Virginia BEST Job Site Safety Initiative Collaboratively Created by AGCVA and VOSH

The Virginia BEST (Building Excellence in Safety, Health and Training) is a volunteer safety initiative developed collaboratively between the Associated General Contractors of Virginia and the Virginia Department of Occupational Safety and Health.

According to AGC Chairman, Mike Cagle, the Virginia BEST program is “designed to reduce employee injuries, improve employee morale and position AGCVA members to be more competitive by becoming the best in class construction companies.” The program includes management and employee involvement, worksite analysis, hazard prevention control, and safety and health training; with three levels of participation from basic to highest achievement.

Of particular note, one of the tangible benefits of program participation is that companies reaching the highest level will be given exemptions from planned construction inspections by the VOSH program.

More information regarding the Virginia BEST program is available on the AGCVA website, on last access linked below:

http://agcva.org/virginia-best/

Vandeventer Attorney Jim Cosby Part of Arbitration Seminar Faculty

Vandeventer attorney Jim Cosby is one of a number of distinguished faculty members participating in a continuing legal education program for Virginia CLE regarding arbitration in today's environment. The program has live (December 12, 2016) and webcast availability or phone (January 19, 2017) availability. For more information, use the below link:

http://www.vacle.org/product.aspx?zpid=5647

Virginia Supreme Court Rejects Contractor's Argument of Subcontractor Flow Down Liability

The Virginia Supreme Court recently rejected a contractor's flow down liability claim against its subcontractors for a state construction project and defect claims asserted by the state against the contractor after the passage of the five year statute of limitations, rejecting among other things contractor's indemnity arguments. Below is a summary of the decision prepared by Vandeventer Black Construction Team attorney Gretchen Ostroff.



Supreme Court of Virginia Rules on Prime Contractor’s Flow-Down of Statute of Limitations to Subcontractors and Reaffirms Prior Decision on Enforceability of Indemnity Agreements
by Gretchen M. Ostroff, Esq., Vandeventer Black LLP

WHAT YOU NEED TO KNOW:
In a recent decision, the Supreme Court of Virginia found that general clauses incorporating provisions from the prime contract were insufficient to flow down to subcontractors the open-ended statute of limitations applicable to most public contracts, which can create gaps between a prime contractor’s liability to the owner and what it is able to recover from subcontractors for damages they cause.  The Court also reaffirmed that agreements to indemnify a party for its own negligence are against public policy and therefore void in Virginia construction contracts.

On November 3, 2016, the Supreme Court of Virginia issued an important decision regarding subcontract flow down provisions.  Hensel Phelps Construction Co. v. Thompson Masonry Contractor, Inc., addresses a contractor’s ability to flow down to subcontractors the open-ended statute of limitations applicable to certain Virginia public contracts and reiterates the Court’s prior ruling on the enforceability of indemnity provisions in construction contracts.

The dispute in Hensel Phelps arose out of a contract for construction of a student health and wellness center at Virginia Tech.  As the prime contractor, Hensel Phelps hired several subcontractors to complete portions of the work.  Twelve years after final completion, Virginia Tech sued Hensel Phelps to recover costs of repairing defective work on the project.  Although Virginia’s statute of limitations on contract claims is five years, the statute of limitations does not apply to the Commonwealth, so claims against a contractor by a state agency—such as Virginia Tech—can be brought at any time.  

Hensel Phelps settled the claim and in turn sued the subcontractors and their sureties (referred to in this article collectively as “subcontractors”) for breach of contract and indemnity.  The subcontractors filed various motions, including to assert that Hensel Phelps’ claim was barred by the five-year statute of limitations.  The trial court granted the motions, dismissing the lawsuit.

On appeal in the Supreme Court of Virginia, Hensel Phelps argued that the subcontractors waived their right to raise the five-year statute of limitations via flow downs in their subcontracts.  Each subcontract contained a provision requiring the subcontractor “to assume any and all guarantee or warranty obligations owed by Hensel Phelps to [the owner] arising out of [performance of the subcontract].”  Hensel Phelps argued that because it was indefinitely obligated to guarantee and warranty the work, the subcontractors were correspondingly obligated to Hensel Phelps.  It also argued that a subcontract clause binding the subcontractors to Hensel Phelps “by the same terms and conditions which [Hensel Phelps] was bound to [the owner] under the Contract” flowed-down the unbounded statute of limitations to the subcontractors.

The Court disagreed, finding that neither of these general incorporation clauses waived the applicable limitations period, because they did not “expressly acknowledge the right to a limitations period or intent to waive that right.”  The Court found that the subcontractors were not bound to the statute of limitations waiver in Virginia Code Section 8.01-231 because the subcontracts did not themselves contain a waiver of the statute of limitations and failed to incorporate by reference the waiver in the prime contract.

In an alternate argument, Hensel Phelps argued that its claims against the subcontractors did not arise until it settled Virginia Tech’s indemnification claim (in 2014), and therefore it had sued them within the five-year limit.  The Court rejected this argument too.  Relying on its prior decision in Uniwest v. Amtech Elevator Services, Inc., the Court found that the indemnification clause in the subcontracts was unenforceable because it required the subcontractors to indemnify Hensel Phelps for its own negligence, which in Virginia is prohibited in construction contracts.  Consequently, the Court struck the entire indemnification provision from the subcontracts.  Without this provision, the subcontracts imposed no obligation on the subcontractors to indemnify Hensel Phelps with regard to Virginia Tech’s claim.  Importantly, the Court found that a properly drafted indemnity clause (compliant with Uniwest) would have preserved Hensel Phelps’ claim against the subcontractors.

