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Wednesday, May 25, 2016

New Federal Overtime Regulations - May 2016

LABOR & EMPLOYMENT PRACTICE GROUP

Employers! This is an important update to our previous newsletter concerning changes in the FLSA overtime regulations. The final version of the rule has been published! Here's what you need to know:
  • The new rule was issued on May 18, 2016.
  • As we stated in our last newsletter, this rule changes the FLSA regulations concerning exemptions from overtime pay for executive, administrative, professional, outside sales, and computer employees (cumulatively, "Workers").[[1]]
  • Salaried Workers earning less than $913 dollars per week or $47,476 annually are now nonexempt and eligible for overtime pay.
  • This salary threshold will increase every three years. The increase is based on the 40th percentile of the weekly earnings of full-time salaried workers in the lowest-wage Census region, which currently happens to be the South. Predictions for the first update, scheduled for January 1, 2020, estimate that the threshold will be above $51,000.[[2]]
  • The new rule permits employers to count non discretionary bonuses, incentives, and commissions toward up to 10 percent of the required salary level, so long as these amounts are paid on at least a quarterly basis.
  • The new rule does not include any changes to the duties test. Remember, even if you pay your Workers more than this salary threshold, they will still be nonexempt and eligible for overtime pay if they fail to satisfy the duties test. 
Although the final rule was published sooner than expected, there is good news. You will have until December 1, 2016, to come into compliance with the new rule - a window much larger than the anticipated 60 days.
If your business is effected by the new (and final) rule, consider the following options:
  1.  Give raises to nonexempt Workers so that they meet the new salary threshold if the cost of having to paying them overtime greater;[[3]]
  2.  Reduce the number of hours these Workers work, perhaps by hiring more employees to spread the workload; or
  3. Use an hourly pay rate that is equal to the same weekly compensation as the Worker's salary.[[4]]
For a look at the entire rule, Click Here.





The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you free written information about our qualifications and experience. Additionally, the information above is not intended to be legal advice. Please consult with an experienced lawyer if you have a specific issue or dispute.


Office Locations:  2400 E. Commercial Boulevard, Suite 400, Fort Lauderdale, FL  33308
2901 Q. Street, NW Suite 2, Washington, D.C. 20007

Wednesday, April 27, 2016

Labor and Employment Practice Group



LABOR & EMPLOYMENT PRACTICE GROUP

EMPLOYERS! The time has come to prepare your business for upcoming changes in federal overtime regulations.

Generally, the Fair Labor Standards Act (“FLSA”) requires that most employees receive “overtime pay at time and one-half their regular rate of pay for all hours worked over 40 in a workweek.” [1] However, Sections 13(a)(1) and 13(a)(17) of the FLSA provide an exemption to this rule for the following employees:
1.   employees who are employed as bona fide executive, administrative, or professional employees;
2.     computer professionals;
3.     highly compensated individuals; and
4.     outside sales employees.

In order to qualify, these employees must meet certain criteria for their job duties and be paid at least $455 per week or $23,600 annually.

In March of 2014, President Obama issued an executive order directing the United States Department of Labor (“DOL”) to update these requirements due to concerns that inflation had rendered the $455 per week threshold ineffectual (the threshold was last updated in 2004). The DOL announced its proposed changes in June of 2015 and recommended more than doubling the current salary threshold to $970 a week or $50,440 annually.

If this increase is approved, all of your employees employed in the aforementioned positions and who are currently making less than $970 a week, or $50,440 annually, will become nonexempt and eligible for overtime pay regardless of whether they meet the FLSA requirements concerning their job duties. However, even if you pay these employees more than this salary threshold, they will still be nonexempt and eligible for overtime pay if they fail to meet the duties requirements. 

No one will know for sure what the actual updated salary threshold amount will be until the final rule is published, which could be as soon as June 1st of this year. The final rule will be published in the Federal Reporter and take effect within 60 days of publication. Although efforts are being made to prevent the proposed changes from taking effect, now is the time to develop a plan for employees that may become nonexempt.

