New York recently enacted legislation known as Carlos’ Law, which increases penalties for corporate liability for the death of, or serious injury to, an employee.  The bill, S.621B / A.4947B, was named after Carlos Moncayo, a construction worker killed in a trench collapse on a New York City construction project.  Moncayo’s employer repeatedly flouted safety rules and ignored warnings of dangerous conditions on its construction site before failing to properly support the trench that collapsed and killed Moncayo.  Moncayo’s employer was convicted for his death, but the penalty was light.  The company was sentenced to pay only $10,000, the maximum penalty at the time for any company convicted of a felony in New York State. The legislature responded with Carlos’ Law, which increases accountability for “employers,” and expands the scope of “employees” covered.

The corporate criminal law, NY Penal § 20.20(2)(c)(iv), imposes liability on an employer when “the conduct constituting the offense is engaged in by an agent of the corporation while acting within the scope of his employment and on behalf of the corporation, and the offense is . . . in relation to a crime involving the death or serious physical injury of an employee where the corporation acted negligently, recklessly, intentionally, or knowingly.”  An “agent” of an employer is any “director, officer or employee of a corporation, or any other person who is authorized to act on behalf of the corporation.” § 20.20(a). An “employee” now includes any person providing labor or services for remuneration for a private entity or business within New York State without regard to an individual’s immigration status, and includes part-time workers, independent contractors, apprentices, day laborers and other workers. § 10.00 (22).  The penalties for criminal corporate liability for the death or serious injury of an employee now include maximums of $500,000 when centered on a felony, and $300,000 when centered on a misdemeanor. § 80.10(1)(a) and (b).

Construction costs in New York City are already exorbitant due, in part, to current laws and regulations.  Carlos’ Law will increase costs for all construction projects in New York.  Insurance costs will rise to cover the increased risks on all employers, the vast majority of which already consistently enforce and pay for strict safety procedures and protocols for their employees.  These increased costs may put smaller companies out of business and may lead to less overall construction work in the state.  Another concern is the impact on liability insurance coverage for victims.  Insurance companies may be able to disclaim coverage for an injured worker if a criminal proceeding is brought against the employer.  This could reduce an injured worker’s ability to recover damages.  While the increased criminal fines paid to the state sounds good, how much of a fine will go to increasing safety for victims and their families?

When it passed, the legislature represented that Carlos’ Law will have no fiscal implications for state and local governments. (legislative memo in support). This is difficult to believe considering that increased insurance costs on employers typically get passed on to, and paid by, both private and public construction project owners.  There is little doubt that Carlos’ Law will increase construction project costs; hopefully, an increase in worker safety follows suit.

In All Seasons Landscaping, Inc. v. Travelers Casualty & Surety Co., No. DBD-CV21-6039074-S, 2022 WL 1135703 (Conn. Super. Ct. April 4, 2022) the plaintiff, a subcontractor on a state project, commenced a lawsuit against the surety who issued a payment bond on the project two years after the subcontractor last performed any original contract work on the project.  The defendant surety moved to dismiss the action based on the one-year statute of limitation in Connecticut General Statute § 49-42.  The plaintiff countered that it complied with that deadline because it also performed warranty inspection work after the contract was completed and within the limitation period in section 49-42. The issue of whether warranty work or minor corrective work can extend the limitations period in section 49-42 had not previously been addressed by a Connecticut court.

Section 49-42(b) governs the limitation period on payment bond claims on public projects.  It provides in relevant part that “no … suit may be commenced after the expiration of one year after the last date that materials were supplied or any work was performed by the claimant.”  Section 49-42 provides no guidance on what “materials were supplied or any work was performed” by the claimant means, nor is there any direct appellate-level authority in Connecticut on this issue.  What is clear under well-established law in Connecticut is that the time limit within which suit on a payment bond must be commenced under Section 49-42 is not only a statute of limitation but a jurisdictional requirement establishing a condition precedent to maintenance of the action and such limit is strictly enforced.  If a plaintiff cannot prove its suit was initiated within this time constraint, the matter will be dismissed by the court as untimely.

Without any state appellate authority, and since section 49-42 was patterned on the federal Miller Act (40 U.S.C. §§ 270a – 270d), the court looked to federal precedents for guidance.  The federal court decisions applying the Miller Act, which has similar language as section 49-42, have consistently held that warranty work or minor corrective work will not toll the statute of limitations in the Miller Act.  The statute of limitation begins to run when the original contract work is completed.  Remedial or corrective work or materials, or inspection of work already completed, falls outside the meaning of “labor” or “materials” as these terms are used in the Miller Act.  Thus, correction or repair work, even if such work is requested by an owner, does not toll or affect the time constraint to file suit.  The All Seasons Landscaping court adopted this “bright-line” rule for all payment bond suits under section 49-42 in Connecticut.