The takeaways from Hensel Phelps are that:

1. Prime contractors cannot rely on general subcontract flow down clauses to extend the statute of limitations on claims against their subcontractors to mirror the statute of limitations (or lack thereof) applicable to claims by the owner.  Hensel Phelps makes this clear on public contracts—where the statute of limitations does not apply to the Commonwealth or its agencies—but the principle probably applies equally where private parties agree to extend the prime contractor’s liability to the owner past the applicable statute of limitations.  Contractors can solve this problem by including properly-drafted, specific indemnity provisions in their subcontracts acknowledging a subcontractor’s intentional waiver of its rights related to the statute of limitations and other issues the contractor wishes to flow down from the prime contract.

2. Contractors should review their indemnity clauses to ensure compliance with Uniwest—specifically the prohibition against indemnifying a party for its own negligence in a construction contract.  An indemnity clause that violates this policy will not be reformed by the court to comply with the law—it will be entirely stricken, potentially leaving the prime contractor without recourse against subcontractors for losses they cause.  

Hensel Phelps is a reminder to contractors to carefully review prime contracts and subcontracts and to consult with an attorney when negotiating these agreements to help minimize potential risks.

FLSA Salary Increase Halted

Below is a Legal Alert on a signficant FLSA issue from the Vandeventer Black Labor Law Team

LEGAL ALERT

FLSA Salary Increase Halted

A federal court has enjoined the Fair Labor Standards Act (FLSA) salary increase. The court’s order, entered on November 22, 2016, is a nationwide preliminary injunction. As a result, employers do not have to comply with the new FLSA salary threshold on December 1, 2016.  

The U.S. Department of Labor (DOL) issued a final rule on May 17, 2016, increasing the FLSA’s salary threshold. The final rule, which was to go into effect on December 1, 2016, would have increased the salary threshold for the FLSA white collar exemptions from $23,660 per year to $47,476 per year, and the annual compensation threshold for the “highly compensated” exemption from $100,000 per year to $134,004 per year. Had the new rule gone into effect, any employee paid less than $47,476 per year would have been eligible for overtime pay. The DOL’s final rule also provided for automatic adjustments to the salary and highly compensated threshold every three years. Employers who have been grappling with whether to give raises to employees paid less than $47,476, or budget for increased overtime costs, or hire additional personnel to reduce overtime hours, may now lay their concerns aside. The FLSA is not changing on December 1, 2016, after all.

Twenty-one states and over fifty business organizations filed suit to stop the DOL’s final rule. Their suits were consolidated in the United States District ­­Court for the Eastern District of Texas. In its preliminary injunction, that Court ruled that the DOL exceeded its authority by raising the salary threshold level so high that it supplanted the “duties tests” for the FLSA white collar exemptions. The court stated that the DOL “create[d] essentially a de facto salary-only test,” thus subverting the importance of the FLSA exemptions’ duties tests. The Court also found that the DOL did not have authority to create an automatic adjustment to the salary threshold.

The injunction is preliminary, but it signals that the Court is likely to issue a permanent injunction later. The Court’s decision is the second recent defeat for President Obama’s agenda: just last month, the same federal Court in Texas issued a preliminary injunction blocking the federal contractor “blacklisting” regulations. See Vandeventer Black’s Legal Alert on that topic here.

For assistance reviewing your business' FLSA compliance, or other labor or employment matters, please contact us to set up a meeting with our labor and employment law team.

Anne G. Bibeau

757-446-8517

abibeau@vanblacklaw.com

Dean T. Buckius

757-446-8620

dbuckius@vanblacklaw.com

Arlene F. Klinedinst

757-446-8504

aklinedinst@vanblacklaw.com

Not Registered with SAM? New Proposed Rule Would Preclude Offers

The System for Award Management (SAM) is a federal online portal providing contracting officers various informational access about companies doing business with the federal government. Under a new rule, DOD, GSA and NASA contractors must be registered in SAM prior to submitting offers or quotes. Additionally, the new rule will require contracting officers to use the name and physical address from contractor's SAM registration. More information about the proposed rule is available as of the posting of this blog at:

https://www.gpo.gov/fdsys/granule/FR-2016-05-20/2016-11977

Be wary of of increasing claimed IRS Agent phone calls

Vandeventer Black law partner and tax law practitioner Geoff Hemphill recently relayed a personal experience that others are also increasing seeing involving scam phone calls from persons claiming to be an "IRS Agent" and claiming that the individual owes back taxes. The fake IRS Agent then says the call is the last chance to pay the back taxes before the IRS files a lawsuit.

Geoff notes that the IRS does not make such calls, and that legitimate IRS contact comes through official written correspondence, with accurate reference to the individual's mailing address, giving notice of the assessed liability, appeal rights, and warnings of impending enforcement. So, the chances are high that any phone call from anyone purporting to be an IRS agent is a scam.

If you receive legitimate correspondence from the IRS it is important to promptly address it, and to seek legal counsel in appropriate circumstances to help you evaluate the assessed liability, to understand your rights, and to develop responsive strategies. Geoff in the example of the type of experienced tax attorney that can provide that type of legal counsel. But there is no need to lose sleep respecting such phony "IRS Agent" phone scams and it is important to not succumb to providing personal information or monies to those types of scammers.

New Legislation Prohibiting Use of Experience Modification Factor For Contractor Eligibility

One of the new legislative changes that goes into effect in Virginia on July 1, 2016 is a prohibition against using any experience modification factor as a condition of any bidder's or offeror's eligibility to participate in a solicitation for construction. Interestingly, while the prohibition was added to the Virginia Public Procurement Act (VPPA), the language in the act expands application to both VPPA and non-VPPA offers to contract issued on or after July 1, 2016. As defined in the adopted bill, "experience modification factor" is defined as "a value assigned to an employer as determined by a rate service organization in accordance with its uniform experience rating plan required to be filed pursuant to subsection D of [Virginia Code Section] 38.2-1913."

