Below is an excerpt of an article co-authored by Labor and Employment Group lawyers Abby Warren and Jessica Pinto, which was published in the latest edition of PE magazine, the flagship publication of the National Society of Professional Engineers.

On January 10, 2024, the US Department of Labor (DOL) published a final rule revising previous guidance on employee and independent contractor status under the Fair Labor Standards Act (FLSA) – a reminder for employers to ensure proper classification of workers. Misclassification poses serious risks to employers as it may deny workers proper protections and benefits and result in fines, penalties, payments, and other liability. Engineers may be susceptible to misclassification due to the varying nature of work among different sectors, contractual or project-based work, and remote work in different locations. Read the full article.

Below is an excerpt of an article published in the Winter 2023 issue of CONNstruction magazine, the quarterly publication of the Connecticut Construction Industries Association.

After several decades, Governor Ned Lamont signed a bill into law, effective July 1, 2023, An Act Concerning Liability for False and Fraudulent Claims, Public Act No. 23-129, eliminating language that previously limited enforcement of Connecticut’s False Claims Act to claims relating to a state-administered health or human services program. The revisions dramatically expanded potential liability under the False Claims Act, allowing both private citizens and the Attorney General to bring actions under the Act in any context, including the construction industry. Consequently, contractors, subcontractors, suppliers and design professionals on public construction projects in Connecticut must be familiar with this newly enacted law and take steps to reduce the risks of doing business on such projects.

Construction and construction-related entities now need to make additional efforts to ensure any submissions to state or local governmental entities are accurate. In general, the Act broadly prohibits individuals and entities from knowingly presenting or utilizing false information to make a claim for payment or receive funds from the State of Connecticut, except for any claim, record, or statement made or presented relative to the payment of any tax to the state. The statute does not limit enforcement of the Act to any particular part of a project, nor does it limit its application to specific parties. Rather, the Act applies to any application for or receipt of state funds, meaning that the Act’s enforcement on public construction projects applies equally to contractors, subcontractors, suppliers and design professionals; it may even apply to claims consultants and others submitting claims to the state on behalf of a contractor. Read the full article.

The American Arbitration Association (AAA), one of the longest-standing and experienced alternative dispute resolution (ADR) administrators, has unveiled a significant update to its Construction Industry Rules and Mediation procedures. This update, last revised in 2015, became effective March 1, 2024. Changes to the AAA Construction Industry Rules are significant as these rules are incorporated by default in American Institute of Architects standard construction forms, which are widely used in the industry.

Advancements in remote access technology drive a substantial number of new changes. Others are designed to streamline the arbitrator appointment process and certain prehearing procedures and to make arbitration more cost-efficient by enhancing the arbitrator’s case management authority. Some of the more notable changes are:

Fast Track

F-1:  The limit for cases eligible for AAA’s Fast Track Procedures has been increased from $100,000 to $150,000 so long as no claim or counterclaim exceeds that amount.

F-8: Consolidates two prior rules into one. The new rules specify that motions are not permitted under the fast-track procedure except for good cause shown. Additionally, discovery is not permitted under the fast-track procedure except in extraordinary circumstances. The rule clarifies that a case may be removed from the fast-track procedure if discovery is allowed.

Regular Track Procedures

R-7: The rules governing consolidation and joinder have been clarified and streamlined. Requests for consolidation and joinder must now be filed before the merit arbitrator is appointed unless good cause is shown, and prejudice will result if not granted. Additionally, if a party fails to object to a request for a joinder, that party waives any objection to the request.

R-23: Preliminary hearings may now, by Rule, be held via videoconference, telephone, or in person.

R-34: Arbitrators are now required to consider the cost of preparing and opposing a dispositive motion in determining whether to allow a party to file such a motion. The arbitrator may now assess fees and costs associated with such motion’s practice.

R-39: Requests for an emergency arbitrator will now be fulfilled no later than three days after the request is made.

R-44: Parties may now serve notice and communicate via electronic means and platforms.

R-45: Codifies AAA’s policy and practice that AAA and arbitrators must keep all arbitration matters confidential.

R-52: This rule modifies a previous rule that only allowed arbitrators to address clerical, typographical, technical, or computational errors in their awards. Arbitrators are now permitted to clarify their awards, although the merits of an award may not be reconsidered.

Large Complex Disputes

L-3: The threshold for appointment of a three-arbitrator panel has been increased from $1 million to $3 million.

As the construction industry and legal professionals continue to embrace ADR and technological innovation, these rules promise to deliver a more efficient and effective arbitration process. Additionally, parties electing to arbitrate contractual disputes can always negotiate alternate procedures by contract. AAA Rule R-2(a) recognizes that “[t]he authority and duties of the AAA are prescribed in the agreement of the parties and in these Rules…”

New York’s Prompt Pay Act, which sets the standards that govern private commercial construction contracts exceeding $150,000, was amended effective November 17, 2023. The Amendment known as Senate Bill 3539 provides two significant changes which advance the timing of payments from the owner to the contractor. First, Section 756-a now permits a contractor to submit its final invoice for payment to the owner upon substantial completion (as “such term is defined in the contract or as it is contemplated by the terms of the contract”). