed to continue normal operations, albeit subject to COVID-related “best practices”.  The good news is that the construction industry has been able to maintain its operational capacity notwithstanding a general pause in business and commercial spending.  The better news is that the construction industry seemingly has done so with very limited COVID-related infections.  You would think that would count for something? You would be wrong. With this backdrop, it was a surprise to see the new “guidance” with Executive Order 20-74 released by the state’s Department of Labor and Industry (“DLI”) which imposes significant new mandatory requirements on the construction industry.  This guidance, which has the force of law, comes with limited input from the construction industry itself.  To the extent it did consult, it chose not to listen to the concerns raised by construction industry representatives about the scope of DLI’s new policies.  These new policies “mandate” site-specific safety plans for all participants in the construction industry, whether they are general contractors, sub-contractors, suppliers, service consultants or owners.  On the surface, the notion that this industry should have credible COVID safety plans in place makes sense—which have been required since March 2020.  But DLI’s new mandatory policies turn common sense on its head by mandating an overly bureaucratic safety program for the construction industry that will be expensive, prone to errors and likely will not measurably affect safety.  Construction is unique in that the “job site” can change by the day, week or hour.  Sub-contractors and their workers come and go with no pre-determined schedule.  Combine that with the task of managing many, perhaps dozens, of active job sites, and one begins to understand the record-keeping and compliance challenge posed by the new DLI directive. Why do this? And why do this now?  Who knows?  Certainly, nobody within DLI or other state agencies have identified a problem they are seeking to solve.  It’s as though we’ve arrived at a spot in managing COVID risks in which someone’s random idea of public safety can be now be implemented simply at the stroke of a pen, with virtually no public input and dubious public policy justification, consequences be damned.  As a reminder, the governor’s authority to promulgate “emergency” Executive Orders is essentially a policy-mandating blank check.  It’s application in the modern era is without precedent and is virtually unchecked. State legislators and the electorate will (hopefully) learn a lot from the COVID-related experiences; much of it undoubtedly beneficial, but plenty to raise legitimate cause for concern.  We do want state leaders to have the authority to respond to bona fide public safety emergencies, and Gov. Walz and his administration have done that.  But about a month ago, they passed the threshold of true COVID crisis management and have missed the opportunity to bring the rest of the state along with their long term response to COVID.  It’s not too late. Executive Order 20-74: Continuing to Safely Reopen Minnesota’s Economy and Ensure Safe NonWork Activities during the COVID-19 Peacetime Emergency Order Preparedness Plan Requirements Guidance –Construction

June 23, 2020

Construction

Required COVID-19 Preparedness Plan for the Construction Industry

This post is co-written by Phyllis Karasov and Mike Schechter. This post was updated on 6/29/20 In his recent Executive Order 20-74, Governor Walz ordered critical sector businesses to create and adopt a COVID-19 preparedness plan to make workplaces safe from the spread of the coronavirus, and his administration subsequently published guidance for specific industries that pose higher risks of transmission including construction. The guidance was initially published on June 15. In consultation with Larkin Hoffman, AGC of Minnesota and Housing First Minnesota have been advocating for meaningful clarification and change in this guidance on behalf of the construction industry. They have been in communication with the governor and his staff to clarify and address problems in the guidance and have rallied other associations to the conversation. DLI updated its guidance on Thursday, June 25. What the Guidance Says The construction industry guidance is problematic—vague, over-reaching, potentially impossible to comply with, and possibly prescriptive. The “Preparedness Plan Requirements Guidance – Construction” carries the “guidance” title but reads prescriptively, telling general contractors that they must: Develop and implement a written COVID-19 Preparedness Plan that addresses the COVID-19 protocols and practices set out in the guidance that are applicable to the general contractor’s overall responsibility for work activities at the worksite and the work activities of its workers at the worksite. General contractors must ensure their plan is posted and readily available at the worksite. Ensure all businesses that have workers performing work activities at the worksite, including employees, subcontractors and independent contractors, have a written COVID-19 Preparedness Plan that complies with the guidance. Ensure COVID-19 Preparedness Plan prepared by each business at the worksite can be effectively implemented at the worksite, address any worksite-specific hazards for transmission of COVID-19 and are in alignment with the general contractor’s and other business’s COVID-19 Preparedness Plans. Follow the guidance requirements for the component of the COVID-19 Preparedness Plan, “Ensure sick workers stay home,” and ensure all businesses at the worksite are immediately informed of the possible exposure of their workers to another worker who has COVID-19 symptoms or has tested positive for COVID-19 and are advised of actions they should take in response to that exposure. Ensure diligent investigations are conducted at the worksite to assess exposure, whether actual or potential, involving workers who are confirmed COVID-19 positive, or where the general contractor and/or business have reason to believe a worker may be COVID-19 positive, to ensure timely and appropriate action is taken to mitigate the potential spread of COVID-19 among other workers at the worksite or at other worksites where that worker is or was performing work. The responsibilities for general contractors do not minimize, mitigate, or substitute for the obligations of every business at the worksite, including subcontractors and independent contractors, to develop and implement their own written COVID-19 Preparedness Plan and to take appropriate steps to address exposures to workers who have tested positive for COVID-19. Other Protocols The guidance also refers to the guidance published by the Minnesota Department of Health, OSHA and the CDC regarding social distancing, worker hygiene, work site-building and ventilation, worksite cleaning and disinfection, drop-off, pick-up and delivery, communications and training, and other protections.  There are specific protections for in-home services, such as requiring all occupants present within the residence to respond to a screening survey and verify no COVID-19 symptoms. Problems with the Guidance The guidance provides minimal information as to the specifics to be incorporated into the plan. This lack of detail creates further problems. The guidance gives conflicting directives as to whether a contractor should adopt one plan for office and field, consistent with past guidance, whether a plan must be crafted for each job site or whether all of the written plans prepared by the businesses that will engage in work at the worksite must be integrated into one plan. If the intent is to have one office and field plan, then contractors can improve their current practice and protocols with little additional disruption, risk and cost. If the guidance requires a plan per each job site, then the guidance is baffling.Crafting a detailed plan which covers probable and improbable site issues can expose a contractor to liability for minor lapses or the omission of an important protocol. Vertical plans may be inconsistent, either contradicting one another or providing details lacking in another document. On a large project, there could be dozens of plans that need to be reviewed and coordinated. A large company could be required to develop and implement hundreds of plans. The plans must be integrated with other safety plans. Companies likely will lack the experienced personnel to create, coordinate, review, train and post hundreds of site-specific plans. The administration has revised the guidance twice, most recently on the Friday before it took effect, and was unable to provide state training before it took effect.  As questions and practical problems multiply, the administration has cited no cause for the restrictive guidance or hope how anyone can comply with it in confidence. Claims Arising from the Guidance The vagaries of the guidance and the DLI’s failure to include other enforcing agencies or public owners makes it difficult to predict the ripples that will result from the guidance. The first significant question is whether the guidance requires field or site-specific Plans. Questions abound as to how the guidance will be enforced and the kinds of claims, including work stoppage orders, that can be made by DLI, labor unions, employees and third parties. Immediate Action With the guidance effective on June 29, contractors should have already developed their Plans. The guidance requires that all workers must be properly trained on and adhere to the work site’s policies, protocols, and practices described in the guidance. This training applies to subcontractors, independent contractors, vendors, and delivery, part-time and seasonal personnel. Contractors should consider using a committee of employees and management to develop their Plans. Employees who work on the project will have real-time information concerning the management of traffic flow, bottlenecks, how gatherings can be limited to 10 or fewer people, and how to stagger shifts and restroom/lunch breaks. We recommend that construction contractors contact OSHA Consultation in writingwith their concerns and questions to elevate the significance of the challenges these requirements pose. Please keep a copy of your correspondence and alert AGC so we have a record of the response rate. OSHA Workplace Safety Consultation can be reached at OSHSA.consultation@state.mn.us.  You can also contact Phyllis Karasov with questions or for assistance with the drafting of a Preparedness Plan. A copy of the updated guidance is available at: https://www.dli.mn.gov/sites/default/files/pdf/COVID_19_preparedness_plan_requirements_guidelines_construction.pdf About the Authors Phyllis Karasov, Larkin Hoffman Phyllis Karasov is chair of the Larkin Hoffman labor and employment law practice group and advises businesses on labor and employment matters. Her clients come from a variety of sectors, including construction, manufacturing, higher education, K-12 private education, nonprofit and healthcare. She provides counsel in all areas of human resources, including hiring, handbooks, regulatory compliance, discrimination, sexual harassment, discipline and termination, Americans with Disabilities Act, OSHA rules and the Family and Medical Leave Act. As a former National Labor Relations Board attorney, Phyllis is often called upon to represent clients in labor union matters including arbitrations, collective bargaining agreements and union contracts.  Phyllis is also on the Board of Directors for the Associated General Contractors of Minnesota. Mike Schechter, Associated General Contractors of Minnesota Mike Schechter is the General Counsel and Director of Labor Relations for the Associated General Contractors of Minnesota.  AGC serves the construction industry to improve construction conditions, create jobs, promote safety, and benefit the communities.  It works with government, unions, community groups, and related businesses and associations.  You can learn more about Mike at https://www.linkedin.com/in/mikeschechter.

June 23, 2020

Construction

Clouds Gathering on the Payment Horizon

There are clouds gathering now on the payment horizon for the construction industry.  The clouds converging now and on into the fall call for even greater attention to protecting construction industry receivables. This applies to the industry from top to bottom. Construction was an “essential business” allowed to continue operating in Minnesota.  That designation allowed work to continue but is no guaranty that any given project reaches completion without impact.  Even “small” impacts from slower permitting and funding approvals have ripples that can impact the ability to get paid. No construction business can survive long without timely cashflow from its receivables. Some of the converging clouds like Covid-19 health impacts and the wholesale disruption of the economy could not have been foreseen earlier when we were doing our blog series on protecting the rights to payment in construction.  Add the growing risk of business bankruptcies, the ending of stimulus money and the disruption of supply chains.  Industry surveys by the Minneapolis Federal Reserve Bank reveal a continued nervousness about construction industry conditions by fall.  Now add the ingredient of recent civil unrest, and the clouds get even darker which endangers ongoing construction and the flow of vital cash. Understanding and protecting the ability to claim a lien for labor and materials in construction needs to be a central focus to protect that flow of cash.  It is important to keep in mind that the ability to claim a lien provides a kind of collateral for the vast sums of credit that suppliers, subcontractors and contractors contribute to funding construction from one day to the next.  Imagine what would happen to construction if that pool of credit was not available and a project owner had to pay cash for labor and materials daily. Screeching halt. The ability to look to lien rights–done right– is a way to say yes to that next project without taking on existential risk to your company from late payment or even non-payment.  Protecting lien rights is a process and not an event.  That process starts at the very beginning of a jobwith good project information about the project, the players, project financing and the property involved.  Contractors need to take full advantage of contract language giving the right to project funding information.  Early attention to preliminary Notice to Owner requirements is also a must for smaller commercial construction and tenant work.  The time for Notice begins to run from first work for subcontractors and suppliers. As cash gets tight contractors also need to keep the Minnesota construction trust fund law in view.  Misdirection of trust funds can bring on a whole new level of misery. Liens must be recorded and served within 120 days of a documentable last day of work and foreclosed within one year of that date.  In most states, a Bankruptcy filing on the project does not prevent the recording of a valid lien but would halt foreclosure pending a lifting of the Automatic Stay. Actually, having to record a lien is certainly not the goal of any contractor or supplier.  Paying attention to the steps necessary to preserve the ability to record that lien isan important goal and it is time now to recognize a clouded environment in which payment risk is increasing. Take steps now to crank up attention to those lien fundamentals. The future of the company may depend on it.

June 11, 2020

Construction

Re-Opening A Business the Right Way: Tips to Avoid Pitfalls

Dan Ballintine and Phyllis Karasovdiscuss the matters employers need to consider when re-opening businesses after the Covid-19 shutdowns. Recalling only some employees, screening employees before they enter the workplace and dealing with employees who refuse to return to work are among the issues discussed. About the Larkin Hoffman Podcast Briefings The Larkin Hoffman Podcast Briefings series was developed to discuss issues affected by the COVID-19 crisis. Our attorneys address corporate, employment, real estate, construction, franchise, bankruptcy, insurance, litigation, and other matters in this series. Over the next few weeks, there will be several podcasts on developing matters. Larkin Hoffman is available to help. Please reach out for additional guidance

May 8, 2020

Construction

Understanding Employment Developments During COVID-19

Are you struggling to stay on top of the latest labor and employment legislation surrounding COVID-19?  Questions about unemployment, health, or retirement benefits available under the Families First Coronavirus Relief Act (“FFCRA”) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act? Given the rapidly changing nature of our times, our Labor and Employment practice group has been recording podcasts to help businesses and individuals understand some of the latest developments surrounding COVID-19. The podcasts inform clients about important legal developments that affect their business and enable employers to stay current with the constantly evolving legal issues related to COVID-19. In the podcasts below I have partnered with a number of our labor and employment attorneys to discuss features in both the FFCRA and the CARES Act. The podcasts provide valuable insight keeping you up to date with the latest changes in the law. The CARES Act May Increase Unemployment Benefits – April 29, 2020 Phyllis Karasov and Alex Beeby The CARES Act contains a number of provisions that make it easier to receive unemployment insurance benefits and increases the amount of unemployment benefits laid off and underemployed employees can receive. The Act also allows self-employed individuals, independent contractors and employees who are not otherwise eligible, to receive unemployment benefits. Alex and I discuss these changes and provide insight into the support the Minnesota Department of Employment and Economic Development is giving these individuals. Employee Benefit Features in the CARES Act – April 27, 2020 Phyllis Karasov and Mary Komornicka The CARES Act allows employers to make changes in its Section 401(K) and 403(b) plans to assist employees who are experiencing financial stress due to the current pandemic. The Act also provides for modifications to health insurance benefits and a waiver of the minimum distribution rules for retirement plans, through December 31, 2020.  In this podcast, Mary and I provide some clarification around these features. Questions Employers are facing Under the Families First Coronavirus Relief Act – April 20, 2020 Phyllis Karasov and Dan Ballintine Under the Families First Coronavirus Relief Act (“FFCRA”), employers with fewer than 500 employees must provide paid leave to employees who cannot work due to pandemic-related issues such as sickness and care of children whose schools have closed.  In our first podcast, Dan and I provide guidance under the new law. About the Larkin Hoffman Podcast Briefings The Larkin Hoffman Podcast Briefings series was developed to discuss issues affected by the COVID-19 crisis. Our attorneys will address corporate, employment, real estate, construction, franchise, bankruptcy, insurance, litigation, and other matters in this series. Over the next few weeks, there will be several podcasts on developing matters. Larkin Hoffman is available to help. Please reach out for additional guidance.

May 1, 2020

Construction

Construction Material Suppliers in the COVID-19 World: Uniform Commercial Code 2-615

This is the third part in this series. Part Two of this series discussed purchase order contracts for materials which may have a force majeure clause of some description (including possibly in online terms).  Where there is noexplicit force majeure clause, suppliers should look to the Uniform Commercial Code (UCC) which provides an integrated body of rules for the sale of “goods” including moveable construction materials and equipment.  The UCC is a matter of state law.  The pertinent section is Article 2 section 2-615.  The Minnesota version of the statute provides: 336.2-615 EXCUSE BY FAILURE OF PRESUPPOSED CONDITIONS. Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance: (a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c)is not a breach of duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid. (b) Where the causes mentioned in paragraph (a) affect only a partof the seller’s capacity to perform, the seller must allocate production and deliveries among the seller’s customers but may include regular customers not then under contract as well as the seller’s own requirements for further manufacture. The seller may so allocate in any manner which is fair and reasonable. (c) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer. [emphasis added] The supplier’s performance may be excused or modified where something happened that neither party could foresee.  What it would take to prove that performance has become commercially unreasonable/impracticable is an open fact question except that the cause could not be foreseen. Simple increased cost or loss of a preferred source of supply might not be enough.  A further analysis needs to examine how the event affects the supplier’s performance.  First, the supplier must give notice that the event will affect performance.  Secondly, does the event affect the supplier’s whole performance or just part? The statute a requires the seller to make commercially reasonable assessment of whether some part of the performance is still possible and allocate whatever product can be produced among the supplier’s customers if possible. The following statute section 2-616 addresses how a buyermight respond to notice that its  supplier is declaring commercial impracticability.  Where the circumstances justify it the buyer may terminate the contract and try to find the goods elsewhere.  Otherwise the circumstances may suggest supplier’s modified performance including some reasonable allocation. These statutes together also offer an opportunity and encouragement to the parties to work out an acceptable resolution between themselves where that is possible. Both 2-615 and 2-616 fill in missing pieces of the purchase order contract, but under 2-615 the seller is not home free.  The statute does not bar a buyer from suing the seller for damages which would test the supplier’s claim of impracticability. In fact, the supplier might be on the receiving end of a notice from its own supply chain and the analysis starts again. Read additional posts in the series Construction Material Suppliers in the COVID-19 World here.

April 24, 2020

Construction

Is Your Construction Site Following OSHA’s COVID-19 Guidelines?

As the agency responsible for enforcing workplace safety, the Occupational Safety and Health Administration (“OSHA”) has issued two pronouncements concerning COVID-19 and the workplace. COVID-19 Guidance for the Construction Workforce On April 21, 2020, OSHA published Guidance for the Construction Workforce which consists of tips to help reduce the risk of exposure to coronavirus in the construction industry. Most of the recommendations are what would be expected and are most likely being carried out by construction companies. Among other things, OSHA recommends that in-person meetings, including toolbox talks and safety meetings, should be as short as possible, with the number of workers in attendance limited and using social distancing practices. OSHA also recommends that employers clean and disinfect portable jobsite toilets regularly and that hand sanitizer dispensers should be filled regularly. If tools and equipment are shared, construction employers should provide and instruct workers to use alcohol-based wipes to clean tools before and after use.  If workers do not have immediate access to soap and water, employers should provide alcohol-based hand rubs containing at least 60% alcohol. Interim Enforcement Response Plan for Coronavirus 2019 On April 13, 2020, OSHA issued an Interim Enforcement Response Plan (“Interim Enforcement”) which provides instructions and guidance to area offices and safety and health officers for handling COVID-19 related complaints and severe illness reports.  The Interim Enforcement explains that OSHA investigators should use as much flexibility as possible in investigating possible violations and also ensuring that OSHA inspectors are not unduly exposed to coronavirus. Inspections The Area Director is to evaluate the risk level of exposure and prioritize resources to determine if an on-site inspection is necessary. When feasible, inspectors should use electronic means of communications, such as remote video surveillance, phone interviews, email and video conferences to investigate possible violations.  The Interim Enforcement also states that investigations and inspections in the healthcare industry have the highest priority. If there is an inspection, employers should expect that they will be asked to provide a written pandemic plan, infection control plan, protocols for use of personal protective equipment, records of employee infections or exposures, and training records relating to COVID-19. Recording of Injury/Illness Employers are responsible for recording cases of COVID-19 if all of the following requirements are met: The case is a confirmed case of COVID-19 as defined by the CDC; The case is work-related; and The case involves one or more of the recording criteria such as medical treatment and days away from work. Enforcement Discretion OSHA encourages its inspectors to determine if an employer is making a good faith effort to provide and ensure workers with the most appropriate respiratory and other personal protection equipment. Companies where fatalities and imminent danger exposures related to COVID-19 will be prioritized for inspections, with particular attention given to healthcare organizations and first responders. All other formal complaints alleging COVID-19 exposure, where employees are engaged in medium or lower exposure risk tasks, will not normally result in on-site inspections. Area offices will use non-formal procedures for investigating alleged hazards. In addition, OSHA is relaxing the requirement that an employer conduct an analysis of whether an employee’s COVID-19 diagnosis is work-related, unless objective evidence exists that a COVID-19 case is work-related. Conclusion Thus, employers should expect that OSHA may be focused more on compliance than citations.  The Interim Enforcement gives field offices flexibility and discretion to maximize OSHA’s impact in securing safe workplaces in this evolving environment.

April 24, 2020

Construction

Construction Material Suppliers in the COVID-19 World: Purchase Order Contracts with Force Majeure

This is the second part in this series. Part one addressed force majeure clauses in construction contracts and how a material supplier may have bound itself to all the terms of the general contractor’s contract documents.  That incorporation can bring the force majeure clause into play for a supplier. It also bypasses the underlying Uniform Commercial Code (UCC) contract regime for the sale of goods and introduces very significant performance risks. The supplier may have unintentionally taken on risks and burdens it did not understand or intend when it entered into the agreement. Contracts allocate risk.  Which party will bear that risk?  What relief, if any, is available? If the supplier is satisfied that it has not bound itself to the contract documents or the project plans and specifications, the analysis turns to what terms or “paperwork” passed between the supplier and its contractor customer.  Similar considerations apply between the supplier and its own supply chain. In many cases, that “paperwork” may consist of little more than an exchange of emails showing the parties agreeing to supply a quantity of something for a price. This may be enough to create an enforceable contract under the UCC, but does the agreement address force majeure?  With so much business done on the internet, a contractor or supplier may decide to post its intended contract terms online.  Both the buyer and the seller need to look closely at their order communications to discover whether those communications do actually incorporate the online terms.  Just posting something on a website does not automatically make it part of the contract.  The phrases “subject to” or “incorporate by reference” should lead the party to look further for a possible force majeure clause or other significant terms. In many cases, the internet terms may be enforceable so long as the parties’ other communications provide adequate notice of those online terms.  Failure to heed the incorporated online terms may not be a defense. If the parties have an agreement that incorporates specified terms and conditions of sale then it may have a force majeure clause.  This is more likely where the product involves goods or equipment to be custom manufactured, such as HVAC units. These may be in a printed form or posted online.  Here is an example clause from such a supplier’s internet set of Terms and Conditions of Sale: “Force Majeure. Seller will not be responsible for any delay or failure in any performance due, without limitation, to acts of God, war, warlike conditions, blockade, embargoes, riots, governmental restriction, labor disturbances, unavailability of anticipated usual means of supplies, transportation or loading facilities, wrecks, epidemics, quarantine, fire, flood, earthquake, explosion, any unforeseen change in circumstances, or any other causes beyond its reasonable control.” This broad form clause would allocate the enumerated risks to the buyer, while seller claims excuse from further performance. This assumes seller can show one of those events caused the inability to perform.  The story may not end there.  The force majeure may excuse the supplier from having to produce or deliver the equipment, however, the supplier’s failure to provide timely notice or comply with some other contract procedure may still subject the supplier to a claim for damages as the buyer tries to obtain equipment from another source.  It will be important to read the whole of the purchase contract carefully and comply with what else it may require.  Circumstances may also dictate that some remedy short of full excuse from performance is appropriate. The parties may find that they have a much narrower force majeure clause which does not, for example, mention epidemics. The actual cause of the disruption to the supply contract may not fall within the shorter list of causes.  The narrower clause may not excuse the supplier’s performance by its terms. The risk of the event presumptively falls to the supplier, however, there may be relief under a catch all phrase like “any other causes beyond its reasonable control” that some courts will read as broadening the scope of the clause. If the catch all phrase is still too narrow to deal with the risk event the supplier may yet explore whether it can resort to the underlying “safety net” provisions in Article 2 of the UCC as an alternative and what relief the UCC can provide.   Some courts have viewed even a narrow force majeureclause as the controlling expression of the parties’ allocation of risk.  In those cases the existing clause may actually preclude looking for an alternative remedy.  Where it is not precluded, however, commercial impracticability under UCC section 2-615 would be the place to look. We address how that statute might provide relief in the next post

April 16, 2020

Construction

Guidance on Managing PPP Proceeds to Maximize Loan Forgiveness

My colleagues, Todd Freeman and Dan Kadlec from our Corporate Group, have put together a podcast providing guidance on managing proceeds from the Paycheck Protection Program to maximize loan forgiveness.  Here’s a brief description of the program followed by the link to the podcast. The information here will be valuable to many in the real estate and construction industries. Your business has successfully applied for a loan under the Paycheck Protection Program. You either have received the loan proceeds or are awaiting receipt of the proceeds. This podcast addresses the management of the proceeds to ensure proper use of them and maximize the amount of proceeds that may be forgiven. Given the complex interplay among the various sets of rules for use, forgiveness, reduction in forgiveness and relief from reduction in forgiveness, compiling pertinent information to develop a game plan for these proceeds will not only allow you to maximize use and forgiveness, but also provide guidance on the support that you may provide to your workforce funded by this government program. About the Larkin Hoffman Podcast Briefings The Larkin Hoffman Podcast Briefings series was developed to discuss issues affected by the COVID-19 crisis. Our attorneys will address corporate, employment, real estate, construction, franchise, bankruptcy, insurance, litigation, and other matters in this series. Over the next few weeks, there will be several podcasts on developing matters. Larkin Hoffman is available to help.Please reach out for additional guidance.

April 16, 2020

Construction

Construction Material Suppliers in the COVID-19 World

Construction is an essential business under Minnesota’s Stay at Home order. The order itself, has not shuttered construction projects—yet–but there are many other potential impacts of the current COVID-19 crisis on those projects including disruption of supply chains. Most prime contracts and many subcontracts include force majeure clauses to address the impacts of unforeseen events. The purpose of a force majeure clause is to identify some types of unexpected contract risks that entitle a party to performance relief. The occurrence of COVID-19 alone may not be assurance of relief, so the wording of the clause is critical. Since the arrival of COVID-19, lawyers have been blogging about how those clauses may (or may not) apply to contractors. Many material supply contracts, however, do not have explicit force majeure clauses, yet suppliers find themselves caught in the middle. They can see COVID-19 related impacts from both customers above and their own supply chains below. Those impacts can be costly or even devastating. Suppliers need to act now to prepare and respond. First, it is important to acknowledge that there is no magic answer all for supplier contracts. Suppliers provide all the bricks, lumber, wire and equipment for construction. Things that are moveable when they are sold are “goods” governed generally by the rules of the Uniform Commercial Code (UCC), but in reality, contract terms and fact circumstances will be so varied that the best advice is to start “looking for trouble” early and consult your advisers. Where do you look for trouble? Begin by assessing the business relationships both above and below that have the greatest potential impact on operations. What are the real contract terms in effect? Those may not be the standard terms and conditions of sale posted on your website. In any given case, a supplier may have by-passed those terms by signing a contractor’s material supply subcontract form. It is also possible that the supplier may have simply failed to effectively incorporate these standard terms into the deal. The UCC “knock out” rule may be in operation. There is likely still an enforceable contract, but a supplier may have to look to the gap filler terms of the UCC to find answers—or at least pathways to answers. More on all of this to follow. The contracting rules for the sale of goods under the UCC are intentionally less formal than those which apply to construction contracts. As a result, a formal signed contract form for materials is the exception rather than the rule. A result of that is the potential for a kind of “gap” in contract terms between what a contractor may be bound to do and what it can require of a material supplier unless the supplier had made itself subject to those more formal and probably more stringent contract terms. This can happen by the supplier signing the contractor’s material supply subcontract form or by the supplier incorporating the terms of the upper-tier contracts into a purchase order wholesale. Common phrases that may signal this result for a supplier are “Contract Documents” and “per plans and specifications.” This may result in pulling a force majeure clause into a purchase contract, but it can also be a major source of the performance risks that the current crisis may trigger. Those risks may include product specifications and delivery schedules that can no longer be met, and the corresponding risk of significant breach of contract and damage claims. Where the supplier finds that it has bound itself to the terms of the general contract, that supplier needs to immediately access those terms and specifications to discover what the contract says and what notice may be required to activate any relief the contract’s force majeure clause may provide. There may also be claims or change request procedures to follow. The opportunities and pitfalls will be similar for suppliers and contractors under the terms of a particular clause. Note: This is the first in a series of three posts to address this issue. Should your situation require immediate attention, please feel free to contact me.