Virginia Supreme Court Confirms Employee Firings on the Spot

My law partner Anne Bibeau, who focuses her law practice on employment and labor law matters, provided this summary of the Virginia Supreme Court's recent decision in the case of Johnson v. William E. Wood & Associates, Inc.:




In a recent opinion involving a fired realtor, the Virginia Supreme Court confirmed that at-will employees can be fired on the spot, without any prior notice to the employee. The decision was unanimous, and noted that while the firing notice “must be reasonable,” advance notice was not required because, among other things, that would be contrary to the flexibility at the heart of the at-will employment doctrine and undermine the indefinite duration which is implicitly an element of at-will employment.

In Virginia, unless the employer and employee agree otherwise, employment is “at will,” meaning that either the employer or employee may end the employment relationship at any time and for any (legal) reason, upon “reasonable notice.” The plaintiff in that case, Johnston v. William E. Wood & Associates, Inc., argued that “reasonable notice” meant advanced notice. The Virginia Supreme Court shot down that argument, holding that to be “reasonable,” notice of the termination need only be effective notice. In other words, the employer only has to make clear to the employee that the employment relationship has ended, so that the employee knows to stop work. Advance notice of the termination is not required unless the employer has promised to give advance notice or the federal WARN Act, which addresses mass layoffs and plant closings, applies.

The court’s decision was not a change in the law, but blocked a determined effort by plaintiffs’ attorneys to chip away at the at-will employment doctrine, which is already circumscribed by other laws limiting the reasons for employment termination. As before, employers need to be mindful that their employee policies, handbooks, offer letters, and other communications with their employees—both written and oral—do not promise or imply that the employment relationship will last for a particular period, or that the employee will only be fired for cause or after advanced notice. Employers should consult with an employment attorney about whether to require employees give advance notice of resignation. The best practice is to emphasize that the employment is at-will and can end at any time and for any reason.

SBA Issues Final Rule Regarding Affiliation, Calculation of Annual Receipts, Limitations on Subcontracting, and Joint Ventures

In its Final Rule issued May 31, 2016, the Small Business Administration issued rules implementing the 2013 National Defense Authorization Act. The Final Rule has a myriad of aspects applicable to awards in various small business programs, and this short summary is not intended to address them all; but rather instead this summarizes some of the provisions regarding affiliation, calculation of annual receipts, limitations on subcontracting and joint ventures.

Affiliation:
The Final Rule expressly allows certain arrangements without establishing affiliation, while precluding others subject to rebuttable presumptions; including:

• Small Business Teaming Arrangements are allowable without regard to affiliation for “bundled contracts” so long as each team member is small for the size standard assigned to the contract or subcontract.
• Firms owned or controlled by married couples, parties to a civil union, parents, children, and siblings are presumed affiliated if they conduct business with each other or share or provide loans, resources, equipment, locations, or employees; although the presumption can be overcome by showing clear lines of fracture between the concerns.
• SBA may presume identity of interest based on economic dependence if 70% or more of receipts over the previous 3 fiscal years are derived from another concern; although
• the presumption is rebuttable by showing lack of sole dependence; and
• business concerns owned and controlled by an Indian Tribe, ANC, NHO, CDC, or wholly owned entities of an Indian Tribe, ANC, NHO, or CDS, are not considered affiliated by another concern owned by that entity based solely on the contractual relationship between the two concerns.

Calculation of Annual Receipts:
The Final Rule defines how SBA will calculate annual receipts when determining size. In short, receipts include all revenue (including passive income) from whatever source received or accrued; generally meaning the concern's total income (or gross income for sole proprietorships) plus the cost of goods sold as defined and reported to the IRS. Exclusions are identified in the Final Rule.

Limitations on Subcontracting:
Compliance is now determined by a percentage cap on the total amount of the prime contract paid to first tier subcontractors that are not “similarly situated” entities, instead of the previous limitation based on  costs. A similarly situated entity is a small business that participates in the same SBA program that qualified the prime contractor as an eligible offeror.

There is no requirement to apply the prime contract NAICs code to subcontracts. Instead, the prime contractor assigns the code applicable to the scope of work on each subcontract. The percentage limits set by statute are:

• 85% for general construction contracts;
• 75% for specialty trade construction contracts; and
• 50% for service and supply contracts.

The method for calculating compliance with the limitations is complex, depends on whether the contract is for construction, supplies or services, or mixed supplies and services. Among other things, the cost of materials is typically not included, and there are exceptions when “nonmanufacturers” supply the product of a domestic small business manufacturer or processor.

While work done by a similarly situated first tier subcontractor does not count toward the limitations, any work that a similarly situated subcontractor further subcontracts will count towards the limitation.

Joint Ventures: 
The Final Rule allows a joint venture to qualify as small for any government procurement when each partner to the joint venture qualifies individually as small under the size standard corresponding to the NAICS code assigned by the government in the solicitation.

Recertification:
Under this Final Rule, when an acquisition or merger occurs after the offer date but prior to award the offeror must recertify its size to the contracting officer prior to award.

This article is for educational purposes only and is not intended as legal advice. For more information about this or other construction or government contracts topics, please contact the authors of this article, Neil Lowenstein and Mike Sterling, or any of the other members of the Vandeventer Black Construction and Public Contracts Law Team at www.vanblacklaw.com.

UPDATE: DOL Announces Final Overtime Rule

In our May 9, 2016 blog post we discussed the pendency of expected Department of Labor (DOL) regulations updating the Fair Labor Standards Act (FLSA), including overtime rules. This blog post updates our earlier post as yesterday, May 17, 2016, DOL announced its final rule.