 Consider the following options:

1.     Give raises to nonexempt employees so that they meet the new salary threshold if the cost of having to paying them overtime is greater; [2]
2.     reduce the number of hours these employees work; or
3.  use an hourly pay rate that is equal to the same weekly compensation as the employee’s salary. [3]

For our construction clients, keep in mind that your non-management employees who are covered under the FLSA and employed in any of the following occupations are entitled to overtime pay under the FLSA and are not exempt under Section 13(a)(1) no matter how much you pay them:

-   production-line;
 maintenance;
-  construction; and
-  similar occupations such as carpenters, electricians, mechanics, plumbers,                                 iron works, craftsmen, operating engineers, longshoremen, construction workers 
   and laborers. [4]








The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you free written information about our qualifications and experience. Additionally, the information above is not intended to be legal advice. Please consult with an experienced lawyer if you have a specific issue or dispute.


Office Locations:  2400 E. Commercial Boulevard, Suite 400, Fort Lauderdale, FL  33308
2901 Q. Street, NW Suite 2, Washington, D.C. 20007





[1] U.S. Department of Labor, “Fact Sheet #171: Blue-Collar Workers and the Part 541 Exemptions Under the Fair Labor Standards Act (FLSA), July 2008, http://www.dol.gov/whd/overtime/fs17i_blue_collar.pdf.
[2] Michael Cardman, Xpert HR Blog, “A 5-Point Action Plan for the New Overtime Rules from Someone Who Knows,” March 18, 2016, http://www.xperthr.com/blog/2016/03/18/5-point-action-plan-new-overtime-rules-someone-knows/.
[3] Id.
[4] U.S. Department of Labor, “Fact Sheet #171: Blue-Collar Workers and the Part 541 Exemptions Under the Fair Labor Standards Act (FLSA), July 2008, http://www.dol.gov/whd/overtime/fs17i_blue_collar.pdff

Monday, March 21, 2016

TOP TEN CONSTRUCTION CLAUSES PART VI—PAY IF PAID/PAY WHEN PAID


 
                                

This is the sixth installment in a ten-part series analyzing critical construction clauses.  This installment analyzes the “Pay If Paid” and “Pay When Paid” clauses. My first five articles can be found on our blog at http://sotolawgroup.blogspot.com/.

A.    Overview and Background

It is hard to understate the significance of the “Paid If Paid” provision (also known as the “Contingent Payment Provision”) and its less draconian counterpart, the “Pay When Paid” provision. The “Pay If Paid” Provision permits a general contractor to place the risk of an owner’s nonpayment upon its subcontractor notwithstanding the fact that the subcontractor fully performed its obligations and would be otherwise entitled to payment. A properly worded “Pay If Paid” provision can be a lifesaver for a general contractor and financially devastating to a subcontractor if the owner fails to issue payment. A “Pay When Paid” Provision, on the other hand, is simply construed by the courts as fixing a reasonable time for the contractor to pay the subcontractor, but does not excuse the contractor paying its subcontractors altogether.

The distinction between a “Pay If Paid” and “Pay When Paid” Provision is not always readily apparent, so it’s important to be able to distinguish between the two. The Florida Supreme Court in Peacock Constr. Co. v. Modern Air Conditioning, Inc., 353 So. 2d 840, 842 (Fla. 1977) stated that in order to shift the risk of payment failure by the owner to the subcontractor, the contract must unambiguously express that intention. This is because small subcontractors, who must have payment for their work in order to remain in business, will not ordinarily assume the risk of the owner’s failure to pay the general contractor. See id. Examples of unambiguous “Pay If Paid” Provisions that have been upheld by the courts include:

“No funds will be owed to the subcontractor unless the General Contractor is paid by the owner in accordance to the sworn statement. The subcontractor fully understands that in event of non-payment by the owner to the General Contractor, the subcontractor has legal recourse against the owner . . .” DEC Electric, Inc. v. Raphael Construction Corp., 558 So. 2d 427 (Fla. 1990).
 “[F]inal payment is contingent upon payment to the contractor.” Robert F. Wilson, Inc. v. Post-Tensioned Structures, Inc., 522 So. 2d 79 (Fla. 3d DCA 1988)
“Final payment . . . shall be made within thirty days of completion of the construction project, acceptance of the same by the Owner, and as a condition precedent, receipt of final payment from the Owner.” Dyser Plumbing Co. v. Ross Plumbing & Heating, Inc., 515 So. 2d 250 (Fla. 2d DCA 1987)

If a provision is ambiguous, however, it is interpreted as a “Pay When Paid” Provision, fixing a reasonable time for the contractor to pay its subcontractors, even if the owner ultimately does not pay the general contractor. See Bentley Constr. Dev. Eng’g, Inc. v. All Phase Electric Maintenance, Inc., 562 So. 2d 800, 802 (Fla. 2d DCA 1990). Provisions found by courts to be ambiguous, and therefore construed as “Pay When Paid” Provisions include:

“Subcontractor shall be entitled to receive all progress payments and the final payment within ten working days after contractor receives payment for such from the owner, except as otherwise provided in the conditions.” Bentley Constr. Dev. Eng’g, Inc. v. All Phase Electric Maintenance, Inc., 562 So. 2d 800, 802 (Fla. 2d DCA 1990)
Final payment to subcontractors to be made “within thirty days after the completion of the work included in this subcontract, written acceptance by the architect and full payment therefor by the owner.” Peacock Constr. Co. v. Modern Air Conditioning, Inc., 353 So. 2d 840, 842 (Fla. 1977).
No payments to be made “until” the contractor is paid by the owner. Snead Construction Corp. v. Langerman, 369 So. 2d 591 (Fla. 1st DCA 1978):

Although it may not be readily apparent from these cases, it appears that the primary distinction between a “Pay If Paid” and a “Pay When Paid” clause appears to be whether or not it unambiguously places the subcontractor on notice that payment by the owner is not guaranteed, and in the event payment is not received, the risk of nonpayment lies with the subcontractor. An unambiguous “Pay If Paid” Provision typically uses words like “contingent” or “condition precedent,” whereas a typical “Pay When Paid” provision tends to assume that the owner will pay the general contractor and simply sets a time for payment to subcontractor. Importantly, “Pay When Paid” clauses do not expressly and unambiguously state what occurs if the owner fails to issue payment.

B.     Sample “Pay When Paid” Clauses

Neither the American Institute of Architects nor Consensus Docs—two of the foremost authorities on construction contracting—contain a model “Pay If Paid Provision” in their form contracts between general contractors and subcontractors. However, both contain “Pay When Paid” Provisions. For example, The American Institute of Architects’ Standard Form of Agreement Between Contractor and Subcontractor (AIA Document A401-2007), includes the following provision at § 11.3:

§ 11.3. Provided an application for payment is received by the Contractor not later than the_______day of a month, the Contractor shall include the Subcontractor’s Work covered by that application in the next application for payment which the Contractor is entitled to submit to the Architect. The Contractor shall pay the Subcontractor each progress payment no later than seven working days after the Contractor receives payment from the Owner. If the Architect does not issue a certificate for payment or the Contractor does not receive payment for any cause which is not the fault of the Subcontractor, the Contractor shall pay the Subcontractor, on demand, a progress payment computed as provided in Sections 11.7, 11.8 and 11.9.

The ConsensusDocs 750 Standard Agreement Between Constructor and Subcontractor provides the following provision at § 8.2.5:

8.2.5       TIME OF PAYMENT Progress payments to the Subcontractor for satisfactory performance of the Subcontractor Work shall be made no later than seven (7) Days after receipt by the Constructor of payment from the Owner for the Subcontract Work. If payment from the owner for such Subcontract Work is not received by the Constructor, through no fault of the Subcontractor, the Constructor will make payment to the Subcontractor within a reasonable time for the Subcontract Work satisfactorily performed.