Interestingly, the deadline for filing suit on payment bond claims on public projects now appears to be more restrictive than the caselaw governing the time limit for filing a mechanic’s lien on a private project.  Connecticut General Statutes § 49-34 requires a mechanic’s lien to be filed in the land records within ninety days after the “performing of services or furnishing of materials.”  Well-established caselaw allows this ninety-day lien period, even after the original contract work has been completed, to start over from the date the owner requests any additional work, even trivial warranty or corrective work, to be performed.

Business relationships often begin before parties execute a written agreement containing the terms and conditions by which the relationship will be governed.  With little more than a Letter of Intent (“LOI”) or Letter of Award (“LOA”) one party is typically pressured to begin investing time and money to start preliminary work on a project.  If such LOI or LOA contains nothing more than an agreement to agree later, the performing party should minimize its investment until the later agreement is executed.  A recent court decision in New York confirmed the danger to the performing party under “agreement to agree” provisions. 

In Permasteelia North America Corp. v. JDS Const. Group, LLC, 2022 WL 2954131 (N.Y. Sup. CT. 7/22/22), the plaintiff subcontractor allegedly performed $1.9 million worth of preliminary work under nothing more than a LOA with an agreement to agree provision.  Issues arose, and the parties never entered any later written agreement.  The general contractor refused to pay the plaintiff anything for its preliminary work. In response, the plaintiff filed suit against the general contractor asserting four counts: foreclosure of its lien, breach of contract, unjust enrichment, and account stated.  All four counts were based on an alleged oral “handshake deal” for subcontract work for the project.  The general contractor’s LOA stated that neither party would be bound “unless and until the parties actually execute a subcontract.” During discovery, the plaintiff admitted that neither party intended to enter into any contract until its potential terms were negotiated, reduced to writing, and signed. Moreover, the plaintiff only offered one set of meeting minutes and a few project agendas to support its alleged “handshake deal.” Once these necessary undisputed facts were confirmed, the defendant moved for summary judgment on all four counts.

The court readily granted the defendant’s motion on all counts based on clear and well-settled New York law.  Where an agreement contains open terms, calls for future approval, and expressly anticipates future preparation and execution of contract documents, there is a strong presumption against finding a binding and enforceable obligation.  An agreement to agree, in which material terms are left for future negotiations, is unenforceable unless a methodology for determining the material terms can be found within the four corners of the agreement, or the agreement refers to an objective extrinsic event, condition, or standard by which the material terms may be determined.  The defendant’s LOA only called for anticipated future preparation and execution of a subcontract, which is not enforceable.  As a result, plaintiff will recover nothing for the work it allegedly performed under the LOA.

In New York, agreement to agree provisions negate the enforceability of anything other than a subsequent fully executed contract.  Under such provisions, one party avoids legal expenses and the risk of an uncertain outcome of a lawsuit based on an oral agreement, and the other party risks nonpayment with no legal recourse to get paid, as happened in the case noted above.

Below is an excerpt of an article published in High Profile on April 4, 2023

After a public hearing held on March 6, House Bill No. 6826, An Act Concerning Liability for False and Fraudulent Claims was voted out of committee by a wide margin, and then added to the House Calendar on March 28. This bill expands the scope of Connecticut’s current False Claims Act by eliminating the limitation that it only applies to state-administered health and human services programs. It would expand potential liability and penalties under the act to allow both private citizens and the attorney general to bring False Claims Act allegations in any context, including construction projects involving state funds. Read the full article.

On November 15, 2021, President Biden signed into law the Infrastructure Investment and Jobs Act (IIJA) (Public Law 117-58).  The IIJA includes the Build America, Buy America Act which declares that “none of the funds made available for a federal financial assistance program for infrastructure may be obligated for a project unless all of the iron, steel, manufactured products, and construction materials used in the project are produced in the United States.”  The Office of Management and Budget (OMB) released its initial guidance on how to implement the new law and define certain terms in the Buy America Act on April 18, 2022.  The OMB provided additional guidance on February 9, 2023.  Such guidance is contained in a new 2 CFR Part 184 amendment which is poised to broaden the scope of the Buy America Act requirements on federally-funded infrastructure projects to include an ever-growing list of construction materials.