The rule's effective date is December 1, 2016. Some highlights of the final rule that vary from the earlier notice expectations as provided by Vandeventer Black Labor Attorney Anne Bibeau are:

1. The new salary threshold is $913/week or $47,476/year.
2. The highly compensated employees total annual compensation exemption was raised to $134,000.
3. Those amounts will automatically increase every three (3) years beginning January 1, 2020.
4. The salary basis test has been amended to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new salary threshold.
5. There were no changes to the duties test.

For more information about the final rule, contact Anne (abibeau@vanblacklaw.com) or any of the other Vandeventer labor team or government contract team members. Contracts and more information on related issues are available at our website: www.vanblacklaw.com.

GSA Targets Schedule Contract Holders Regarding Countries of Origin for Products

The General Services Administration recently targeted nearly 3,000 GSA schedule contract holders earlier this month regarding the countries of origin for the schedule contract holders' offered products. This targeting comes after numerous congressional inquires and FOIA requests alleging product violations of both the Trade Agreements Act and the Buy American Act.

Schedule contract holders were given a very short 5 days to review their total offering of products, submit spreadsheets verifying the products' countries of origin, and provide copies of Certificates of Origin or other certification from manufacturers. GSA threatened severe penalties for non-compliance, including removal of the vendor's entire GSA Advantage file.

GSA has confirmed its targeting of those vendors based on the congressional and other complaints about those specific schedules and product. It seems likely, however, that GSA will continue to expand the scope of its targeting to all contractors.

County of origin law compliance entails an often complicated analysis of products' manufacturing processes, including for many products transformation analysis from product origin to the product's later actual commercial use. Despite such complications, both TAA and BAA compliance are vendor responsibilities.

To what extent GSA extends its targeting, and also to what extent other agencies take similar actions to insure TAA and BAA compliance by their vendors and contractors remain to be seen. Vendors and contractors should, however, consider GSA's warning letters as advance notice to evaluate their TAA and BAA compliance, take any necessary corrective actions discovered, and be prepared to promptly address similar future agency notices.

President Obama Signs Defend Trade Secrets Act

On May 11, President Obama signed the Defend Trade Secrets Act (DTSA), providing federal protection respecting trade secret misappropriation. Among key aspects of this new federal law:

1. Federal district courts are given jurisdiction for civil actions under DTSA, although not exclusive jurisdiction. In order for federal jurisdiction to lie, claimants need to show that the trade secret related to a product or service used in or intended for use in interstate or foreign commerce.
2. DTSA allows for ex parte seizure provisions, allowing courts to order the seizure of property if deemed necessary to prevent wrongful propagation or dissemination of the trade secret. However, the moving party has to demonstrate extraordinary circumstances warranting the seizure, and provides for defendants to seek damages for abusive or wrongfully-acquired seizure orders.
3. DTSA has whistleblower provisions precluding civil or criminal liability under any federal or state trade secret law for disclosures made "in confidence" to a federal, state or local government official, or to an attorney, if solely for the purposes of reporting or investigating suspected violations or in a complaint or other litigation document, if the filing is made under seal.
4. Employers are required to provide notice of DTSA's immunity provision in any contract or agreement with an employee that contains provisions governing the use of a trade secrete or other confidential information; applying to all contracts entered into or amended after May 11, 2016. Employee is broadly defined to include independent contractors and consultants.
5. DTSA includes provisions intended to address international trade secret theft, including private rights of action.
6. DTSA requires the Attorney General to biannually report to the House and Judiciary Committees on international trade secret theft affecting U.S. companies.

DTSA is sure to have immediate impacts. To what extent it helps deter trade secret theft will remain to be seen, but most immediately is certainly has important impacts upon companies' efforts to establish and maintain confidentiality policies and enforcement.

Important Changes Pending to FLSA Exempt Status and Overtime Regulations

The Vandeventer Black Construction and Government Contracts and Labor and Employment Law Groups have noted some important pending changes to the FLSA Exempt Status and Overtime Regulations.

The Changes:
The U.S. Department of Labor (DOL) is issuing regulations updating the Fair Labor Standards Act (FLSA). We anticipate that the final regulations will be issued this summer, likely with a 60-day compliance requirement. Under the proposed new regulations, any employee who is paid less than $50,440 per year will be entitled to overtime pay. This change will have a major impact on overtime pay obligations. Companies need to review current policies and procedures now to prepare for timely compliance, and to limit the cost impact of the new regulations.

The FLSA provides for a federal minimum wage, a standard 40-hour workweek, and pay at time-and-a-half for all overtime hours.  The law also includes several exemptions under which certain employees are not entitled to overtime pay. Currently, for most exemptions, in addition to meeting a duties test an employee must be paid on a salary basis at least $455 per week ($23,600 annually). The proposed regulations will more than double that minimum salary to approximately $970 per week ($50,440 annually).  Likewise, the minimum annual compensation for the “highly compensated” exemption will increase from $100,000 to $122,148. These amounts will be adjusted annually.

Common Exemption Misconceptions:

There is a common misconception that payment of a salary is the only requirement to avoid overtime pay obligations. This is wrong as there are other mandatory requirements: in order to be exempt from overtime, the employee also must perform duties that meet certain tests set forth by the DOL.

For example, to qualify as an exempt “executive” an employee, in addition to being paid a salary, must (i) have the primary duty of management of the business or a department, (ii) customarily and regularly supervise at least two other full-time employees, and (iii) have authority or significant influence over decisions to hire or fire.

Under current economic conditions many employers have reduced staff without consideration of the requirement that the exempt employee must supervise at least two other full-time employees. Supervision of workers furnished by a temporary labor agency or workers from another company, such as a subcontractor, does not meet the requirement.

Another common misconception is that payment of a minimum wage under a Davis Bacon Act or Service Contract Act wage determination is sufficient. However, all employers—even those with federal contracts—must comply with the FLSA.

 

 

 

GAO Proposing Fee for E-Filing Protests

This post provides a summary of a new GAO rule change proposal prepared by Vandeventer Black Construction and Government Contracts Team attorney Blake Christopher.

Dissatisfied bidders and offerors can currently file protests for free electronically, but the General Accountability Office (GAO) is now proposing a $350 fee. The reasons given for the change are to finance the program, including a new system, and seemingly to discourage what the GAO’s considers unnecessary filings that result from the current free and easy to use system.

 

2,639 protests were filed last year, and the GAO argues many of them unnecessary. Critics of the proposal note that the current system allows access regardless of financial circumstances, and that charging a fee will discourage protests. While the U.S. Court of Federal Claims charges a fee for protests, it has a program in place that considers ability to pay when collecting its filing fee; and it is unknown whether the GAO will do the same.

 

The GAO determined the proposed fee level, in part, by figuring the price of building and running a new filing system called the Electronic Protest Docket System (EPDS). Separate from the proposed filing fee there are additional concerns that EPDS will be publicly available, meaning every document filed in the system could be accessed by the general public. This would require contractors and attorneys to redact a greater amount of material, further increasing filing costs and affecting filing strategies. GAO has not yet addressed the EPDS confidentiality concerns.

 

Copy of the April 16, 2016 proposed rule is available at the following Federal Register website:

https://www.federalregister.gov/articles/2016/04/15/2016-08622/government-accountability-office-administrative-practice-and-procedure-bid-protest-regulations

 

The new rule is not officially subject to a comment period, but the GAO is accepting comments to the proposed through May 16, 2016.

 

For more information on the proposed rule changes, contact Blake Christopher (bchristopher@vanblacklaw.com) or any of the other Construction and Government Contracts Team members at Vandeventer Black (www.vanblacklaw.com).

Part 2: Paid Sick Leave Mandate Proposed by DOL for Contractors

As an adjunct to our earlier summary blog on DOL's proposed sick leave mandate for federal contractors, below is the overview of the proposed rule by Vandeventer Black partner and employment law practitioner Anne Bibeau which more fully expands upon the proposed rule and its implications. Please contact Anne for more information at 757.446.8600 or abibeau@vanblacklaw.com, or visit our firm's website at www.vanblacklaw.com.

U.S. Department of Labor Issues Proposed Rule on Mandatory Paid Sick Leave for Federal Contractors

By Anne G. Bibeau, Esq.

The U.S. Department of Labor (DOL) has published a Notice of Proposed Rulemaking (NPRM) to implement President Obama’s Executive Order (EO) 13706, “Establishing Paid Sick Leave for Federal Contractors.” The EO requires that for federal contracts issued on or after January 1, 2017, federal contractors and subcontractors must provide their employees “not less than 1 hour of paid sick leave for every 30 hours worked on or in connection with covered contracts,” up to 56 hours of paid sick leave per year. In the NPRM, DOL describes the rules and restrictions regarding the accrual and use of paid sick leave. The public is invited to submit comments on the NPRM to DOL by March 28, 2016.

The EO’s paid sick leave requirement applies to work on or in connection with “covered contracts,” meaning federal contracts and subcontracts subject to the Davis-Bacon Act (DBA) and the Service Contract Act (SCA), as well as federal contracts for concessions and for services on federal property. Employers must provide the paid sick leave to both FLSA-exempt and non-exempt employees. Recognizing that employers typically do not track hours exempt employees’ hours worked, the NPRM provides that the employer may assume that for purposes of calculating paid sick leave its exempt employees worked 40 hours on or in connection with a covered contract each week.

Significantly, the paid sick leave required by the EO is in addition to the contractor’s obligations under the SCA and DBA. The contractor will receive no credit toward its fringe benefit or prevailing wage obligations under those laws for providing the paid sick leave mandated by this EO. A contractor’s existing paid time off policy may satisfy the requirements of the EO only if the paid time off meets all of the EO’s requirements for paid sick leave.

Under the NPRM, any unused paid sick leave must carry over from one accrual year to the next. A contractor is permitted to, but not required, to pay out used paid sick leave upon termination of employment; however, if the contractor rehires the employee within 12 months, the contractor must reinstate his or her accrued paid sick leave regardless of whether it was paid out previously.

The employee is entitled to use the paid sick leave for: their own illnesses and other health care needs; the care of a family member or loved one who is ill or needs health care; purposes resulting from being the victim of domestic violence, sexual assault, or stalking; or to assist a family member or loved one who is such a victim. The NPRM broadly defines the relations for whom an employee may use paid sick leave to include the employee’s child, parent, spouse, domestic partner, or “any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship.”  

An employee who wants to use accrued paid sick leave should make a request at least 7 calendar days in advance, if the need for leave is foreseeable, or as soon as practicable if the need is not foreseeable. The employer can require that the employee provide information to establish that the absence qualifies for paid sick leave, and if feasible, the anticipated duration of the leave. However, the employer may not require certification from a health care provider or documentation to prove a claim of domestic violence, sexual assault, or stalking unless the employee uses 3 or more full days of leave consecutively.

The DOL will publish a notice that employers must post notifying their employees of their rights to paid sick leave. In addition, the NPRM requires that employers notify their employees of their accrued paid sick leave balances at least once a month, as well as whenever the employee asks for that information or asks to use paid sick leave and when the employment is terminated.

Federal contractors should review their leave policies now to minimize any conflicts with the EO’s requirements and to prepare for the EO’s implementation in 2017.

Paid Sick Leave Mandate Proposed by DOL for Contractors

DOL has recently (Feb 24) proposed a rule requiring federal contractors to provide workers with up to seven days of paid sick leave per year. The proposal is for contractors to offer one hour of paid leave for every 30 hours of work. Employees could use the time to care for themselves or family members and for absences resulting from sexual assault, domestic violence or stalking.