C.    Negotiation Strategies

For the General Contractor

The “Pay If Paid” Provision can be extremely advantageous to the general contractor and is highly recommended. There a few steps that can be taken to maximize the effectiveness of your “Pay If Pay Provision.  First, ensure that the provision is unambiguous to ensure judicial enforcement. As discussed above, phrases like “receipt of payment from the Owner is a condition precedent” or “payment is contingent upon payment to the contractor” are typically necessary for a “Pay If Paid” Provision to be effective. Consultation with an attorney experienced in drafting “Pay If Paid” clauses is highly recommended to ensure it is enforceable.

Second, ensure that the provision does not conflict with either: (a) other provisions of the subcontract; or (b) provisions of other documents incorporated by reference into the subcontract. There are numerous cases in Florida holding that an otherwise enforceable “Pay If Paid” provision was unenforceable because the subcontract incorporated documents with conflicting language. For example, in OBS Co. v. Pace Constr. Corp., 558 So. 2d 404, 406 (Fla. 1990), the subcontract incorporated the contract between the owner and general contractor, which required the general contractor to submit an affidavit certifying that its subcontractors had been paid before final payment from the owner became due.  The Florida Supreme Court found that this provision created an ambiguity, which must be construed in favor of the subcontractor.  See id. at 406-407. It is also recommended that the “Pay If Paid” Provision contains language specifying that in the event of a conflict between the “Pay If Paid” Provision and other terms contained or incorporated into the contract, the terms of the “Pay If Paid” Provision shall prevail.

Third, if the general contractor has issued a payment bond for a private project, the general contractor must understand that its surety cannot hide behind the “Pay If Paid” Provision, unless the payment bond is a Conditional Payment Bond and complies with the terms of section 713.245, Florida Statutes.  See, e.g., Everett Painting Co. v. Padula & Wadsworth Constr., Inc., 856 So. 2d 1059 (Fla. 4th DCA 2003).

For the Subcontractor

Obviously, the “Pay If Paid” Provision is extremely dangerous to the subcontractor and should be avoided when possible. A subcontractor should instead attempt to negotiate a “Pay When Paid” provision, rather than a “Pay If Paid” provision. Not only does this protect the subcontractor, but also helps the general contractor by providing a reasonable time in which to first attempt to recover payment from owner before issuing payment to the subcontractor.

If the “Pay If Paid” Provision is unavoidable, the subcontractor should do two things: (1) ensure that its lien or bond rights are protected by serving and/or filing all required notices and claims in a timely fashion in compliance with Florida law; and (2) ensure that the subcontractors’ downstream contracts with sub-subcontractors and suppliers include a similar provision so that the financial impact of the owners’ non-payment is mitigated.

The foregoing is not meant to be an exhaustive discussion of “Pay If Paid” and “Pay When Paid” Provisions and is intended only as a general primer regarding some of the primary issues. Consult with an attorney experienced in drafting “Pay If Paid” and “Pay When Paid” clauses so that together you can negotiate a provision suitable for your business.






Thursday, February 25, 2016

Active Interference and The No Damage for Delay Clause


Active Interference and The No Damage for Delay Clause

            No Damage for Delay Clauses are designed to pass the risk of project delays and their costs to a specific party (generally the contractor). These clauses are recognized as valid and enforceable in the State of Florida. See McIntire v. Green Tree Communities, Inc., 318 So. 2d 197 (Fla 2nd DCA 1975); Southern Gulf Util., Inc. v. Boca Ciega Sanitary Dist., 238 So. 2d 458, 459 (Fla. 2d Dist.Ct.App.1970); Pertun Constr. Co. v. Harvesters Group, Inc., 918 F.2d 915, 919 (11th Cir.1990). These clauses can seem harsh when faced with the reality that delays on construction projects are very common. Because of this reality, Florida courts have created several exceptions to enforcement. Situations in which it would be unfair to bar recovery to contractors who have been delayed in completing their work through no fault of their own. These judicially created exceptions are: active interference, concealment and fraud.