April 2, 2020

Construction

We May Soon Find Out What “Force Majeure” Means

I had been pondering a new post to my law firm’s blog, focused on a traditional real estate topic. Now, of course, we are way beyond “traditional” as governments, companies and the public at large struggle to respond in a coherent way to a relentless viral invasion. Members of our firm have been pursuing various regulatory, legislative and political strategies to protect our clients’ businesses, while being mindful of the public health implications of doing so. We anticipate a “shelter in place” order from Gov. Tim Walz could issue any day based on the actions being taken in recent days. This will place a severe restraint on the economy and our lives as we used to know it. At least for now. However, even when the virus risk begins to disappear (and it will, we are told), the ripple-effect of the rapid curtailment of the economy will continue for some time. As lawyers, we routinely review agreements with an eye toward establishing clear terms and conditions governing the conduct of the parties. We pay special attention to the terms governing the circumstance in which the one party is not performing. One of these terms is referred to as “force majeure.” While fancy-sounding, the gist is that there are some things that are beyond the control or even the expectations of the parties such that reasonable performance of the contract can be suspended or even terminated. Typically, the contractual definition of the provision includes war, natural disaster or similar “acts of God” manifestations. In my professional experience, I’ve never seen this provision invoked or enforced; that’s about to change. While there will undoubtedly be many valid circumstances under which force majeure will be used to terminate or suspend a contract, the worry is that this provision, backed up by a worldwide health and financial crisis, will be used to avoid contracts that can and should remain in effect. I believe the vast majority of businesspeople will, under the circumstances, do all they can to help a business customer or consumer manage their way through the current situation. Those conversations undoubtedly already have begun. The most critical factor in this conversation will be the duration and severity of the global downturn; notwithstanding the U.S. economy seemed to be thriving, it is not possible for many companies to simply throw a switch and magically return to the days before the virus erupted. The bad actors, including those seeking unfair advantage, will make this more challenging. So, the implications of the present crisis will be far-reaching and possibly long-standing; I’m betting on the positive forces of human nature, including instincts for survival, to see us through to the other side. Stay safe.

March 24, 2020

Construction

Insurance and COVID-19: Are We Covered?

For a period of time now businesses have seen the effects of COVID-19 on supply lines and suppliers. But now that the virus has been officially labeled a pandemic, and businesses are being asked to shut their doors to effectuate social distancing, will insurance be the last bulwark against financial harm? The answer, as always, depends. There are generally two types of claims that businesses will deal with. One is third-party claims brought by others seeking recovery due to some perceived shortcoming on the part of the business. The other is first-party losses suffered directly by the company. How can COVID-19 play into these two concerns and what are the implications for insurance? Most businesses will carry Commercial General Liability (CGL) insurance to deal with third-party claims. But what are the issues relating to disease? If a business simply fails to fulfill contracts, an argument for coverage may be difficult. Most policies contain “business risk” exclusions that expressly exclude coverage for breach of contract damages. However, if a business is sued because it allegedly failed to protect against transmission of disease, or caused another company to have to shut down its offices, there is a strong argument that coverage would be provided under the Standard CGL policy. The normal language of the policy provides coverage for “sums the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’”. “Bodily injury” is usually defined to include “sickness or disease”, and “property damage” usually includes ‘loss of use of tangible property that is not physically injured.” There are exclusions that insurers could point to, like the pollution exclusion, and some policies have specific exclusions for infectious disease. A close review of your policy is important. The bigger risk is likely the first-party loss caused by businesses being shut down entirely, or significantly curtailed. This is just the type of loss that business interruption policies were created to address. The problem is that unlike CGL policies that are pretty uniform, there is a significant amount of variance in the language of business interruption policies. Generally, these policies are meant to cover the loss of business income along with extra expenses that are occasioned by a covered cause of loss. What causes trigger coverage can vary from insurance form to insurance form. However, nearly all policy forms require some form of damage, which is often undefined. The Oxford English Dictionary defines ‘damage’ as ‘Harm or injury impairing the value and usefulness of something or the health or normal function of a person’. Additionally, the Insurance Services Office “Business Income” form (CP 00 30 04 02) provides additional coverage for losses “caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than the described premises, caused by or resulting from any Covered Cause of Loss.” The coverage requires damage to property and a covered cause of loss, which will depend on the language of your policy, but clearly there are strong arguments for coverage. The process of policy interpretation has already started. The Oceana Grill restaurant in the French Quarter of New Orleans commenced, what is believed to be, the first case seeking a declaration of coverage for COVID-19 caused losses under a business interruption policy. Cajun Conti, LLC, et al. v. Certain Underwriters at Lloyd’s London, et al.,Civil District Court for the Parish of Orleans, Louisiana. The restaurant’s policy covered “direct physical loss unless the loss is specifically excluded or limited.” It also included an extension of coverage “in the event of the businesses (sic) closure by order of Civil Authority.” The Oceana Grill’s Complaint argues that the virus causes direct physical loss to the affected premises in that the virus infects and stays on the surface of objects for an extended period of time and that contamination of the premises constitutes direct physical loss requiring remediation. Taking the argument one step further, they asserted that if the restaurant is shut down because of the presence of the COVID-19 virus in other restaurants, then they are entitled to coverage for losses under the Civil Authority coverage extension. It is important to note that the Oceana Grill’s policy did not contain a “virus” exclusion. The most important point is that the policies and circumstances differ. Making an informed decision regarding the availability of coverage requires an analysis of both. Given the breadth of the current pandemic, the best time for a review and assessment of possible insurance is now so you can make a timely claim if and when losses arise.

March 18, 2020

Construction

Coronavirus Guidance For Employers

Updated 3/16/2020 An employer’s response to the coronavirus pandemic can change from day-to-day, depending on guidance and recommendations issued by the CDC, state departments of health, OSHA and the World Health Organization. The questions employers are asking are changing depending on the day, as are the answers! Can employers question their employees about their recent travel for personal reasons? Questioning employees about their travel could, to some employees, imply invasion of privacy and the fear of potential discrimination. Many employers are asking employees to voluntarily inform their employer of their personal travel plans so the employer can decide whether the employees should be quarantined at home upon their return. An employer can inform employees that they are monitoring the coronavirus and making work-related travel decisions based on the coronavirus. They can provide employees with information about the countries that have experienced cases of coronavirus. If feasible, one person should be designated as a contact person for employees who have questions about coronavirus, have concerns about other employees and their symptoms, or fear that they may have been exposed to coronavirus. Employees should be given reassurance that these contacts will be kept confidential and will be shared with others only on a need to know basis or if required by any government agency. Can employers ask employees about their health? The Americans with Disabilities Act (ADA) prohibits an employer from making a medical inquiry or requiring medical examinations of employees, except in very specific circumstances. In general, the ADA prohibits employers from requiring medical examinations unless they are job-related and consistent with business necessity, such as if the employee poses a direct threat to others. However, because coronavirus has been declared as a pandemic, employers can ask ill employees about their symptoms, and assess whether they will allow the employee to remain in the workplace. They can take the temperature of an employee, because fever is a known symptom of coronavirus. Can employers require employees to take unpaid time off if they are ill or they have been exposed to coronavirus? If an employee has exhausted their paid time off, or they do not want to use their paid time off while home, employers face a difficult problem. It can be expensive to offer employees paid time off because the employer has requested that they not come to the workplace. If paid time off is not offered, or the employee is required to use their paid time off, they may not voluntarily report symptoms or self-quarantine themselves at home. There is no legal requirement that an employer provide paid time off to employees asked or required to remain at home and they cannot work remotely, unless otherwise required by an applicable collective bargaining agreement. Nonexempt employees do not have to be paid for hours not worked. Employers should be cautious with exempt employees. The Fair Labor Standards Act does not allow an employer to make deductions from salary for partial days not worked in a week. A deduction is permitted for absences which are covered by paid sick time or other paid time off. If an exempt employee is absent all week they do not have to be paid for that week. Can employers require employees to take unpaid time off if they are ill or they have been exposed to coronavirus? If an employee has exhausted their paid time off, or they do not want to use their paid time off while home, employers face a difficult problem. It can be expensive to offer employees paid time off because the employer has requested that they not come to the workplace. If paid time off is not offered, or the employee is required to use their paid time off, they may not voluntarily report symptoms or self-quarantine themselves at home. There is no legal requirement that an employer provide paid time off to employees asked or required to remain at home and they cannot work remotely, unless otherwise required by an applicable collective bargaining agreement. Nonexempt employees do not have to be paid for hours not worked. Employers should be cautious with exempt employees. The Fair Labor Standards Act does not allow an employer make deductions from salary for days not worked in a week during which the employee provided more than de minimis work. A deduction is permitted for absences which are covered by paid sick time or other paid time off. If an exempt employee is absent all week they do not have to be paid for that week. What issues should an employer consider when employees are working from home? Because the CDC is recommending social distancing to reduce the spread of coronavirus, many, if not most, employers are allowing employees to work from home when they can. Employers should assess each position and determine if some or all functions can be performed at home. Employers should survey employees to determine their technology capabilities at home, and what resources or equipment the employer is willing to provide to enable the employees to work at home. Employees should be told that they may be asked to perform duties not normally in their job descriptions so that work is carried out as efficiently as possible. The employer should also be clear that working remotely is a temporary measure and employees will be expected to return to the workplace when it is determined safe to do so. Nonexempt employees should record and report their hours worked so that they can be properly paid.

March 12, 2020

Construction

The Contractor’s Consent – A Trap for the Unwary

On private construction projects, the lender often requires that the owner/borrower obtain the written consent of the contractor to the collateral assignment of the construction contract by the owner to the lender. This permits the lender to step into the owner’s shoes with respect to the construction contract in the event of the owner’s default under the project loan documents. Unfortunately, the Consent forms developed by most lenders these days have many more serious implications for contractors. Although the general form of the Consent is similar among lenders, the forms are becoming increasingly customized and include many terms other than just the consent to assignment. Whenever faced with such a document, a contractor must be alert and should watch for the following: Notice of Default/Termination The Consent may require that the contractor provide written notice to the lender if there has been any default by the owner under the construction contract or if the contractor wishes to terminate the construction contract. If the contractor forgets (in the heat of the battle) to provide notice to the lender, it may render the declaration of default or termination ineffective. Failure to provide notice would also certainly impair any rights the contractor may wish to assert against the lender. Change Order Approval Most lenders’ Consent forms require the contractor to obtain prior written approval of the lender to any change orders between the contractor and the owner. Given the lender’s responsiveness, at the very least this is an administrative annoyance, but at its worst, this is a detail that could impact the Project schedule or disrupt the contractor’s negotiations with the owner. Contractors should seek to eliminate this requirement in its entirety, but failing that, should limit its applicability to only change orders over a stated dollar amount. Assignment Once a lender takes over a project from a defaulting owner, it may seek to assign the lender’s rights in the construction contract to a new entity. It will want to make that assignment without the contractor’s consent and will typically include a provision in the Consent form allowing it to do so. Contractors should be wary of these clauses and insist that no assignment can be made without the contractor’s prior written consent. Mechanics’ Lien Rights Most lenders include in their Consent forms a provision in which the contractor either waives its mechanics’ lien rights on the Project or subordinates its mechanics’ lien rights to the lender’s mortgage rights. In Minnesota, we have a statute (Minn. Stat. § 337.10, Subd. 2) that may make a prepayment lien waiver unenforceable, but it is not settled whether it makes a lien subordination unenforceable. Although such subordination clauses seem unfair, especially considering that the lender likely has a title insurer insuring its priority, lenders will resist the well-advised efforts by contractors to remove the subordination provision. Payment Upon Takeover One of the primary purposes of the Contractor’s Consent is to ensure that, if there is a default and the lender must take over an uncompleted Project, the contractor will complete the Project for the lender according to the terms of the construction contract. The typical form logically requires the lender to pay the contractor going forward from the time of lender takeover. Most forms, however, do not obligate the lender to pay the contractor any amounts unpaid at the time of takeover. This should not be acceptable to any contractor – especially one that has been required to subordinate its mechanics’ lien rights to the lender’s mortgage. Lenders have lately been more sensitive to contractors’ concerns and have been willing to agree to cure pre-takeover defaults (including payment defaults) in addition to paying post-takeover costs. This is certainly something to be negotiated by the contractor at the time it is being asked to sign a consent form. Conclusion Do not take the Contractor’s Consent lightly. Rarely should you accept the standard form you receive from the lender. Make it fair and protect your rights.

March 5, 2020

Construction

Are Attorneys’ Fees Recoverable on a Mechanics’ Lien Claim Involving a Homestead?

Under Minnesota law, a contractor may collect reasonable attorneys’ fees in a mechanics’ lien foreclosure action even if the property is a homestead. The amount of the award is in the discretion of the court. That is not the case in every state as recently illustrated in Iowa. Historically, Iowa has liberally construed its mechanics’ lien statute to promote restitution and prevent unjust enrichment. Iowa also has a longstanding history of protecting the homestead. Until recently, Iowa courts had never addressed the interplay between these competing interests. The Iowa Supreme Court recently decided Standard Water Control Systems, Inc. v. Jones, examining the intersection between Iowa Code chapter 561 concerning homesteads and chapter 572 regarding mechanics’ liens. The Supreme Court concluded that attorneys’ fees cannot be recovered by a mechanics’ lien claimant from a homestead foreclosure provided that the homeowners assert their homestead rights before a foreclosure decree is entered. Standard Water Control Systems, Inc. v. Jones In June 2013, Iowa homeowners hired a contractor to waterproof their basement. With 95% of the project completed, the contractor accidentally drilled through the home’s water and sewer lines. After the homeowners refused to pay their $5,400 bill or permit the contractor to finish the project, the contractor filed a mechanics’ lien foreclosure action against the homeowners. Following more than three years of litigation, the Iowa Court of Appeals ordered the homeowners to pay most of the contractor’s bill but sent the attorneys’ fee issue back to district court. The district court entered a revised decree granting the contractor the right to foreclose a mechanics’ lien against the home for both the principal amount due and the contractor’s attorneys’ fees. Two weeks before a scheduled sheriff’s sale of the home, and after the revised decree, the homeowners asserted their homestead exemption for the first time, claiming that the district court violated their homestead rights by including attorneys’ fees in the mechanics’ lien foreclosure decree. The homeowners argued that their house could not be sold to pay the attorneys’ fees because it was their homestead. Iowa Supreme Court’s Decision The Iowa Supreme Court decided that “homestead rights generally prevail over a mechanics’ lien including attorney fees.” It concluded, however, that homeowners must raise the homestead exemption before a foreclosure decree is entered. In this case, the homeowners asserted their homestead rights too late because the foreclosure decree had already been executed. Therefore, they waived their right to claim the homestead exemption and the attorneys’ fees were properly included in the lien foreclosure. Of course, the Iowa Supreme Court decision is nothing that cannot be changed by the state’s legislature. Such a bill, S.F. 458, is working its way through the Iowa Legislature and, if passed, will make it clear that attorneys’ fees would be recoverable in the foreclosure of a mechanics’ lien against a homestead. Subscribe to this blog and we will keep you posted on the outcome of that effort.

February 26, 2020

Construction

Warranty? What warranty?