The proposed paid leave requirement would apply to new or renewed contracts beginning in 2017. There are some limited exceptions proposed, including for arrangements with Indian tribes and construction contracts under $2,000, and the proposed rule further exempts contractor employees who perform work on a federal contract but also spend at least 80 percent of their weekly hours on other non-contract work.

Also of note, sick leave would carry over from year to year. Service Contract Act and concession contracts are within coverage of the proposed rule, and not just construction contracts.

There is a 30-day public comment period, after which DOL has until Sept 30 to issue a final rule. As of the posting of this blog, the proposed rule is available at the Federal Register website at this link:

https://www.federalregister.gov/articles/2016/02/25/2016-03722/establishing-paid-sick-leave-for-federal-contractors

Temporary Staffing: Contractor Licensure Depends on Project Location, and the Virginia Requirement Remains Unclear

LEGAL ALERT^©: Temporary staffing agencies may require contractor licensure, depending upon project location, and the answer in Virginia remains unclear

This alert summarizes a complex issue that is the subject of a more detailed overview prepared by Gretchen Ostroff, a member of the Vandeventer Black Construction and Government Contracts Practice Group. Gretchen’s detailed overview is available on the firm website.

THE ISSUE:           

Virginia’s contractor licensing requirements do not specifically address licensure of temporary staffing agencies; but several other states with similar licensing requirements have held that temporary staffing agencies must be licensed as contractors if they supply laborers to construction projects. Lack of licensure subjects the temporary staffing agencies, those hiring them, and potentially contractors at higher tiers, to potential criminal violations, as well as administrative penalties such as fines, suspension, or license revocation.  

WHY NOW?        

Responding to the Governor’s earlier Executive Order, the Virginia Department of Labor and Industry (“VDOL”) recently issued a policy memorandum outlining its commitment to prevent “worker misclassification” for “independent contractors”, who VDOL interpreted as actually being “employees”. An inter-agency task force was established in conjunction with that worker misclassification prevention effort, which includes the Virginia Department of Professional and Occupational Regulation (“DPOR”). 

Associated new policy requires a contractor working in a “multi-employer worksite situation” to provide proof of its DPOR contractor’s license and proof of the DPOR license for all subcontractors. The policy also eliminates penalty reductions for small companies and companies acting in good faith. While independent contractors were specifically targeted, temporary laborers were not specifically addressed.

The prevalence of temporary labor in the construction industry is nothing new. Skilled or unskilled, temporary workers perform numerous roles on construction jobsites. Various contractors at all tier levels often wholly or partially outsource project labor, among other things enabling them to reduce overhead while maintaining a ready supply of workers on an as-needed basis. Because most temporary staffing agencies do not consider themselves “contractors”, they typically do not hold contractor licenses through DPOR. 

WHAT ABOUT VIRGINIA? 

There are some states that statutorily address temporary labor services for contracting purposes. For example, California law defines “contractor” as including temporary labor services. Typically, though, even if addressed such as in California, licensure is not required for the temporary labor company if the temporary employees work under the supervision of a licensed contractor. 

Two recent state courts, West Virginia and Alabama, have looked at the question where temporary labor services were not statutorily addressed. While using different analyses, both courts held that temporary staffing agencies required contractor licensure.  Of note, the contracting licensure requirements of those states were similar to Virginia’s statutes and regulations.

In the West Virginia case, the court took a broad view of temporary laborers, and concluded that since the temporary workers were engaged in construction work, it did not matter in what particular trade they were performing – licensure was required. The Alabama court took a more narrow view that focused on the particular “construction activity” involved, and indicated that, for example, menial labor might not require temporary agency licensure, but that for typical construction activities, licensure was required.

So where does that leave Virginia? That remains the unanswered question. In contrast to states like California, Virginia’s statutes and regulations are silent regarding temporary staffing and, unlike West Virginia or Alabama, there are no reported cases yet addressing this question. Nor, yet, has either VDOL or DPOR stated their positions. But it should be noted that the stated rationales of the task force for its worker misclassification concerns included similar rationales to those used by both the West Virginia and Alabama courts.

Until Virginia addresses the issue by statute, regulation, or case holding, the outcome in Virginia remains uncertain-- putting both temporary labor agencies and the contractors that use/allow them at risk.

THE OPTIONS:

Short of advocating for legislative or regulatory change, the options are limited. One option is for temporary labor agencies to obtain licensure. That is the most certain approach for both the temporary labor agency and any contractor using temporary labor. A second option is to presume licensure is not required until a contrary ruling is made, and hope licensure is deemed not required.

However, that second approach places both the temporary labor agency and the hiring contractor (and higher tier contractors) at significant risk. Even if the temporary labor agency and the contractor determine licensure is not required, DPOR may not agree. That puts them, and potentially contractors at higher tiers, at risk for violating the law; for which the fines and punishments can be severe, in addition to putting them at risk for associated contract breach damages.

FOR MORE INFORMATION:

This is just one more example of the complexities and risks associated with contracting. For more information about this issue, or any other government or construction contracting matters, Vandeventer Black’s Construction and Government Contracts Group team of attorneys are poised to help navigate those needs. Please visit the firm’s website to learn more about the firm and our professionals at www.vanblacklaw.com.


SUPPLEMENT - February 15, 2016:

As a follow up to this recent blog, we thought it of interest to note that we received comment back from one of our recipients that a VDOL representative had informally expressed the view that the worker misclassification policy was going to be interpreted by VDOL as meaning that the individual works hired from temporary employment agencies did not require licensure.