OMB’s initial guidance in 2022 defined “construction materials” as articles, materials, or supplies incorporated into an infrastructure project that consist of one or more of the following materials: non-ferrous metals, plastic and polymer-based products, glass, lumber, or drywall.  OMB has defined “infrastructure project” as “any activity related to the construction, alteration, maintenance, or repair of infrastructure in the United States regardless of whether infrastructure is the primary purpose of the project.”  OMB also defines the term “infrastructure” to cover all public infrastructure work as broadly as possible.

OMB’s most recent guidance added three more types of construction materials to be covered under the Buy America Act: composite building materials, fiber optic cable, and optical cable.  Each of the eight materials are provided a standard for the material to be considered “produced in the United States.”  In addition, OMB seeks feedback on whether to include three more construction materials: coatings (paint, stain, and other coatings applied at the work site); brick and engineered wood products; and a catchall request for any other construction materials which may need to be covered.

Lastly, OMB’s guidance also includes a procedure by which federal awarding agencies can waive the Buy America Act requirements.  There are three types of potential waivers: a public interest waiver, a non-availability waiver, and an unreasonable cost waiver.

Wherever they end up, the Buy America Act requirements must be included in all the terms and conditions for all federal awards with infrastructure projects, including all subawards, contracts, and purchase orders for the work performed or products supplied under the award.  Given the technical complexity of many federal projects, the more construction materials covered, the more difficult it will be to ensure compliance with the act.  While more funding for infrastructure projects is needed, the additional strings within which to be entangled are not.  As a result, federal government projects will become increasingly more complicated and expensive to bid on and to perform.

Over the past several years, modular construction has been on the rise and this method of construction has been used in the creation of health care facilities, education facilities, and apartment buildings. With the increased demand for housing, the popularity and use of modular construction has grown even more rapidly throughout the industry. In response to modular construction’s growing popularity, in 2020, the ConsensusDOCS Coalition released the first industry-standard contract document in this area—the ConsensusDOCS 753 – Standard Subcontract for Prefabricated Construction.  On February 2, 2023, the ConsensusDOCS Coalition announced the publication of the ConsensusDOCS 253 Prime Agreement and General Conditions for an owner to procure prefabricated construction materials and components. This is the industry’s first standard prime-level contract document to address the unique features and legal implications created by the prefabrication process. The ConsensusDOCS 253 provides best practices and risk allocation when the owner purchases the prefabricated components directly from the prefabricator.

ConsensusDOCS 253 follows the risk allocation principles of the ConsensusDOCS 200 Standard Owner/Constructor Agreement and General Terms and Conditions, allowing an Owner to contract directly with the Prefabricator with an “off-the-shelf” standard agreement. The contract document presumes the scenario wherein an Owner purchases a prefabricated component made at the prefabricator’s site which is then delivered and installed at the worksite. The contract document includes:

  • Industry standard definitions for Fabrication Site, a prefabricated Component, and a prefabricated Storage Area;
  • Guidance for users to delineate work to be performed off-site versus at the worksite in an exhibit;
  • Provisions specifying adequate storage areas that must be provided for prefabricated components;
  • Notice provisions for inspections of the Prefabricator’s site which allows Prefabricator’s protection of sensitive proprietary information;
  • Provisions acknowledging that a Prefabricator’s fabrication methods may be confidential;
  • Provisions addressing warranty issues when a Prefabricator acts as a manufacturer versus providing other materials and equipment that are incorporated in the Work;
  • Provisions addressing several scenarios regarding the risk of loss of a prefabricated component during different stages of transportation and delivery; and
  • Option for upfront payment to account for the large capital outlays needed to make prefabricated components.

For more information on the ConsensusDOCS 253 Standard Agreement and General Conditions Between Owner and Prefabricator, please visit ConsensusDOCS.

A typical prevailing party contract provision allows the prevailing party in litigation or arbitration to recover their attorney’s fees from the other party. It is an attractive provision when negotiating a construction contract and its existence often weighs on the decision to pursue litigation or arbitration. However, which party “prevails” is not always easy to determine. What happens if both parties bring claims and both prevail on certain aspects of the underlying case? The Rhode Island Supreme Court recently weighed in on this issue in Clean Harbors Environmental Services v. 96-108 Pine Street, LLC, 286 A.3d 838 (R.I. 2023).

The Clean Harbors case involved a contract with the following typical prevailing party provision: “If any party to this Contract brings a cause of action against the other party arising from or relating to the Contract, the prevailing party in such proceeding shall be entitled to recover its reasonable attorney fees and court costs.” One party brought claims for breach of contract and unjust enrichment and the other party countered with its own breach of contract claim for liquidated damages. The case was tried, and the trial court awarded damages to both parties on their respective claims. Both parties subsequently moved the court for their respective attorney’s fees and court costs. Because there was no guiding legal precedent in Rhode Island, the court relied on case law from other jurisdictions, which allow a court considerable discretion on awarding attorney’s fees when faced with a split decision and a contractual fee-shifting provision. The trial court determined that since both parties prevailed on their respective claims, neither party prevailed and declined to award attorney’s fees to either party. The party awarded the larger judgment appealed this decision seeking its attorney’s fees.