Sometimes construction material or equipment the contractor buys turns out to be defective.  It leaks. A part is missing.  Something simply does not function straight from the box.  Jumping on the defect claim may not seem to have highest priority in the middle of a construction project.  “Back charge” may the automatic response, but it may also be the wrong one. Typically, the contractor warrants that all materials and equipment will be new and of good quality and it warrants that its workmanship will be free from defects.  The contractor usually also warrants that it will come back for one year (or more) to repair or replace work which is found to be defective (at least in the eyes of the owner). If an issue arises on the job, any differences between the contractor’s warranties and the warranties on that material or equipment become important.  Contrary to a contractor’s usual expectations, those warranties often do not correspond.  The contractor may discover it made broader warranties to an owner than the warranty available from the particular vendor and finds itself liable to the owner to fix a “defect” in the vendor’s product or system (“defect” in the eyes of the owner) or for a measure of damages not covered by the vendor’s warranty.  This hazard is particularly important in this time of pervasive design-build. When construction material or equipment arrives, the contractor has the responsibility to inspect them before they are legally accepted or rejected. (UCC 2-513).  Once the goods are accepted, the focus shifts to the vendor’s warranties.  In order to protect the right to a warranty claim against the vendor or manufacturer, UCC requires timely notice of the defect claim.  Failing to give notice can result in being barred from having any remedy. That could include effectively invalidating that back charge that jumped to mind.  Attempting to rely on an unsupportable back charge could end up exposing the contractor to a lien or bond claim by the unpaid vendor as well as the “defect” and the cost to fix it because of the upstream warranty obligations to the general contractor or the owner. The important notice requirement is UCC Section 2-607 (3)(a):  where a tender has been accepted (contractor took delivery of the goods, used them or did not send them back promptly) the buyer must, within a reasonable time after buyer discovers or should have discovered any breach of contract (defect),  notify the seller of the breach or be barred from any remedy. In addition, in recognition that vendors of goods often have little flexibility in price for most products, those vendors need to be able to control their risks because risk translates to cost.  The UCC allows vendors to disclaim most warranties and provide only a limited warranty instead.  The limited warranty is often expressed as repair or replace only.  Repair or replace generally does not include the cost to remove and reinstall. There is no universal rule for limiting this risk exposure to contractors. The UCC presents buyers and sellers of construction materials and with both opportunities and challenges.  Reading the forms you use or sign is the first step.  What warranty and what limitations does the vendor actually make? Just because someone says “per plans and specifications” may not overcome a limited repair/replace warranty or extend a short warranty into a longer one.  Even where a vendor’s warranty terms may not be very negotiable, the contractor must at least recognize and understand the risks it takes on board and manage the work accordingly. The reflexive resort to a back charge might leave that contractor high and dry.

February 14, 2020

Construction

When do Statutes of Repose Begin to Run on Condominium Projects?

A statute of repose defines the date by which a particular type of claim must be asserted before it becomes untimely, or “stale,” and can no longer be pursued.  This provides designers and builders of construction projects some security that, after a certain date, they cannot be hauled into court to answer for their alleged breaches of contract, negligence, or breaches of warranty. What if the claim involves the construction of a condominium project? Would the statute of repose be calculated based on the completion of each condominium unit, each separate building of the complex or to the entire complex? The Minnesota Supreme Court recently provided much-needed clarity regarding the application to condominiums of the statutory repose periods for breach of warranty and other claims in Village Lofts v. Housing Partners III Lofts, LLC. Statutory Residential Warranties and the Statute of Repose Minnesota Statutes Ch. 327A provides certain statutory warranties with respect to the construction of new homes and the renovation or remodeling of existing homes, including condominiums.  Village Lofts involved the assertion by a condominium homeowners association of claims against the developer and builder for, among other things, breaching the 10-year statutory warranty against major construction defects.  The project involved the construction of two separate condominium buildings, each of which was completed and occupied on different dates. In Minnesota, claims for breach of the statutory warranties are barred by the statute of repose if they “accrue” more than 10 years after the “warranty date.”  This analysis involves answering two important questions:  (1) On what date does a statutory warranty claim accrue? and (2) What is the applicable “warranty date” that starts the 10-year statute of repose running? When Does a Warranty Claim Accrue? The Supreme Court cited a case from 2004, Vlahos v. R&I Constr. of Bloomington, in stating that a breach of warranty claim accrues “ . . . when the homeowner discovers, or should have discovered, the builder’s refusal or inability to ensure the home is free from major construction defects.”  In Village Lofts, the Court concluded that the claims for breach of warranty accrued in May, 2015, at the earliest, when the Association notified the developer and builder of the alleged problems and the developer and builder did nothing.  Therefore, the Court reasoned, if the “warranty date” for the statutory warranty claims is prior to May, 2005, then the claims are barred by the 10-year statute of repose. What is the Applicable Warranty Date? Chapter 327A defines “warranty date” as “the earliest of:  (a) the date of the initial vendee’s first occupancy of the dwelling; or (b) the date upon which the initial vendee takes legal or equitable title in the dwelling.”  This definition works well with single-family homes, but it does not work well for condominiums.  In Village Lofts, the Association argued (and the Court of Appeals agreed) that the warranty date is to be determined for each individual condominium unit.  The developer and the builder argued that the warranty date has to be determined for each of the separate buildings based on when the first occupant (in each respective building) occupied or took title to that unit. The Court determined that the statute was ambiguous, which enabled it to go through a detailed exercise to interpret the Legislature’s intent and allowed it to look beyond the words of the statute.  The Court concluded after much discussion that “ . . . the Legislature intended that there be a single warranty date for a condominium building rather than different warranty dates for each unit.”  This conclusion saves us from the absurd and impractical result of having to determine warranty dates for each individual unit and permits the calculation of the statute of repose using the first unit in a building that is occupied or to which title has transferred. Non-Warranty Claims The Court also considered the statute of repose for Village Loft’s non-warranty claims.  Claims for defective and unsafe improvements to real property are governed by Minn. Stat. § 541.051, Subd. 1(a), which provides a statute of repose of 10 years “ . . . after the date of substantial completion of the construction.”  The issue in Village Lofts was whether the two condominium buildings, Buildings A and B, were considered one “improvement” or two.  The Court concluded they were two separate improvements because, among other things, (a) each was given a separate Certificate of Occupancy on different dates, (b) each building independently meets the Court’s definition of an improvement, and (c) the Legislature intended the trigger, substantial completion, to be determined when the contractor can turn the building over to the person that hired the contractor to be used for its intended purposes.  Because each building was its own improvement, the Association’s non-warranty claims were barred by the statute of repose. Conclusions and Take-Aways The “Warranty Date” for the statute of repose applicable to claims of breach of statutory warranties for condominium projects is determined on a “per building” basis, and not on a “per unit” basis. When a condominium development involves multiple buildings, each of which is deemed its own improvement, the determination of substantial completion for purposes of the application of the statute of repose for defective and unsafe improvements to real property is determined on an improvement (building) by improvement (building) basis.

January 29, 2020

Construction

Another City Attempts to Collect Illegal Transportation Fees – Struck Down by the Court Again

The development community has long maintained that the practice of cities exacting transportation fees or charges from developers as a condition of development approval is illegal, but the issue had not been directly and fully addressed by the courts until the Minnesota Supreme Court handed down its decision in Harstad v. City of Woodbury in August 2018. The supreme court confirmed that cities have no legal authority to impose transportation (also called “infrastructure” or “impact”) fees or charges and that this practice is illegal and unenforceable. Despite the supreme court’s unambiguous holding, and over the objections of builders and developers, including advocacy-group Housing First Minnesota, the City of Dayton enacted an “offsite transportation charge” requiring developers to pay these banned fees. Last week, this practice was (again) declared illegal and unenforceable when the Hennepin County District Court struck down Dayton’s fee. Dayton, a northwest Twin Cities suburb, was one of several Minnesota cities collecting transportation fees from developers when the Harstad decision was issued. In response to theHarstad ruling, Dayton admitted its transportation fee was illegal, removed the fee from its fee schedule and enacted a moratorium on development so that it could “study and respond” to the Harstad decision. After a ten-month development moratorium, Dayton announced plans to resurrect its transportation fee practice pursuant to a new policy and procedure that required developers to pay an “offsite transportation charge” in one of two forms—either a “Project Specific Transportation Charge” or a “General Transportation Fee.” Dayton, before it adopted its repackaged and relabeled transportation fee, was on notice from the building and development community that its transportation fee policy and ordinance was illegal and would be challenged in court. The city ignored these warnings and adopted its re-branded transportation fee in July 2019. Housing First Minnesota challenged Dayton’s transportation fee in court. Last week, the Hennepin County District Court, citing the recent Harstad decision, struck down the city’s transportation charge and the associated policy, procedures and ordinances implement the fee as “illegal, null and void and unenforceable” and permanently enjoined the city from enforcing its transportation fee. This is now the fourth court (including the district court and appellate courts in Harstad) to reject a city’s attempt to impose transportation fees. We fully anticipate, should there be future attempts to enact such fees, that they will meet a similar fate.

January 22, 2020

Construction

The NLRB Changes Its Mind

In December 2018, President Trump made his third appointment to the NLRB, giving the Republicans a majority on the five-person Board. 2019 has seen a number of Board decisions in which the Board reversed or narrowed its decisions made by a Board which was controlled by Democratic appointees. Union Election Rules In 2014, the NLRB announced what is often called the “quickie election” rule. This rule significantly tilted the NLRB’s election process in favor of unions. It created an accelerated election process and made it harder for employers to present arguments against union representation. On December 13, 2019, the NLRB issued a final rule amending the 2014 election rule. These amendments will go into effect on April 16, 2020. The new rule gives parties 14 business days’ notice of the pre-election hearing, as opposed to the eight calendar days under the old rule. This allows employers an opportunity to properly investigate election issues and to prepare for a possible pre-election hearing. It provides employers eight business days after it receives notice of a hearing to compile briefs and layout arguments in its statements of position. Previously, the employer was required to file and serve its statements of position one day before the opening of the pre-election hearing, which was usually seven calendar days after service of the notice of hearing. NLRB officials will also have more leeway to extend these deadlines under the new rule. Petitioners are required to respond to employers’ statements of position at least three business days before the pre-election hearing, with their position on the issues raised by the employer. Previously, petitioners were only required to respond orally to employers’ statements of position at the start of the pre-election hearing. Under that practice, the employer had almost no advance notice of potential union arguments to an employer. This amendment places equal obligations on both employers and unions. Hearings will be held prior to the election regarding disputes concerning unit scope and voter eligibility, which was not allowed under the 2014 rule. Post-hearing briefs may now be filed within five business days of the hearing. This is a complete turnaround from the 2014 rule, which removed the right of parties to file post-hearing briefs unless the party received special permission from the Reginal Director. The new rule directs regional NLRB officials to set elections no fewer than 20 business days after the direction of election, unless the parties agree to a shorter time. Under the 2014 rule, elections could be held in as few as 13 days from the filing of the petition. Use of Employer’s Email System In 2014, the NLRB issued Purple Communications, which held that an employee who was given access to their employer’s email system may use their work email, during non-working time, to engage in protected communications, i.e., communications about labor unions, wages, or other workplace issues. On December 17, 2019, the NLRB issued Caesars Entertainment, which overruled Purple Communications and restored an employer’s right to restrict employee use of its email system during nonworking time for non-work-related purposes if it does so in a nondiscriminatory manner. The decision, however, creates an exception for circumstances where the use of employer-provided email is the only reasonable means for employees to communicate with one another. The Board stated that such cases should be rare given that in modern workplaces employees have access to smartphones, social media, and personal email accounts. The scope of this exception was not defined by the Board but will be “fleshed out on a case-by-case basis.” Confidentiality in Employer Investigations In 2015, the NLRB issued Banner Health, which required employers to prove on a case-by-case basis that the integrity of an investigation would be compromised without confidentiality. In other words, an employer may restrict discussions regarding workplace investigations only where the employer shows that it has a legitimate business justification and it outweighs employees’ Section 7 rights—rights to unionize or engage in other protected activities to improve their work environment as employees. On December 17, 2019, the NLRB issued Apogee Retail LLC, which overruled Banner Health and held that work rules requiring confidentiality during a workplace investigation are presumptively lawful. In Apogee Retail, the NLRB applied the test for facially neutral workplace rules established in Boeing Co., a case that was issued in December of 2017. The Board held that investigative confidentiality rules are presumptively lawful when they apply to open investigations. But, if the rule is not limited to the duration of the investigation, the rule requires a determination of whether there is a legitimate employer justification for the restriction that outweighs any impact on employees’ Section 7 rights. What Will the Future Bring? In 2020, we can expect that the NLRB will continue to revise if not reverse other decisions made during the Obama administration. Never before has precedent had so little value, with the political affiliations of the majority of the Board affecting the Board’s decisions. Generally, Board precedent has lasted for 10, 20 or 30 years or more, but we are now seeing that political affiliation is affecting precedential value. The General Counsel for the NLRB is also looking for specific factual situations in which to argue a position that deviates from previous cases in order to create new law or to return to holdings that were the law prior to President Obama’s administration.

January 22, 2020

Construction

What Happens If You Don’t Have A Lien?