If that becomes VDOL’s formal policy that helps clarify one aspects of the misclassification and licensure issues we noted. But even if so it still remains currently unclear whether that view, if applied by DDOL, will apply the individual workers only, or also to the temporary employment agencies providing them, and also whether DPOR will take a similar position or positions since agencies unfortunately at times take dissimilar positions on similar issues.

Our team will continue to try and provide update respecting this issue as new information develops.

   

Court Vacates FHWA 90-Percent Threshold and Miscellaneous Products Exemptions Aspects of FHWA Secretary’s 2012 “Buy America” Exceptions Memorandum

LEGAL ALERT: Court Vacates FHWA 90-Percent Threshold and Miscellaneous Products Exemptions Aspects of FHWA Secretary’s 2012 “Buy America” Exceptions Memorandum

By recent order, the United States District Court for the District of Columbia vacated the Federal Highway Administration (FHWA) 2012 Memorandum regarding exceptions to the “Buy America” preferences for use of domestic steel and iron on federally funded highway programs. Among other things, the Memorandum exempted manufactured items that were at least 90 percent steel or iron, and other miscellaneous steel and iron products, from the Buy America requirements.

 

The Buy America preference requirement is grounded in several evolutions of the Federal Surface Transportation Assistance Act. One aspect of the related acts was the preference for domestic unmanufactured and manufactured products purchased with monies funded in conjunction with those acts. Those preferences included domestic steel and iron products, both manufactured and unmanufactured.

 

However, the acts allowed the Secretary of the U.S. Department of Transportation to exempt the Buy America preference when the Secretary deemed Buy America compliance would be inconsistent with the public interest. The 2012 Memorandum resulted from the Secretary’s most recent exercise of that exemption authority, and was intended to clarify earlier exception determinations by the Secretary.

 

Using his exemption authority, in the 2012 Memorandum, the Secretary exempted from Buy America policy application two categories of products: 1) manufactured products made up of less than 90 percent steel or iron; and 2) miscellaneous or “off-the-shelf” steel or iron products. The case before the District Court involved challenge to those policy exemptions.

 

In short, the court agreed with the challenging plaintiffs and held the 2012 Memorandum violated the Administrative Procedures Act (APA) because: a) the 90 percent threshold had not been subjected to required notice and comment rulemaking processes, and was itself arbitrary and capricious; and b) the miscellaneous products exceptions likewise were not subjected to required notice and comment rulemaking processes under the APA and also for Buy America waivers.

 

Thus far, the FWHA has not issued any additional clarification regarding Buy America implementation, nor has it initiated any related rulemaking processes. The overall impacts remain to be seen, but pending any overturning of the decision on appeal, or such rulemaking processes, all steel and iron for new federally funded highway projects must be reviewed for compliance with the Buy America requirements, and potential exemptions .

 

FWHA personnel have suggested that vacating the 2012 Memorandum is likely to significantly impact utility components. However, there will be other impacts as well. For more information about this sea-change for steel and iron used for federally funded highway programs, or other government or construction contracting matters, Vandeventer Black's Construction and Government Contracts Team attorneys are poised to assist. Please visit the firm's website to learn more about the firm and our professionals at www.vanblacklaw.com.

Cybersecurity Regulations: Implementation Update Per New DOD Interim Rule

Our October 16, 2015 blog discussed DOD's cybersecurity regulatory changes. This blog updates that information.

After issuing its earlier rule, the DOD has issued a new interim rule delaying most compliance implementation until December 31, 2017. This is apparently in recognition of the difficulties and expense associated with implementation as noted in our earlier blog.

In that same vein, the interim rule amends flowdown requirements to limit subcontractor coverage to those providing "operationally critical support." But, although most compliance implementation is delayed, informing DOD of certain cybersecurity shortcoming at the time of awards remains a current requirement.

The interim rule is available at this link as of the time this blog was published: https://www.federalregister.gov/articles/2015/12/30/2015-32869/defense-federal-acquisition-regulation-supplement-network-penetration-reporting-and-contracting-for?utm_campaign=email+a+friend&utm_medium=email&utm_source=federalregister.gov.

Federally-Funded Highway Projects Facing Impacts by Federal Cargo Preference Act Changes

By Memorandum dated December 11, 2015, the Federal Highway Administration (FHWA) changed the FHWA’s legal position regarding applicability of the Cargo Preference Act (CPA) to federally-funded highway projects. That Memorandum reversed and superseded contrary position in place since 1988.

The Law. Congress passed the CPA in 1954 to promote a U.S. maritime transportation system. The CPA’s policies are intended to provide a revenue base that will retain and encourage a privately-owned and operated merchant marine. The CPA achieves these goals by requiring “at least 50 percent of any equipment, materials or commodities procured, contracted for or otherwise obtained with funds granted, guaranteed, loaned, or advanced by the U.S. Government . . . [to] be transported on privately owned United States-flag commercial vessels, if available.”

The Change. The CPA’s 50% requirement is not interpreted as applying to federally-financed highways - including state projects with federal funding. But there is an exception if the goods or materials are independently acquired.

As example, fabricated steel, tunnel boring machines, large-capacity cranes, and other goods or materials bought specifically for FHWA funded projects must comply with the CPA transportation requirements; however, compliance is not required for shipments of cement, asphalt, or other materials regularly purchased to replenish existing inventories.

Implementation. The FHWA has directed implementation of the change for all federal-aid projects awarded after February 15, 2016. Pending development of FHWA-specific clauses, the recommended clauses in 46 CFR 381.7(a)-(b) are expected to be incorporated by reference into the federal-aid projects. 

The Impact. Contractors must now consider whether federal-aid projects will require CPA compliance, including associated logistical coordination and cost implementation into bids and proposals. Practically, CPA will still not apply to many projects since most materials will not require maritime transportation, and project Buy America Act (BAA) requirements may further dampen CPA impact absent presidential waiver of the BAA. . But, as companies consider their options regarding foreign sources of specially-purchased equipment and project materials, CPA compliance requires attention.