The Supreme Court closely examined the prevailing party provision in light of relevant case law in other jurisdictions and decided that a more flexible approach, affording the trial judge greater discretion, was most acceptable to determine the prevailing party where both or neither party may be considered to have prevailed. The Supreme Court vacated the trial court decision seeking a “more comprehensive, fact-intensive and case-specific analysis” from the trial judge.  Id. at 846. The case was remanded to the Superior Court for a determination of the prevailing party by considering:

(1) the contractual language; (2) the number of claims, counterclaims, cross-claims, etc., brought by the parties; (3) the importance of the claims relative to each other and their significance in the context of the lawsuit considered as a whole; and (4) the dollar amounts attached to and awarded in connection with the various claims, as well as whether compelling circumstances exist to justify a finding that both parties, or neither party may be considered to have prevailed.

Id. (internal quotations omitted).

The Court’s guidance does not appear to make a decision on attorney’s fees any easier. Rather than allow a court discretion to analyze and interpret a potentially unclear prevailing party provision, the contract should clearly define what it means to prevail at arbitration or litigation so that the Court only has to enforce it. Such definition should not only cover the situation where both sides prevail but also what it means to prevail in the first instance. For example, in order to prevail, must one recover a minimum percentage, say 80 percent, of the amount of the initial claim asserted to be entitled to recover attorney’s fees? Such a requirement would serve the dual purpose of clearly defining a win (which should be simple to enforce) and encouraging realistic initial claims which increase the chance of prevailing under the definition. Take the time to negotiate and agree upon what it means to prevail in litigation or arbitration. The language should be tailored to the particular circumstances of each contract. Otherwise, you run the risk and additional expense, which may not be recoverable, of allowing a decision-maker to interpret a contract provision differently than what the parties intended.

Below is an excerpt of an article published in Construction Executive on February 21, 2023 co-authored by Robinson+Cole Labor and Employment Group lawyers Abby M. Warren and Sapna K. Jain.

Since last fall, news of layoffs in the technology sector have set off a ripple effect in a variety of other industries. Companies engaging in layoffs must be thoughtful and prepared when it comes to taking such action. While the construction industry generally has one of the highest layoff rates, and human resource personnel may be very knowledgeable with regard to related risks and exposure, there are a number of additional issues to consider when there are mass layoffs or closings. Further, expensive litigation awaits if companies are not meticulous in complying with state and federal laws regarding such large scale reductions in force.

Under federal law, the primary legislation governing mass layoffs and closing is the Worker Adjustment and Retraining Notification (“WARN”) Act which generally covers employers with 100 or more employees. This law was enacted to protect employees by requiring companies to provide 60 days’ notice to employees in advance of certain plant closings and mass layoffs. In addition, many states, such as California, Connecticut and New York, have enacted similar state laws, referred to as “mini-WARN” laws, which impose additional requirements, including increasing the length of the required advance notice and broadening the scope of employers to which the law applies. Read the full article.

Cyber-crime is an increasingly prominent threat to many industries, and construction is no exception. With the growing use of digital technologies in what was once a primarily “offline” industry, cyber-attacks can pose a significant threat at every level of the construction industry. The construction industry routinely handles sensitive information that is of value to cybercriminals, including project plans, client information, financial records, and employee data. Furthermore, due to the tight project deadlines and complicated project scheduling common in the construction industry, it can be particularly susceptible to ransomware attacks that disrupt critical digital assets to extort “ransom” from their victims. Struck by a ransomware attack at the wrong time, a contractor, construction manager, or design professional may face the unenviable position of choosing between contractual penalties for delay or paying an anonymous hacker large sums of money to free compromised data or digital systems.

As with the many other business risks faced by the industry, the response of many players in the industry is to obtain insurance. While cyber-attacks are usually excluded from standard Commercial General Liability (CGL) policies, many major insurers now offer optional coverage under a Professional Errors and Omissions policy or through standalone cyber insurance. While insurance can afford some degree of protection against attacks, this is an imperfect defense at best. Disruption or damage caused by a cyber-attack can be expensive, with data breaches and ransomware attacks often costing even comparatively small victims millions of dollars per attack in direct costs. These amounts can easily exceed policy limits. Downstream costs (such as loss of intellectual property, reputational damage, and  in some cases, legal liability to the owners of compromised information) are often nearly or entirely uninsurable.