In each state, statutes govern the right to a construction lien.  It is almost inevitable that someone, someday, will not meet a required step.  The lien is lost, and with it, whatever leverage or payment security it represented. There is still a balance to collect—unless the creditor has improvidently signed something that also waives the right to payment of the claim.  This could be a Pay-If-Paid clause in the contract, or some quirk in local law extinguishes the debt as in a recent Georgia Court of Appeals decision.  ALA Construction Services v Controlled Access, Inc.(Ga Ct App, 5th Div 9-18-2019). The first thing to do is gather the facts and assess what collection rights are available.  In almost all cases there is still a basic contract claim against the other contract party.  That might be the project owner.  It might be a contractor or subcontractor.  The contract law principle of privity says that you have a contract claim against your contract counterpart. You do not have a right against a third party except in unusual circumstances.  If you sold construction widgets to a contractor, but the contractor has no money, it is unlikely you have an enforceable claim against the project owner (or the shareholders of the contractor).  Although, never say never.  There are some equitable claims which might apply to reach a third party with the right set of facts. If you think one of these unusual situations apply you should discuss this promptly with your lawyer. If you are going to have to take collection action against your contract counterpart where are you going to do that?  This is the concept of “venue.” If you had the construction lien you would (by statute) have to bring your action in the place/venue where the property was regardless of where your counterpart is located.  The project might be in Minnesota, but your counterpart is in Milwaukee, Wisconsin.  Your contract might specifically say that your counterpart has agreed to be subject to court jurisdiction in your home state of Minnesota.  In that case the venue is probably in a Minnesota court.  Without that language, however, the most likely venue for the action would be in Milwaukee, Wisconsin. Next, take a good look at your file.  Do you have the documents which form the contract?  Do you have all the invoices and were they sent to the right address of your counterpart?  Do the invoices actually add up to the balance on your books after allowing any payments or appropriate credits? Has your counterpart disputed the charges?  Did you clearly document your response to the dispute?  If any of this is missing, now would be the time to find it rather than a scramble later when your lawyer asks for it. Did you get a personal guaranty from someone?  Is it too old and likely “stale?”  Has the guarantor been notified that there is a claim on the guaranty and has there been a written demand for payment?  Courts are often solicitous of guarantors where the guaranty is old or the fact circumstances look “unfair” in some way.  If your guarantor is the owner of the construction company which has no money, then in many cases the owner will have put his or her money into the company to keep it going and may also have no money.  This is just a cautionary note to avoid unrealistic expectations.  It may also serve as a prompt to revisit the guaranty agreements you thought you had. If you must sue to collect your money the objective is a money judgment.  Each state then has its own collection procedures like garnishments, judgment liens and levies of execution which enable a sheriff to seize money or property.  These remedies almost always need a lawyer’s help to navigate successfully because states also have laws which declare some kinds of property exempt from judgment creditors. A person’s homestead is almost always at least partially exempt. Finally, if it happens that your judgment is against the Minnesota homeowner that hired you directly to do work on their home you might still end up with a “lien” even though your Minnesota mechanic’s lien was lost.  This is the result of a clause in the Minnesota State Constitution which says that the homestead exemption would not apply in this instance.  The result is that your judgment can become an enforceable lien against that homestead property. All these additional considerations for collection are second choice where a lien could have been filed.  The process of collecting your construction industry receivables starts when you first hear of the job and not when the horse has left the barn at the end. Hopefully, this series of posts has readers thinking about how they can protect their ability to collect and, at the same time, how the project owner can understand the perspective of the lower tiers of contractors and suppliers to better manage the flow of funds on the project to everyone’s benefit.

January 14, 2020

Construction

Mediation Can Pull Matters Out of the Litigation Rabbit Hole

One of the most challenging aspects of an attorney’s job is to advise a client regarding possible litigation.  I think of myself as a pragmatic business lawyer whose primary job is to help my clients achieve their business objectives.  I much prefer to accomplish this through time spent on advocacy, negotiation and problem solving.  Litigation typically is not part of the strategy to achieve client objectives unless that is the reason the client has come to me from the outset.  When litigation becomes a question or even a tactic to be considered (if the client has been sued already, that’s a different topic entirely), I try hard to give objective advice about the merits or lack thereof vs other options, as I see them.  The fact is that even when litigation goes exceedingly well, there often is substantial staff and executive time spent in pursuit of a court claim (along with mental and emotional distraction), not just dollars; and, of course, there will be dollars spent, often substantial sums, for lawyers, consultants and related costs, with no assurance of success, let alone an opportunity to recoup the spending (with some narrow exceptions).  This is time and money that could be spent either in resolving the source of the impasse or pursuing other business opportunities with a greater prospect of successful completion. Minnesota’s court system has, to its credit, aggressively pushed parties to use various forms of alternative dispute resolution (ADR)(which includes mediation) to short-circuit litigation.  Mediation can be a very effective tool for negotiating a resolution to an issue that led to actual or potential litigation; it is very flexible, usually cost-effective and based on a schedule set by the parties.  However, it is not a sure-thing.  Based on my experience with numerous mediation sessions over the years, one of the most important factors leading to a successful mediation process is timing:  how much discovery has been completed so that the parties feel they are well informed about the facts in question; how much money has been expended or is anticipated to be spent if the litigation runs its course; and how much pressure exists for one or both parties to the litigation to reach a resolution on a timely basis.  Another important factor is the willingness of the parties to sincerely engage in the mediation process; if one or both parties are not motivated to resolve the dispute, a successful mediation outcome is more challenging.  In that case, the first factor (timing) becomes more important. For those not familiar, mediation is a controlled form of negotiation involving a neutral third-party, often a lawyer but not necessarily so.  The mediators job is foremost to facilitate direct conversation between the parties for the purpose helping them see the merits of a resolution of their litigation, if possible.  In the first instance, the parties may not feel they are ready to mediate (egos, principle, anger, lack of pressure, etc.); the mediator has to find a way to give parties a voice so that they can focus more honestly on the source of the dispute.  If parties are represented by lawyers, then the mediator can encourage consultation privately to make sure each party knows what lies ahead for them if a lawsuit either is commenced or continues.  If the parties are not represented for some reason (maybe no lawsuit yet), the mediator needs to educate them about what a court process entails, both in time and money, as well as the uncertainty of a satisfactory outcome. In my experience, mediation sessions often run several hours if not a full day (including well into the evening if progress is being made and the parties see an end to the dispute).  Sometimes a mediation will extend over a couple of days to allow parties to regroup and investigate settlement options or underlying facts.  Sometimes, in spite of best efforts, mediation does not result in a conclusive settlement; but even then, mediation can positively contribute if it does nothing more than allow the parties to clarify positions, exchange pertinent information and voice objections.  Perhaps a negotiated settlement can still be achieved outside of mediation at some future point in the process (see my discussion of Factor 1 above). While I am not a fan of litigation, I realize that it is a reality for my clients in some instances, sometimes not of their choosing, but sometimes part of a business strategy.  In such case, mediation can be a useful tool to bring closure to the dispute without the extensive investment of time and money that would otherwise be required to bring a matter to conclusion through trial.  But for mediation to work, parties have to want it to work and be motivated to try.  Everything else is just details.

January 9, 2020

Construction

Bisnow Holds Inaugural “Twin Cities Power Women” Event

Bisnow’s inaugural Twin Cities Power Women event was held on December 11, 2019. The core purpose of this event was to highlight the success of women in the commercial real estate industry and showcase initiatives which have been pivotal in driving change.  I had the pleasure to serve as the moderator for the event’s panel titled “Opportunity and Inspiration: The Key to Increasing Participation of Women in the Industry.” The event celebrated pioneers of change and those pushing for equal access in the industry for Twin Cities top female executives. Keynote speaker Kari Broyles, Deputy General Counsel & Chief Real Estate Counsel, Lifetime Fitness, opened the program with the story of how she rose through the ranks in the legal profession and as a real estate attorney, both at Buffalo Wild Wings and Life Time, Inc. My panel consisted of five honorees, Anne Behrendt, President and CEO of Doran Companies; Carrie Eggleston, Development Manager, United Properties; Jaci Bell, Development Executive, Mortenson; Jennifer Koehler, Vice President, Opus AE Group; Laurie Mahowald, Vice President of Real Estate, Target; and Ericka Miller, Senior Vice President, KimbleCo. They discussed initiatives that have been transforming the landscape of commercial real estate, an industry that has traditionally been male dominated. Other honorees at the breakfast included Pat Wolf, President, Commercial Real Estate Services; Erin Fitzgerald, Principal, Transwestern; Maureen Michalski, Vice President, Development, Schafer Richardson; Barb Schuba, Principal & CFO,  Suntide Commercial Realty; Lisa Kro, CFO & CAO, Ryan Companies; Heather Weerheim, Director of Business Development, Greiner Construction; Shauen Pearce, Director of Economic Development & Inclusion Policy, City of Minneapolis; and Lori Larson, Executive Vice President, Dougherty Real Estate Equity Advisors.

January 6, 2020

Construction

Can a “Pay If Paid” Clause Bar Lien and Bond Claims in Minnesota?

This continues our blog post series on protecting payment in the construction industry. In this post, we ask the question, “Can a Pay If Paid clause bar a Minnesota lien or bond claim?” Despite the contract language, the answer might be: no. Contingent payment language is common in contracts between prime contractors and subcontractors. The answer to our question, therefore, primarily affects the potential defenses of a prime contractor against a subcontractor asserting its lien or bond claim. On private construction the answer is also important to owners. If the contractor’s Pay If Paid clause does not bar the lien, then the owner’s project is at risk and in Minnesota that could mean paying twice for the subcontractor’s work. Keep in mind, however, that the owner is already no-pay or slow-pay with that contractor to activate the Pay If Paid issue. There are two main types of contingent payment clauses in construction contracts. The most common is called Pay When Paid. This clause affects the time for a subcontractor to be paid. It shifts the risk of owner slow payment to the subcontractor. Once the prime gets paid it will owe payment to the subcontractor. Even if the contractor has not been paid it will still owe payment to the subcontractor within a “reasonable time.” Since the clause affects the timing of payment but not the right to payment, it does not bar a timely lien claim. The other contingent payment clause is called Pay If Paid. This clause is intended to affect the right to payment and shift the whole risk of owner non-payment to subcontractors. This is essentially a gambling clause for the subcontractor. It is much less common than the Pay When Paid but its impact on a subcontractor can be existential. If the subcontractor has no right to payment, it would seem to undermine the right to a lien or bond claim. Practice Pointer: Any subcontractor must read its contract carefully for contingent payment language and strike a Pay If Paid clause or offer a Pay When Paid alternative. Minnesota case law supports the reasonable enforcement of Pay When Paid clauses. The reported cases have not yet shown just how the Minnesota courts would respond to a serious attempt to enforce a Pay If Paid clause. The Minnesota Court of Appeals has said that conditions precedent, such as contingent payment, are generally disfavored. Any Pay If Paid clause would have to make owner payment an explicit and unambiguous condition precedent to the obligation to pay the subcontractor. See Mrozik Const v Lovering Assoc. 461 N.W. 2d 49 (Minn. App. 1990). The obvious unfairness of Pay If Paid from the perspective of the subcontractor is compounded by the fact that the prime contractor deals directly with the owner and is in the best position to assess the owner’s credit and financing before it takes the project and hires the subcontractor. The popular AIA A201 2017 General Conditions, for example, expressly provide that the prime contractor can request evidence that the owner has financing for the project and does not have to start work until the owner furnishes that information. A number of states have responded by outlawing the Pay If Paid clause by statute. Wisconsin is one, South Carolina and Delaware are two more. California, New York and Nevada courts handled the issue in a different way. Each barred the enforcement of Pay If Paid on the basis of public policy and that the clause amounts to a waiver in advance of the right to a lien claim. Each of those states had statutes which protected subcontractors against being compelled to waive lien rights in advance. Interestingly, Minnesota has a similar statute barring waiver in advance of lien rights which would seem to open the door to making the same argument against enforcing a Pay If Paid clause in the state. Practice Pointer: The subcontractor faced with the Pay If Paid defense to its lien claim should look to the cases in California, New York and Nevada and Minn. Stat 337.10 to push back against the clause. A Pay If Paid clause in a subcontract on public work in Minnesota is less likely to be a concern. The owner is a public entity. On bonded private construction, however, the Pay if Paid issue may threaten the ability to make a bond claim. The traditional legal obligation of a surety is co-extensive with its principal. If the bonded contractor could assert a Pay If Paid defense, the surety can assert that same defense arguing that if the contractor did not have to pay then the surety does not have to pay either. In private construction the payment bond is, essentially, intended to be in lieu of mechanic liens. In a state like Wisconsin where the Pay If Paid clause is outlawed by statute, the surety cannot rely on it as a defense. In Minnesota, the answer is less clear because a payment bond surety can be sued on the bond directly. If the bonded prime contractor is not an indispensable party to the bond claim query, what effect does that have on the surety’s ability to base its defense on a clause it plucks from its principal’s contract? Conditions precedent are generally disfavored by the courts. The first challenge would be language of the clause presenting an explicit condition precedent. Then, if the court could accept the analogy to the statutory bar against waiver of lien in advance, the surety may similarly be barred from relying upon the Pay If Paid clause. No one wants to be the test case that decides whether Minnesota’s statute barring lien waiver in advance can be used to prevent the enforcement of a Pay if Paid clause. Where the question presents an existential risk to some subcontractors, the battle will be joined and the subcontractor may find that it has some ammunition of its own to protect its right to payment.

December 4, 2019

Construction

What Surprises Lurk In That Certificate of Insurance?

This is a relevant concern not only for any project owner or developer that requires a certificate of insurance from the prime contractor. Certificates of insurance are used so commonly as proof of insurance that they may tend to be a “check the box” item that just goes into the project file without a careful reading. A certificate of insurance is generally a form document issued by an agent for a contractor’s insurance company to confirm that the company has issued a certain type of policy for certain policy limits. For example the certificate confirms that your contractor has a Commercial General Liability (CGL ) policy with the 3 million dollar limits your contract requires.  The certificate is supposed to be a summary.  It does not contain the terms of the policy.  It does, however, contain a disclaimer that the certificate is issued as a matter of information only and that the certificate confers no rights to the certificate holder.  It is not intended to amend, extend or alter the coverages set out in the policies themselves. Assume you received the contractor’s certificate of insurance for your project. You checked that box.  So what could possibly go wrong? First of all remember that the insurance identified in the certificate provides certain coverage to the named insured. That “insured” is not you, however, unless you are named as an additional insured.  Additional insured coverage means that as the certificate holder you may have the right to invoke coverage for defense or indemnity under that contractor’s insurance policy rather than your own. Additional insured coverage is not provided in the CGL policy.  It must be added, if at all, by an endorsement.  It shows up as a notation near the bottom of the Certificate. Your certificate identifies you as an additional insured, but that may not be the end of the story. Not all additional insured endorsements are created equal.  Many have important limitations in just what coverage the additional insured gets. When an injury or property damage happens you may discover that the additional insured coverage is not what it appeared. The coverage is usually no more and often less than the coverage the named insured has under the policy. It also matters when that damage occurred.  The usual CGL policy covers the named insured for bodily injury or property damage caused by the named insured during the course of the work.  That coverage ends once the work is completed.  If your occurrence comes after completion, the additional insured endorsement excludes coverage unless there is also an endorsement for completed operations. A notation of that endorsement should also show up on the certificate.   There may be other limitations on defense costs for the additional insured, or limits on liability to confirm to the underlying contract. The author recalls a subcontractor CGL policy which had an exclusion for claims involving condominiums. Accordingly, the additional insured also had no coverage for condominiums. But maybe that certificate does provide coverage despite the disclaimer. State court cases are appearing in which courts hold on particular facts that the insurance company is bound by the terms of its certificate of insurance even if that conflicts with the policy.  See T-Mobile USA v. Selective Ins. Co. of America, No. 96500, 2019 WL 5076647 (Wash. Oct. 10, 2019). Brown & Brown v Omni Metal, Inc. 317 S.W.3d 361 (Tex App-Houston[1st Dist] 2010) Practice pointer to the certificate holder: if you are intending to rely on the coverage you asked for, you need to read the policy and endorsements to see just what you are getting and don’t overlook completed operations coverage. Practice pointer to the insurance agent writing the certificate: make sure that the certificate is worded correctly when identifying additional insureds or referring to “all risk” coverage where the actual policy has limitations and exclusions.