For more information regarding the CPA or other government or construction contracting matters, Vandeventer Black's Construction and Government Contracts Team attorneys are poised to help our clients navigate those needs. Please visit the firm's website to learn more about the firm and our professionals at www.vanblacklaw.com.

"Final DRAFT" of VDOT Road and Bridge Specifications Published for Comment

Vandeventer Black Construction and Government Contracts Group attorneys Pat Genzler and John Lockard have prepared the below summary of the newly published Final DRAFT of VDOT's proposed Road and Bridge Specification changes for review by the industry and the Federal Highway Administration. More information will be available at the Firm's website as well.

FINAL REVISED VDOT ROAD AND BRIDGE SPECIFICATIONS PUBLISHED AND AVAILABLE FOR COMMENT
 
Since the Virginia Department of Transportation (VDOT) proposed changes in 2013 to its Road and Bridge Specifications, Vandeventer Black lawyers have been working with industry representatives to try and initiate a more collaborative process about them. Vandeventer Black lawyer Pat Genzler, as General Counsel for the Virginia Transportation Construction Alliance (VTCA), has helped lead those efforts.

VDOT has now published the revised specifications in Final DRAFT form, and they are available as of this posting at the following VDOT website:

http://www.virginiadot.org/business/const/construction_division_road_and_bridge_specification_book_2016_final_draft.asp

VDOT is now opening the complete book to final review from the industry and the Federal Highway Administration. The same webpage includes a form for comments on the Final DRAFT.

Separately, on December 28, 2015 VDOT announced interim revisions to the 2007 Road and Bridge Specifications would be effective with the First January 2016 Advertisement (January 28, 2016). Those revisions are available in full on the VDOT website at http://www.virginiadot.org/business/const/spec-default.asp.


Despite prior industry input, Final DRAFT includes various changes significantly shifting risks from VDOT to contractors, including among those the following Section 100 changes:

-        Increased requirements for pre-bid review of contract documents and site information to identify any “ambiguities, conflicts, errors or omissions” and to provide written notice to VDOT – with the intended purpose of using the lack of written notice to bolster claim waiver arguments by VDOT.

-        Additional requirements for prompt written Notice of changed circumstances and waivers of contractor claims where notice has not been provided.

-        Shortened times for providing Notice of various changed conditions.

-        Additional bidder disqualification requirements.

-        Risk shifting relating to utility relocation.

-        Requirement and allowable compensation changes for additional costs relating to delays and differing site conditions.

-        Storm water permit requirement changes, both within and outside the right of ways.

Other changes are also proposed for Section 100, and other sections as well, and more detailed summary respecting the Final DRAFT’s current proposed changes is available at Vandeventer Black’s Construction and Government Contracts Group website at www.vanblacklaw.com.

The impacts of the final version will also depend upon VDOT application of them as project issues arise. But it remains important that all prospective bidders, subcontractors, and suppliers for VDOT projects review the Final DRAFT for how the revisions may affect future bids and proposals, project contract documents, and project management – and provide comments that, perhaps, VDOT will be willing to incorporate into the final revised version.

Final Rule Prohibiting Federal Contractors Retaliating Against Employees and Applicants Who Discuss Wages Issues and Becomes Effective for Contracts Entered Into or Modified On or After January 11, 2016

On September 11, 2015, the Office of Federal Contract Compliance Programs (OFCCP) published its final rule prohibiting federal contractors from discriminating against employees and job applicants who inquire about, discuss, or disclose job compensation information. The final rule was published in the Federal Register, Vol. 80, No. 176, pp. 54934 - 54977.

The final rule implements the directives of President Obama's Executive Order 13665, which in short prohibits federal contractors from discharging, disciplining, retaliating, or discriminating in any way against employees or applicants who inquire about, discuss, or disclose their own compensation or the compensation of another employee or applicant.

But, of note, the final rule does not protect employees whose jobs give them access to compensation information (such as those in human resources, information technologies, or payroll positions) who disclose other employees’ compensation to others who do not have a legitimate business reason to obtain the information.

Also of note, this final rule mirrors the existing legal requirement for all employers subject to the National Labor Relations Act, as amended, to refrain from interfering with employees’ rights to discuss wages, hours, and terms and conditions of employment during non-work time.

The final rule applies to any business or organization with any single federal or federal-assisted contract or subcontract in excess of $10,000, or if they have combined contracts in excess of $10,000 in a year. Covered contracts are those entered into or modified on or after January 11, 2016.

The final rule requires notification to employees and job applicants of the non-discrimination protections created by Executive Order 13665 using existing methods of communicating to applicants and employees.

The final rule also requires covered contractors and subcontractors to include the following language in their existing employee manuals and handbooks and to disseminate the provision to employees and to job applicants:

"The contractor will not discharge or in any other manner discriminate against any employee or applicant for employment because such employees or applicant for employment has inquired about, discussed, or disclosed the compensation of the employee or another employee or applicant. This provision shall not apply to instances in which an employee who had access to the compensation information of other employees or applicants as part of such employee's essential job functions discloses the compensation of such other employees or applicants to individuals who do not otherwise have access to such information, unless such disclosure is in response to a formal complaint or charge, in furtherance of an investigation, proceeding, hearing, or action, including an investigation conducted by the employer, or is consistent with the contractor's legal duty to furnish information."

The OFCCP website includes a Frequently Asked Questions web page regarding the final rule, which is available (as of this Legal Alert’s publication) at:

http://www.dol.gov/ofccp/regs/compliance/faqs/PayTransparencyFAQs.html.

For more information about the final rule or its implementation, please contact a member of the Vandeventer Black team of professionals at (757) 446-8600 or www.vanblacklaw.com.