Additionally, companies have seen a rise in cyber-attacks lead by hostile state actors. Often originating from countries hostile to the United States (such as Russia, China, North Korea, and Iran), these attacks are uniquely dangerous to companies due to their sophistication and because most cyber insurance policies contain exclusions for “hostile or warlike actions.” Although still a developing area of the law, particularly given the ambiguity about whether a cyber-attack that does not cause physical damage, but nonetheless carries heavy economic costs, is a “warlike” action, the exclusion risks a denied policy claim. Further, because cyber-attacks by state actors often involve state secrets or national security concerns, insureds often have difficulty developing the facts around the cyber-attack, complicating efforts to recover under their policy.

Despite its limitations, construction industry actors may want to consider obtaining or at least looking into cyber insurance or adding it as coverage to one of its existing forms of insurance. While it should not be relied upon as a sole means of protection, it may help mitigate the risk that modern construction companies face. Practicing proper digital hygiene by implementing strong cybersecurity measures like firewalls, multi-factor authentication, encryption, and air gapping sensitive data, could be an essential, and unfortunately often neglected, safeguard in today’s digital economy.

California law will soon require businesses to treat their employees and business partners as consumers under the California Consumer Privacy Act (CCPA). The CCPA and its successor legislation, the California Privacy Rights Act (CPRA), grant California consumers dignitary rights over their personal information collected and processed by commercial entities that do business in California. The CCPA applies to to such entities that do business in California and collect California consumers’ personal data, have annual gross revenues over $25 million, possess the personal information of 100,000 or more consumers, or earn more than half of their yearly income from brokering data.

Employee, Job Applicant and 1099 Contractor Data

Previously, the CCPA excluded employee data; however, this exemption is set to expire on December 31, 2022. The California State Legislature defied expectations by ending the 2022 legislative session without passing an extension. While the legislature may pass a new exemption in its next legislative session, businesses subject to the CCPA should prepare to process employee CCPA requests as of January 1, 2023.

Fortunately, most businesses already have HR processes to allow employees to access and correct their personal data. Existing OSHA and EEOC record-retention-requirements will also cover most employee data, meaning that it will likely be exempt from deletion requests under the CCPA (i.e., the data cannot be deleted in order to “comply with a legal obligation”).  However, companies must now also allow job applicants to know, view, delete, and correct personal information, and EEOC regulations require businesses to retain applicant records for one year. Businesses must keep close track of when that obligation ends and allow applicants to delete their data as soon as that is legally permissible.

B2B Data

The CCPA also included an exemption for business-to-business (B2B) data collected from agents or representatives of other businesses. However, this exemption also is set to expire on December 31, 2022. As of January 1, 2023, California B2B contacts have the right to know, view, correct, and delete personal information. Some personal information may be exempted as necessary to “complete the transaction for which the personal information was collected, fulfill the terms of a written warranty or product recall conducted in accordance with federal law, provide a good or service requested by the consumer, or reasonably anticipated by the consumer within the context of a business’s ongoing business relationship with the consumer, or otherwise perform a contract between the business and the consumer.” However, companies will need to think outside the box when responding to these requests. Unlike employee and general consumer data, which companies typically collect in a centralized system, B2B data might be scattered across systems tracking emails, contracts, accounts payable, and countless other business processes.

How Can You Prepare?

  • Inventory Your Employee + B2B Data: Businesses should review employee and applicant information (as well as 1099 contractors) to confirm that their privacy notice correctly describes the categories of personal information they collect and process in order to identify “sensitive personal information” subject to the new CPRA right. Businesses should pay special attention to B2B data and clearly document which categories of personal data are stored and on which systems.
  • Enter into Data Processing Agreements with Service Providers: Businesses that use third-party HR software such as Workday and ServiceNow should add data processing addendums that include specific required terms to their contracts. The CCPA requires these agreements with all service providers, including providers that process employees’ personal information.
  • B2B Portals or Websites: If your business collects B2B contact information via a portal or website, you may need to update your privacy policy and include specific provisions required under the CCPA/CPRA.

These are just basic steps. However, if you haven’t assessed whether the CCPA applies to your business, now is the time. And, after that assessment is done, it could mean implementation of a compliance program to avoid fines and penalties and private actions against your business.

This post was authored by Linn Freedman, Kathryn Rattigan, and Blair Robinson (non-lawyer intern) and is also being shared on our Data Privacy + Cybersecurity Insider blog. If you’re interested in getting updates on developments affecting data privacy and security, we invite you to subscribe to the blog.