November 27, 2019

Construction

The New Labor PRO Act Won’t Help Contractors

Whether a business’s employees are represented by a union or not, all builders should be concerned about the pending Protecting the Right to Organize Act (“PRO Act”) being considered by Congress.  If enacted, the PRO Act will alter fundamental principles of labor law and significantly prejudice the rights of employers. Supporters of the PRO Act claim that this legislation is needed to increase employee wages and create an environment in which unions can negotiate better collective bargaining agreements.  Here are a few examples of the changes which would result if the PRO Act is enacted. Employees’ Rights to Unionize and to Negotiate Contracts are Strengthened The proposed bill removes the NLRA’s prohibitions on employees engaging in secondary boycotts. This change means that unions can sponsor protests and pickets against any employer, even if the employer does not have a dispute with the union. Requires an employer to mediate and arbitrate the initial collective bargaining agreement following an election if the union and the employer are unable to reach an agreement within one year of the certification of the union. This requirement means an arbitrator would decide on the terms of the contract. Prohibits companies from permanently replacing striking workers. Prevents an employer from requiring employees to attend meetings in which the employer plans to persuade employees to vote against the union in a representation election. During an election campaign, the NLRB could issue an order that requires an employer to bargain with the union if the NLRB decides that the employer has made it impossible to conduct a fair election. Punish Violations of Workers’ Rights Outside of the NLRB Currently, the NLRB is the sole and exclusive forum in which an employee or labor union can file unfair labor practice charge against an employer. This bill would allow employees and unions to file private actions against an employer and seek damages. Allows the NLRB to levy civil penalties for violations of the NLRA, including compensatory damages and penalties on officers and directors, when the employer is found to violate the NLRA. The bill allows the NLRB to go to court and obtain an injunction to immediately reinstate a terminated employee while the investigation is ongoing if the NLRB believes the employer has terminated the employee for engaging in union activities. What Does this Mean for Contractors? This bill, if passed by Congress, will make it very difficult for employers to meet with employees and talk to them about why they should not vote for the union.  It gives the NLRB significant power to penalize employers that the NLRB deems to have violated the law, including requiring an employer to reinstate a terminated employee while the investigation is pending. Employers who are concerned about this pending legislation should write their representatives and senators to make their concerns and objections to this bill known.  This law would turn well-settled precedent upside down and poses a great danger to all employers, whether a union currently represents their employees or not.

November 20, 2019

Construction

Slow Paying Customers Can Bring a Contractor Down

This is the eighth in our series of posts on protecting the right to payment in the construction industry. I have recently seen a couple of blog posts highlighting a survey from late summer (Rabbet Partners and Procore; 2019 Construction Payments Report).  The survey reported that the direct and indirect costs of slow payment to the construction industry for 2019 were estimated to exceed 60 billion dollars. That really brings the scale of payment issues into focus for the industry from top to bottom.  Important players such as lenders and investors may be many layers removed from the nitty gritty of their projects and may not fully appreciate these impacts and what it can mean for their project investments.  The survey results also fall right in line with the theme of this series of posts around protecting the rights to payment. The survey pointed out that a company whose customers pay at 90 days typically would need up to 6 times as much cash to carry a project as the company with customers paying at 30 days. Consider that an average turnaround for a contractor’s invoice or payment application was from 50 to 75 days—but this was after up to several weeks involved in preparing and presenting the contractor’s monthly payment application.  Meanwhile, the contractor’s cash needs don’t stop.  Running out of cash for payroll and must-pay invoices is a major contributor to the subcontractor failures that can ripple through an entire project.  For small contractors the issue can be existential. The slow pay owner (or contractor) may not fully appreciate the risks that slow pay can present for the project as a whole.  Apart from triggering subcontractor failure, the effects can be slowed deliveries of critical materials that the vendor will not release without payment.  Delayed payrolls lead to layoffs of workers already in limited supply.  Work can slow down or even stop in some critical corner of the job.  In the longer term, slow payers probably will not be getting the best bids (or even any bids) going forward as subcontractors and suppliers price the costs of slow pay into their estimates. If we couple this information about slow payers with the rising concerns about tariffs on construction materials, early signs of a coming recession, and the financial bubbles which have developed both in the US and abroad, it makes for a call to action. The construction industry, at all levels, needs to step back and look realistically at both the present and the probable future of construction and direct  new attention and urgency to protecting  payment rights and cash flow. Sixty billion dollars is simply too much “lost” value to ignore not counting the more day-to-day concerns of individual construction businesses.   The state lien and bond laws exist for just this purpose—to protect the right to payment.  But those laws are not self-executing.  Most companies “know” what they need to do.  They just need to focus more effectively on doing those things.  Starting from awareness, they need to develop effective project information-gathering, including confirming the project financing.  They need to be aware of the requirements of the lien and bond laws in the states where they are operating. They need to carefully observe the preliminary notice requirements for those states keeping in mind that some of those notices might be due within days of starting work.  They also need to watch for the challenges of contingent payment language in contracts and they need to be sure to follow through to file lien or bond claims in those instances where it becomes necessary to protect payment. Risk is inherent in construction but the risks to the right to payment can be managed with the right attention. The process of collecting payment starts at the beginning and not at the end of the project.

November 20, 2019

Construction

Construction Industry Trends—Insights from the 2019 CLA Civil Construction Benchmark Report

Much of the construction practice at Larkin Hoffman involves the civil construction industry. Our interest in the current state of civil construction in the U.S. was piqued by our review of a recent study by the national accounting firm, CliftonLarsonAllen LLP (CLA). We thought the study and findings would be of interest to you, so we asked Jon Weston of CLA to post a guest blog regarding its study and the current state of the civil construction industry. We hope you find this post as interesting as we do. Here’s Jon’s report: The civil construction industry saw another very strong year in 2018. This was the third straight year of excellent operating results. While gross profit on most civil contractors were either flat or fell slightly, further controls over G&A expenses by management teams resulted in consistent results when compared to 2017 and 2016.  Backlog industry wide continues to climb with almost a month more backlog in 2018 vs. 2017.  With these great results owners of civil contractors were able to diversify their risk by pulling more cash out of their business via tax free distributions.  Overall 2018 was a great year for civil contractors which is helping get 2019 off to a great start as well. The 2019 Civil Construction Benchmark Report summarizes data from 173 civil contractors and categorizes them for comparison. The report offers key financial and non-financial information to assist civil contractors in comparing themselves to their peers. It also notes several issues at work in the industry today. Top issues for the civil construction industry in 2019 The new revenue recognition standard will not disrupt the construction industry as initially thought, but there will still be changes to consider and plan for. The new lease standard will likely be delayed one more year to December 31, 2021. Combined with increased equipment financing costs, this makes renting equipment possibly more attractive in the next couple of years. Companies should be proactive in tracking their leases and organizing all the needed documentation to properly implement these changes. With the political environment split so heavily, funding for needed infrastructure improvements to the United States’ roads, bridges, flood management, and other areas is uncertain. The improvements appear to be supported by both sides in Congress, but political differences may cause funding shortages. Green and other environmentally friendly production and construction methods are the wave of the future. Consider investing or developing these methods to be on the leading edge of this shift and possibly take advantage of the research and development tax credit. With the import and export market affected by changing tariffs, forecasting costs continues to be difficult, and prices may change significantly after bids have gone out. Issues involving skilled labor and the next generation of management continue to be a challenge in the industry. Finding the next generation of workers is paramount to future success. Climate change is impacting jobs. Inclement weather is causing delays and affecting production. Contractors continue to look at more prefabricating in their shops instead of on the job site to help combat delays. Click on the link below to learn more: https://www.claconnect.com/resources/white-papers/2019/insights-from-the-2019-cla-civil-construction-benchmark-report

November 6, 2019

Construction

The Importance of Lien Waivers

Lien waivers do not get the respect they deserve in the realm of protecting the rights to payment in construction. In a prior post in this series we shifted the focus to the owner’s perspective on the problems of liens and payment including the need for collecting lien waivers. Lien waivers are important to both owners and claimants because they are a customary tool for managing risks of liens on one hand and payment on the other. Lien waivers serve as a paid receipt. Provided they are used and understood properly, lien waivers should help to track the money on the project and continuously clear the lien rights of contractors and suppliers. In most cases, lien waivers require consideration to be enforceable.  That should mean that the party giving a waiver has actually been paid.  In many cases, however, contractors or owners demand lien waivers as a condition for payment, or a potential claimant fails to use the correct form.  Contractors and suppliers may fail to read the small print on what they sign and risk unintended loss of lien rights. Owners often fail to appreciate that they need the waivers of subcontractors and suppliers and not just their general contractor.   Any of these scenarios represents an avoidable breakdown of sound practices with consequences. It is also important to know that there are some states where lien waivers do not require consideration. In those states, the waiver is considered to be “live” when it leaves the signer’s hand.  So, an extra degree of caution is required in those states. There are two main types of lien waivers: full final payment and partial payment.  Each of those has two sub types: unconditional and conditional.  About 12 states now prescribe lien waiver forms.  In California, for instance, the correct form in each category is prescribed and required.   In most states the lien waiver form is a choice even where the form of a conditional waiver is not formally recognized in the statutes. A full final unconditional lien waiver is appropriate where the contractor or supplier is actually paid in full. A conditional final lien waiver addresses the situation where the owner, lender or contractor is insisting that it collect all the final lien waivers before it will release the final funds.  A conditional waiver normally reflects that the signer is not paid yet.  Often the signer holds a check in exchange for the conditional waiver, but the waiver itself states it is only effective when that check clears the bank on which it has been written.  If that should fail to occur, the lien waiver is not effective. The language of the waiver is a clear indication to the receiving party, in order to avoid any misunderstanding, that final payment has not been made and  that some follow up will be required. Final waiver forms need to be read with care. Some final waiver forms contain other language such as an affidavit affirming that all labor and materials have been paid, additional warranties or waivers of any lingering claims. Partial lien waivers, both unconditional and conditional, work the same way, but in the world of partial lien waivers there are additional cautions. First, an unconditional lien waiver is not appropriate where the signer does not have at least a check in hand.  Unconditional waivers should not be released for any amount that is not presently paid.   If the money is not presently paid, the appropriate form is a conditional waiver.  Further, however, lien waivers requested from the lower tiers of subcontractors and suppliers are often non-standard forms and may contain additional language or waivers of rights which may or may not be correct or intended.  There is also an important distinction between waiving lien rights through a date versus waiving only through an amount.  It is all too easy to waive rights through a date only to discover that there was more work or material which had not been billed and is now without lien protection.   Lien waivers only for payment actually received is the safest route to take. Sound lien waiver practice is good for both the owner and the lien claimant. To avoid unnecessary surprises all industry participants should use the right type of lien waiver form and read it before signing it.

November 6, 2019

Construction

Using Payment Bonds to Protect Payment Rights in Construction

This is the sixth post in our Construction series, Protecting Payment. In the last post I suggested surety bonds as one way an owner could either avoid or “remove” liens.   Consistent with our focus on the theme of protecting the right to payment, this post will focus on payment bonds for private construction.  Payment bonds usually provide a shorter and straighter path to payment than construction liens, but bond claims are not fool proof.  Every potential bond claimant needs to remain aware of the limitations. Private project owners have the choice to require their prime contractor or contractors to provide surety bonds. The cost of the bond premium usually rolls into the contractor’s price, but provides important value to the owner.   Most construction surety bonds come in two parts.  One is a performance bond for completion of the contract work.  The other is a payment bond for labor and materials. The bonded contractor then also has the choice to require similar bonds for its protection from subcontractors. A surety is a guarantor standing behind the commitment of its bonded contractor to perform the contract and pay for labor and materials. A surety bond is not insurance, however.  The surety never plans to pay claims out of its own pocket like an insurance company.  The surety has a contract called a General Agreement of Indemnity (GAI) with its contractor.  The GAI spells out rights of the surety and responsibilities of the contractor including the obligation to ultimately hold the surety harmless from claims.   Both the contractor and the surety share the economic interest of vetting claims carefully and resisting them where there are disputes or defenses.  The bonds themselves have time limits to make and enforce claims and may limit who can make a claim at all.  Any party who expects to look to a payment bond to protect its rights to payment on a construction project should get a copy of the bond and read it to know what the terms are.  An owner that wants to invoke a contractor’s bond cannot, itself, be in default under the contract. Not every contractor can provide a bond. The process of obtaining bonds from a surety is similar to obtaining a line of credit from a bank.  It involves financial and other business analysis of the contractor to determine the degree of risk that the surety is willing to underwrite.  That is why the issuance of a bond is some assurance that the contractor met the surety’s requirements. In most cases a party makes a claim on a payment bond with a written notice to the owner, contractor and the surety. An owner can also make a claim on its prime contractor’s bond where, for instance, a lien has been filed.   The surety will investigate the claim by sending the claim to the bonded contractor for an explanation and attention.  If the claim is valid and not disputed the surety will look to its contractor to pay the claim. If the contractor disputes the claim the surety will generally deny the claim and look to the contractor to defend it.  If the dispute, itself, is “invalid” or if the contractor is not able to pay the claim, the surety may have to step in and pay or defend on its own. A surety‘s obligation is co-extensive with its bonded contractor. If the contractor does not owe a claim or has some defense to the claim, the surety is entitled to rely on the same defense,  plus a surety has some defenses of its own, based on the terms of the bond, such as the requirements for timely notice of claims. The GAI also entitles a surety to additional rights including the right to freeze contract balances in the owner’s hands or demand that the contractor produce collateral to protect the surety’s ability to be indemnified if the surety risks paying  out of its pocket. Using a payment bond to “bond off” a threatened or recorded lien is a creative way to use the surety’s guaranty. This can be accomplished with a statutory procedure or even with a written agreement which results in the lien being released from the property and the claim transferring to the bond.  This can free the property for a sale or a new mortgage.  The bond should provide that the surety simply pays the claim (if the owner has not done so) either when it is reduced to judgment or by agreement.  This can bypass many of the headaches of a lien foreclosure such as priority battles and sheriff sales which can run up costs and delay payment of the claim. When owners, contractors and potential claimants understand surety bonds and use them creatively, payment bonds can be the right tool to protect the right to payment and to protect an owner from claims.

October 22, 2019

Construction

Protecting Church Real Estate Assets—Case Studies from the Twin Cities

When a developer proposed a 29-story tower above the oldest church in Minneapolis, threatening the stability of historic buildings, what did church leaders do? They went on the offensive and brushed up on their rights under land use and zoning regulations.  That was one of several case studies presented by land use and real estate attorneys Jake Steen, Brandi Kerber, Victoria Dutcher, Bryan Huntington and Bill Griffith at a recent conference for church business leaders hosted by Larkin Hoffman. The case involved the redevelopment of Nye’s piano bar in Minneapolis into shops and housing immediately adjacent to the historic church of Our Lady of Lourdes.  “We helped the church use the heritage preservation guidelines to go on the offensive since the church was identified as historically significant,” according to Jake Steen.  Steen, who spent five years in planning at the City of Minneapolis, added, “It’s also located in the St. Anthony Falls Historic District so there are district and individual protections for the church and we were able to identify historical damage that was done by similar projects.” Ultimately, church leaders persuaded the development team to scale back the Nye’s project to six stories. City leaders required preservation of the historic elements of the Nye’s building which were incorporated in the redevelopment project. During construction, church leaders granted the developer construction rights through an easement over church property. Brandi Kerber negotiated the terms of the easement, “which allowed the contractor to swing their cranes over the church property.”  Kerber said, “We put a number of provisions in the easement to address construction vibration and compensation for any damage to church property, as well as restoration of the site.” Another case study presented by the panel involved the reconstruction of the Dorothy Day Shelter in downtown St. Paul across from the historic church of The Assumption.  Victoria Dutcher and Brandi Kerber assisted the church in detailed review of title documents dating to the 1800s.  “Catholic Charities approached the City to use a public right of way for parking,” according to Dutcher. “We learned that the church had underlying rights to the real estate on which the parking was proposed and investigated title for the church.  In the end, this discovery led to a long-term parking arrangement between the City, the church and Catholic Charities.” An often overlooked federal law has helped local churches negotiate with government officials in matters of land use and zoning. Bryan Huntington described how the Religious Land Use and Institutionalized Persons Act (“RLUIPA”) was recently used to secure zoning for a drop-in site for the homeless in St. Paul.  First Lutheran Church has a relationship with Listening House, which provides services to the homeless. The City of St. Paul placed restrictions on Listening House, including that only 20 homeless persons a day could be served—even though there was capacity to serve many more.  The church sued under RLUIPA and, following a settlement, was awarded over $300,000 in attorney’s fees.  “Attorney’s fees are a powerful remedy in a land use case.  The threat of attorney fee recovery dramatically changes the stakes in favor of churches and religious institutions,” according to Huntington. Brandi Kerber also addressed the importance of understanding whether rental restrictions apply to church housing and knowing how to file for real estate tax exemption. “We were faced with trying to figure out how to transport cloistered nuns from their property for a routine property inspection,” said Kerber.  “We convinced the City that the nuns were exempt from the rental housing provisions and some cities later changed their ordinances to exempt church property.” Whether negotiating leases for cell towers, parking or charter schools, or negotiating zoning approvals, real estate issues increasingly present complex decisions for churches. Church business leaders are learning to develop sophisticated strategies and policies for protecting church assets and often turn to land use and real estate attorneys for critical advice. Bill Griffith practices land use, real estate and municipal law at Larkin Hoffman. He represents a number of churches, charters schools, and nonprofit institutions, among his other real estate clients.  Bill served as moderator of the real estate panel.

October 16, 2019

Construction

Protecting Payment–The Owners Perspective

This is the fifth in our series of blog posts regarding the protection of the right to payment in construction with a focus on mechanics and construction liens. This time the focus is reversed. There are obviously two sides to the payment and lien equation. An owner’s perspective on lien claims is that there should never be a lien on a project. It is a fact that state lien laws create involuntary rights to liens.  Lien claims are avoidable.  But how to get there? The owner’s first line of defense should be to see that everyone gets paid. Owners need to adopt  rigorous payment  processes  with documentation, timely payment and lien waivers (including subcontractors and suppliers).  Joint payment checks may be a useful tool for this process.   Owners must also require similar processes at the contractor level.  This should be spelled out in the contract and enforced through the contract provisions requiring the contractor to keep the project clear of liens and indemnify the owner (assuming it is not the owner that is in default). If the owner is just the lessor of the property and the work is contracted by a tenant, there are often statutes providing a notice of non-responsibility for work not authorized by the owner. This can effectively limit lien rights to the leasehold interest of the tenant and protect the owner’s  fee title. On projects of any size, owners should consider requiring performance and payment bonds from the prime contractor or contractors.  Adding the cost of bond premiums to a project also adds value.  It can buy the owner protection against both contractor default and lien claims.  It has the incidental benefit of assuring an owner that a bonded contractor has been vetted by its surety company. No-lien-contracts are not a good way to avoid liens in most states. Such provisions are barred by statute in many states and may be prohibited indirectly by laws against requiring lien waivers in advance.  California and New York, for example, have reached this result in case law. If a lien does appear, the owner should gather the facts. There are several reasons for the owner to actively investigate.  One is to facilitate the owner’s tender of lien defense to the contractor with an indemnity obligation.  Another is to determine if a payment problem somewhere in the project is a symptom of some larger concern.   If a key subcontractor is in trouble, the whole project might be in trouble.  The lien was the canary in the coal mine.   A lien claim may also trigger a judicious withholding of funds to cover the lien with care to not strangle the contractor and precipitate even more liens.  The owner might also choose to pay good claims directly and claim a suitable credit against the contract price. From the facts, the owner can make an independent risk assessment of the lien. The owner should review the lien basics for any identifiable defect. Was the lien timely? Does it identify the correct property? Did the claimant serve the proper early notices?  Is the amount (although probably disputed) within a “reasonable” range? If the lien is truly defective or wildly overstated it might give rise to a claim of slander of title or an action to determine adverse claims.   Allegations of lien defect mostly form the basis for negotiations and foreclosure defenses.  Overstatement can, in some instances, actually get a lien voided.   Slander of title claims are another common threat, but rarely pursued, because the standard for proof of the required “malice” element is high. If the lien is a particular problem because of a pending sale or financing, most states have a procedure to bond off the lien. This substitutes a payment surety bond in place of the lien. The bond premium is a cost to the owner but the benefit is that the lien is taken off the title so that the transaction can go forward—presumably to the owner’s greater benefit. Altogether there is quite a bit that an owner can do to avoid and manage lien claims. Owners need the credit that all the contract tiers extend in order to build the project. That credit rests in large part on the fact that the lien laws exist. It is for the owner to recognize and balance the risks of lien claims through good contracts, documentation and project management to handle lien issues.

October 15, 2019

Construction

What is a Lienable Contribution?

This is the fourth in a series of posts addressing the protection of the right to payment in the construction industry using construction lien rights as a tool.   Prior posts reviewed the information and analysis needed to identify available lien protections and the early notices many states require. This post highlights the fact that things are not always what they seem.  Sometimes what looks like a lien claim is not and vice versa.  It pays to ask more questions and to remember that state laws vary on what is a lienable contribution. A lien claim generally requires a contribution to a “permanent” improvement to “real property”. Sometimes that project site is actually not lienable real property. The simplest example would be property which is publicly owned. This is where the public work surety bond laws would come into play. A building project can have a mix of public and private interests which create an uncertain result.  Where the work is a private structure on public land, or a public structure on private land the terms of the lease or other agreements involved are critical to decide which way that project falls.  Who owns that private structure on leased public land when the lease ends?  If the project is really net “public” should it have been bonded? The real property interest that the contracting party enjoys can determine what is lienable. Beyond the simple fee titles there are other more limited interests in real property that may be lienable. A tenant’s leasehold interest is generally lienable and usually (but not always) the underlying title is also lienable.   An easement is an agreement permitting someone to use or occupy property with a more limited bundle of rights. Some easements may be lienable and some may not.  The recent tide of wind and solar electric projects employs a wide variety of land use arrangements from outright land ownership to leases and easements that make the parsing out of any possible lien rights a very complicated challenge. Also be aware that the various American Indian Nations are sovereign entities. As such, their tribal lands are not subject to state construction lien laws and no lien rights are available. Sometimes a lienable contribution is not “visible” at the project site. In most states, professional architects and engineers have liens for their work.  Even when a project fails to come up out of the ground their design work may be treated as a “constructive contribution to a permanent improvement” giving rise to a lien claim– subject to a finding of sufficient consent or authorization of the design work by the property owner. Sometimes that seemingly “permanent structure” is just personal property and not lienable. Leases can, again, hold surprises.  An Illinois case involved a lien claim on a wind turbine tower.  The court looked to the wind developer’s lease on the tower site.  It found language obligating the developer to remove the tower from the surrounding farm land at the end of the lease.  The court concluded that meant that the tower was personal property or a trade fixture on the land and not a lienable permanent improvement.  Goodbye three million dollar lien. Sometimes the lien claim might come as a complete surprise from “left field.” Union fringe benefit fund trustees can have lien rights for unpaid fringes as an extension of workers’ wages.  Failure of a lower tier union subcontractor may result in a very surprising lien on a project. While the general outline of states’ lien laws is predictable, the possible fact variations are many. Once the lien claimant zeros in on the location, timing and notice requirements for a lien, it is still necessary to take a close look at the project property and what is included in that claim to assure that it can pass muster when it meets the likely challenges by project owners and other interested parties. The next post will address some of those challenges.

October 8, 2019

Construction

Early Notice May be Required to Qualify for Lien Protections

This is the third in a series of posts on protecting the right to payment in the construction industry. In the last post we reviewed the information and analysis needed to identify the  protections  available in a given situation.  Collecting and acting on good and focused information are the key. Next, however, comes the need to pay attention to whatever early notices a state may require in order to qualify for lien protections. These notice requirements are a matter of state laws.  They can vary quite a bit from no notice required to notice on all of your projects.  Missing a notice can mean no lien rights in as little as the first 20 days in some states.  The steps outlined in the last post will help you zero in on just what notice you may need for  the states where you do business. Potential lien claimants experience these notice requirements as a hurdle.  In most cases, however, the legislation’s real purpose  is to protect  the property of an owner.  Unlike a mortgage, construction liens arise by statute without any express agreement by the property owner to grant the lien.  Historically, a lien claim might be coming from a subcontractor or a supplier the owner did not know about.  Judging that surprise to be unfair, state legislatures created various forms of required early notices to owners.  Most warn the owner that liens may apply and encourage owners to be careful to get lien waivers from  contractors and suppliers.  The incidental benefit for subcontractors and suppliers is that the waiver reflects a bill was paid. There are too many variations in the notice requirements from state-to-state to cover them all in a blog post. We can pick several, however, as illustrations.  A simple example may be North Dakota where an early notice is optional giving an owner the ability to pay a potential claimant directly and take a credit against the main contract price. Michigan takes a different approach. The statutes direct Michigan owners to record and post a Notice of Commencement with important project information for the benefit of subcontractors and suppliers.   The subcontractor or supplier in turn must serve a Notice of Furnishing to the owner and general contractor  within 20 days of first furnishing labor or materials to inform them of participation in the project. Minnesota is an example of a more selective notice requirement aimed at informing the presumably “less sophisticated” owner of the risk of liens and the right to require lien waivers or pay directly. The notice is required within 45 days of first labor or materials for residential, agricultural and small commercial construction under 5000 square feet. California is an example of a much more stringent notice requirement. California requires a notice on all public and private construction projects within 20 days of providing first labor or materials. The notice provides important information.   The recipients include the owner, the general contractor and the project lenders. The notice is mandatory and California licensed contractors can face discipline if they fail to give the required notice.  Missing the notice is fatal to a California lien claim. Take a moment to think about what states you are or may soon be doing business in. Find out what the early notice requirements are for those states  and what form that notice should take.  The state statutes are generally available online and sometimes provide a sample of the preferred form with any  “magic words” that need to be included.  If those requirements seem opaque or DYI is not your thing a law firm can help you. In the next post we will discuss what improvements are lienable and for what amount. The answers are not always obvious and  the stakes are too high to put it off.

October 1, 2019

Construction

Construction Liens Must be Protected Early – Sometimes Within Weeks of Starting a Job

This is the second in our series on protecting the right to payment in the construction industry. In the first of our series we set the stage for using construction lien rights to enable the credit that runs the construction industry and as a form of security for payment. Those lien rights are not self-executing, however. There is important early work to be done to properly protect them. Many states have early notice requirements and the unprepared can lose the right to a lien within weeks of starting a job. Any successful strategy for protecting the right to payment begins with information and analysis. This sounds complicated but really should not be. A job information sheet can help prompt the right questions and organize the answers. Don’t overlook the fact that some of this information may already be in a sales or bidding file. Here are the simple steps to follow: Start by gathering the facts about the project. Where is the job site? This will tell us what state or federal law applies. Location information should also include the job site address where you will show up to work or deliver. Is what you do or sell part of a permanent or a long term “improvement” to real estate? The work may be either horizontal or vertical and might even be performed off-site, but in most cases it should involve some visible change to the property. Who is the owner of the project? Is it a private party such as a company or an individual? Get a name and address. If the owner is private, lien rights probably apply. Is the work it for a tenant? If the owner is residential, is it for one unit or many? There are often special rules for single unit residential. If the owner is public, however, there is probably a payment bond but no lien claim. Payment bond discussion comes later. Who are you going to do business with? Will it be the owner or a general contractor or a subcontractor? Get the names and addresses. This can help you determine who you may have to send notices to. How “big” is this job? For private work this is usually the number of living units or “floor” area. Again, this can help you determine who you may have to send notices to. If the owner is public, what is the best estimate of the overall contract price? This can help you determine whether the project meets a statutory threshold for a payment bond. When did you or will you first start work or deliveries? Time can be critical. In many cases you may be able to give any necessary notices “early” and not have to count out the prescribed number of days. Now review your answers against the notice and lien requirements in the state where your job is located and you are ready for the next in our series about the whatandwhy of the various kinds of preliminary notices.

September 4, 2019

Construction

What and Why are Construction Liens Anyway?