            Active interference is perhaps the most common exception. It is based on the idea that one party to the contract is purposefully interfering with or getting in the way of the other party’s ability to perform the contract.[1] It has been characterized as a “knowing delay which is sufficiently egregious”. United States v. David Boland, Inc., 2006 US Dist. Lexis 66568 (Fla. Middle District 2006). The case of Newberry Square Dev. v. Southern Landmark, Inc., 578 So. 2d 750 (Fla. 1st DCA 1991) is instructive. In Newberry, a contractor entered into a contract with a developer for construction of a shopping center. The parties’ contract contained a no damages for delay clause. The developer sought an appeal of a lower court order awarding its contractor damages for delays in project completion. The contractor argued that the developer actively interfered with its work by delaying the approval of plans, change orders and payments. The contractor presented evidence at trial that such delays were a result of a personal falling out between the parties where the developer vowed he “would break [the contractor] before he’d pay.” Id. at 752. The developer argued that the contractor could not be awarded delay damages because the contract contained a no damage for delay clause. The appellate court ruled that the developer actively impeded the contractor’s performance and as such refused to enforce the clause.

            In a similar case out of North Dakota, a steel erection subcontractor on a public project was awarded delay damages despite the existence of a no damages for delay clause because it found that the steel subcontractor was told, "to put up steel wherever it could . . . to demonstrate to [the County] that progress was being made." The Construction manager on the project rejected the subcontractor’s plan to erect the steel in a conventional "inside-out" fashion and demanded that they erect the steel "outside-in" manner which caused delays. The court found this directive to have interfered with the subcontractor’s means and methods and its ability to finish its work timely. C&C Plumbing & Heating, LLP v. Williams Cty., 848 N.W.2d 709, 716 (N.D. 2014).
In the recent case of John Spearly Constr., Inc. v. Penns Valley Area Sch. Dist., 121 A.3d 593, 603 (Pa. Comm. Ct. 2015), a County’s design team was held responsible for delays notwithstanding the existence of a no damages for delay clause where there was evidence to suggest that design team hired by the County failed to make timely decisions on the project schedule and failed to properly coordinate the work of the various trades.

            Additional bases for avoiding no damage for delay clauses have been found in cases of: owner abandonment, unanticipated delays, refusal to grant required time extensions and breach of an essential contract obligation. See Corrino Civetta Const. Corp., v. City of New York, 67 N.Y. 2d 297 (NY. 1986); Triple R Paving, Inc., Broward County, 774 So. 2d 50 (Fla. 4th DCA 2000); Castagna & Son, Inc., v. Board of Educ., of City of New York, 173 A.D. 2d 405 (1st Dep’t 1991); Pertun Const., Co., v. Harvesters Group, Inc., 918 F. 2d 915 (11th Cir. 1990). For example, in John E. Green Plumbing, a case before the 6th circuit, a plumbing and fire sprinkler subcontractor on a public project sought damages as a result of the contractor’s project oversight, doing work out of sequence and delay in design changes/edits. The contract contained a no damage for delay clause. In strictly construing the clause, the 6th circuit held that “Delay damages . . . refers simply to the cost of an idle work force. . . [the subcontractor] is not arguing that it suffered damages from delay but rather that is suffered damages from obstacles created by Turner.” Id., at 967.[2]

            In another interesting case out of the 7th circuit, a contractor represented to its subcontractor that it would pay for extra costs associated with project delays created by the owner. As a result of these representations, the court found that the contractor had waived the no damages for delay clause in the parties’ contract. Chicago College of Osteopathic Medicine v. George A. Fuller Co., 776 F. 2d 198 (7th Cir. 1985).

         Contract negotiations are a critical part of a construction project. Understanding what rights, obligations, risks and liabilities you may be agreeing to in a contract is not as straightforward as it may seem. You should, before signing any contract for the performance of construction services consult with an attorney who is knowledgeable with Florida’s Construction Law and Contract negotiations.



          









  The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you free written information about our qualifications and experience. Additionally, the information above is not intended to be legal advice. Please consult with an experienced lawyer if you have a specific issue or dispute.


Office Locations:    2400 E. Commercial Boulevard, Suite 400, Fort Lauderdale, FL  33308
  2901 Q. Street, NW Suite 2, Washington, D.C. 20007




[2] The court further defined a delay as, “time lost when work cannot be performed because the necessary preliminary work had not been completed”. Id., at 966.