This post is the first of a series to highlight means and methods for businesses in the construction industry to protect their rights to payment for what they do. Follow along as we touch on issues of  contracts, collections, construction liens and the corresponding interests of the developers and property owners who build.  Although the author is writing from Minnesota the blog series focus will strive for a much broader application so that it can benefit  a reader anywhere in the country. What and Why are Construction liens anyway? Protecting the right to get paid is central to any business. The construction industry is our Exhibit A.  Building and development can be cyclical. Most construction bumps along to a successful conclusion, but sometimes projects fail.  Nonpayment can then present existential problems to those who have not been paying close attention to protecting their right to payment.  Sometimes that right involves a lien claim. Construction liens, also called mechanic liens, are a kind of security interest created under state laws to give labor and material suppliers an enforceable claim against real estate they improve. Thomas Jefferson introduced the first examples in American law  as an inducement to facilitate the construction of Washington DC. Often described as a “remedy” for the construction industry, liens  also function as a credit granting device which greases the gears of an industry that runs on the substantial amounts of credit that the participants are willing to extend to build a project.  The ability to invoke  lien protection enables a contractor or supplier to say yes to new business, but the ability to invoke that lien is not self-executing.  Every state requires  steps and notices to claim and perfect that lien.  In many cases those steps and notices redound to the protection of the property rights of owners and lenders in a balancing of interests developed  during a century and more.  But for the possibility of lien protection, however, the lending and construction industry would not function  as we know it. This blog series will explore the information and analysis that goes into any successful construction lien claim. It will also cover the importance of the various kinds of notice to owner reminding owners of the steps they should take to protect their property against liens not the least of which is careful attention to lien waivers for payment. Construction liens pertain to private property. Public property is generally not subject to liens but since public construction involves  same kinds of credit and payment issues we will also cover the use of surety bonds  to provide comparable rights for public construction with their own set of protections and limitations.

August 21, 2019

Construction

Minneapolis Piles Notice Requirements on State’s New Wage Theft Laws

The Minnesota Legislature passed sweeping new amendments to statutes which create criminal penalties for the failure to pay wages and impose requirements for employers (including contractors) to document the terms of employment with their employees.  The new amendments took effect July 1, 2019.  Then, on August 8, Minneapolis passed an ordinance, essentially piggybacking on the new law, requiring employers (including contractors) to provide new notices to employees effective January 1, 2020.  The ordinance applies not only to employers with brick and mortar locations within the City’s limits, but also employers outside the City with employees who work at least 80 hours each year inside its limits. Let’s take a closer look at these new laws and what actions an employer needs to take. State Changes Wage Theft Effective August 1, 2019, Minnesota law makes clear that prison time can be imposed for wage theft.  “Wage theft” is defined as occurring “when an employer with intent to defraud” fails to pay an employee all wages, salary, gratuities, earnings, or commissions at the employee’s rate or rates of pay or at the rate or rates required by law, or makes or attempts to make it appear in any manner that the wages paid to an employee were greater than the amount actually paid to the employee. Wage theft is now punishable by imprisonment of up to twenty years and a fine of $100,000 for wage theft in excess of $35,000, ten years and a fine of $20,000 for wage theft exceeding $5,000, and five years and a penalty of $10,000 for wage theft exceeding $1,000. Earnings Statement As part of the new legislation, effective July 1, 2019, employers are required to provide employees, at the end of each payroll period, an earnings statement which includes the following information (newly added requirements are italicized): the name of the employee; the hourly rate or rates of pay and basis thereof, including whether the employee is paid by hour, shift, day, week, salary, piece, commission or other method; allowances, if any, claimed pursuant to permitted meals and lodging; the total number of hours worked by the employee unless exempt from minimum wage and overtime; the total amount of gross pay earned by the employee during the period; a list of the deductions made from the employee’s pay, the net amount of pay after all deductions are made, the date on which the pay period ends, the legal name of the employer and the operating name of the employer if different from the legal name, the physical address of the employer’s main office or principal place of business, and a mailing address if different, and the telephone number of the employer. Information at Commencement of Employment Employers must also provide new employees at the start of employment with the following written information: the rate or rates of pay and basis thereof, including whether the employee is paid by the hour, shift, day, week, salary, piece, commission or other method, and the specific application of any additional rates; allowances, if any, claimed pursuant to permitted meals and lodging; paid vacation, sick time or other paid time off accruals and terms of use; the employee’s employment status and whether the employee is exempt from minimum wage and overtime, and on what basis; a list of deductions that may be made from the employee’s pay; the number of days in the pay period, the regularly scheduled pay date, and the pay day on which the employee will receive the first payment of wages earned; the legal name of the employer and the operating name of the employer if different from the legal name; the physical address of the employer’s main office or principal place of business, and a mailing address if different; and the telephone number of the employer. Employers must also keep a copy of this notice signed by each employee acknowledging receipt of the notice.  They must also provide the employee any written changes to the information contained in the notice prior to the date the changes take effect.  The notice must be provided to each employee in English, and include text provided by the Commissioner of the Minnesota Department of Labor & Industry that informs employees they may request that the notice be provided in a language other than English.  If requested, employers must provide the notice in the language requested by the employee, but the Commissioner must assist employers with translation of the notice in the languages requested by their employees. List of Personnel Policies As of July 1, 2019, employers (including contractors) must maintain a list of the personnel policies provided the employee, including the date the policies were given to the employee and a brief description of the policies as well as a copy of the notice provided to each employee, including any written changes to the notice.  It is possible that providing a list of the table of contents of an employee handbook may suffice with respect to policies contained within the handbook.  Employers must keep these records readily available for inspection by the Commissioner within 72 hours of a demand.  Failure to keep the proper records allows the Commissioner, in a wage dispute, to make his or her own determination of any wages that are due based on available evidence.  A $5,000 fine for “each repeated failure” may be levied.  The new legislation also imposes criminal penalties upon employers who hinder or delay the Commissioner in the performance of his or her duties. The New Minneapolis Ordinance Under the new Minneapolis ordinance, employers (including contractors) are required to provide a written notice at the time of hiring, and prior to the commencement of work, which includes the following information (which is new and additional to what is required under the State wage theft law): the date on which employment will start; the employer’s policy regarding tips, and state that tip sharing is voluntary under Minnesota law (if the employee will be in a position to receive tips); the employer’s overtime policy applicable to the employee’s position and the rate of pay that will apply to straight time and overtime; and details about the employee’s rights under the Minneapolis Sick and Safe Ordinance (our previous article regarding the Minneapolis Sick and Safe Ordinance is attached here ). The notice regarding the Minneapolis Sick and Safe Ordinance must provide how sick and safe leave is accrued, the first date when the employee will be entitled to use any accrued time under the ordinance, and the beginning and end dates of the employer’s year for purposes of sick and safe time accrual. Unlike the State’s wage theft notice requirement, the Minneapolis ordinance explicitly allows the notice to simply reference the employer’s handbook or other policies, which contain the required information, as opposed to repeating that information, in full, in the notice.  But like the Minnesota wage theft notice, the Minneapolis ordinance requires employees to sign the pre-hire notice in order to acknowledge its receipt (electronic signatures are acceptable).  Any changes to the information contained in that pre-hire notice will require an additional written notice to the employee prior to the date the changes take effect (which does not need to be signed). The Minneapolis ordinance also requires that any employee who is employed prior to January 1, 2020, be provided the equivalent of the full, pre-hire notice.  The State wage theft law, to the contrary, allows employers to wait to provide the information required in the pre-hire notice to employees who were employed prior to its July 1, 2019, effective date until their terms of employment change.  The Minneapolis ordinance requires that the notice be provided to all existing employees, who were hired prior to January 1, 2020, no later than the end of the first full payroll period in 2020 (i.e. employers are not allowed to wait until a change is made in their terms of employment to provide the information required in the pre-hire notice). The new Minneapolis ordinance also requires that earning statements be provided to employees every payroll period which include the amount of accrued sick and safe time available to the employee. What Should Employers and Contractors Do Now? The State’s Wage Theft Law has been enacted, so employers need to be in compliance now.  The Minneapolis ordinance doesn’t take effect until the beginning of the year.  We recommend that employers hold off on preparations to comply with the Minneapolis ordinance until closer to January 1.  A case is currently pending before the Minnesota Supreme Court which could affect the applicability of the Minneapolis Sick and Safe Ordinance to employers physically located outside the City.  In addition, the City may issue guidance on the new ordinance in the future which could be of assistance. The Minneapolis ordinance provides an array of penalties that may be imposed on employers who fail to comply.  Civil fines up to $2,000, liquidated damages and other remedies are available. Please contact one of your employment lawyers at Larkin Hoffman for any questions or assistance in complying with the new Minneapolis ordinance.

August 14, 2019

Construction

Death of Scabby the Rat?

Employers have long disliked labor unions’ use of inflatable rats, large balloon cats, mock funerals and other types of dramatic protests mounted when a labor union wants to exert pressure on a company to cease doing business with the employer with whom the union has a dispute.  The National Labor Relations Act (NLRA) expressly prohibits picketing a neutral employer in an effort to persuade that neutral employer to cease doing business with the employer with whom the union has its actual dispute (“primary employer”).  For example, there are numerous situations where a union has stationed an inflatable rat in front of an employer, such as, for example, a hospital, implying that the hospital is unsafe, when the real purpose is to persuade the hospital to cease doing business with the primary employer. These kinds of activities, which do not include picketing, have been construed by the National Labor Relations Board (NLRB) to be constitutionally protected freedom of speech.  The NLRA expressly prohibits picketing which is for the purpose of pressuring a neutral employer to stop doing business with an employer.  The NLRB has found union activity at a neutral’s premises to be unlawful which is not picketing but may send a “signal” to a neutral’s employees that they should withhold their services.  The NLRB appears to be shifting its position on these kinds of cases. Shift in NLRB’s Position? In December 2018, the NLRB’s Office of the General Counsel issued an Advice Memorandum authorizing the issuance of a complaint against the IBEW Local 134 in Chicago, Illinois, and requesting that the NLRB reconsider its decisions in three previous cases.  In those cases the NLRB held that the following union activity was lawful because it did not involve picketing and did not involve coercive behavior: in Brandon Medical Center, a union’s setting up of a large inflatable rat on a truck approximately 100 feet from a neutral hospital’s front door; in Eliason & Knuth, a union’s posting of agents holding large stationary banners proclaiming “labor dispute” and “shame on [the employer]” in front of neutral businesses; and in New Star, a union erected banners at 19 different neutral employers’ premises claiming labor disputes with the neutrals and proclaiming “shame” on them for doing business with the employer with which the union actually had a dispute. In the December Advice Memorandum, the NLRB’s General Counsel stated that a complaint should be issued against IBEW Local 134 because of its erection of a stationary banner that misleadingly proclaimed a labor dispute with a neutral employer, Summit Construction, as well as its use of a large inflatable cat clutching a construction worker by the neck.  The General Counsel wrote that the union’s placement of a large frightening cat and misleading banner at a construction site was intended as a signal to neutral employees not to enter or work at the job site.  For three out of the four days the union displayed the banner and the inflatable cat, the union knew that the employer with which it had the dispute was not even present at the construction site. NLRB Unsuccessful in Obtaining Injunction On July 1, the NLRB attempted to implement the General Counsel’s new interpretation by seeking a ruling from a Brooklyn District Court judge to enjoin Laborers Union Local 79 from using an inflatable cockroach and a large inflatable rat known as “Scabby the Rat” in a protest directed at shaming stores from using a builder with which the Laborers Union Local 79 has a dispute.  The judge denied the injunction.  However, it appears that the NLRB’s General Counsel is hoping that the Republican majority NLRB will be more sympathetic to his position in other cases which eventually will be in front of the NLRB. An Issue to Keep an Eye On Former NLRB Chairman Wilma Liebman predicted that there is a “95%, if not better, chance that this Board will reverse the precedent as the General Counsel asks.”  Construction contractors in particular should be aware that a union’s inflammatory use of inflatable rats, cartoon displays, “Shame” banners, and other dramatic protests may in the future be found to be illegal.  The death of Scabby the Rat may be coming.

July 30, 2019

Construction

Construction Alert: Retainage Revolution Hits Minnesota

Parties to public and private construction contracts entered into after August 1, 2019 are subject to new statutory requirements and limitations regarding the withholding and release of retainage, that portion of earned contract funds withheld by the owner from the contractor pending completion of the project.  It is important that owners, prime contractors, and subcontractors understand their new rights and obligations under the new law. Public Projects Certain changes to the retainage laws are applicable to public projects: The Public Owner must release all retainage within 60 days of substantial completion. The Prime Contractor must release to its Subcontractors all remaining retainage as the Prime Contractor receives retainage from the Public Owner. Once it has received retainage from the Public Owner, the Prime Contractor must pay retainage on undisputed work to its Subcontractors within 10 days. It need not pay retainage on disputed work, but it must pay the undisputed portion and provide its Subcontractor with a written statement detailing the dispute. The definition of “substantial completion” is still essentially the same – when the work can be occupied and used for its intended purpose, but a provision was added for highway, street and bridge work to define substantial completion when the construction traffic control and inspections are no longer needed. If punchlist work remains after substantial completion, the Public Owner may continue to withhold up to 250% of the value of the punchlist work. The Public Owner must provide the Prime Contractor with a written statement of the amount and reason for the withholding, and the Prime Contractor must provide a copy to any affected Subcontractor that requests it. The Public Owner may withhold the lesser of 1% of the contract, or $500, until the final project paperwork (e.g., OEM manuals, prevailing wage documentation, etc.) is provided. Withholding for warranty work is not permitted, but neither is any warranty claim waived. Of course, the new law does not require payment for work yet to be completed or for which no invoice has been submitted.  Also, the Public Owner need not pay for those portions of the work funded with federal or state aid until those funds are received. Private Projects The law regarding retainage on private projects was also changed to bring it in line with the requirements and limitations for public projects.  Unless unique to public projects and public work, the new requirements set forth above will apply to Private Owners, Prime Contractors, and Subcontractors. Conclusion Although the new laws will mean that Prime Contractors and their Subcontractors may not have to wait for their retainage, there is an increased risk of the premature and improvident release of retainage that is being held to ensure compliance and completion.  This has the possibility of increasing risks for Owners, Lenders and Sureties.

July 16, 2019

Firm Highlights

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The FTC’s Aggressive Approach to Non-Compete Agreements
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Larkin Hoffman Attorneys Recognized in Legal 500’s Minnesota Elite Guide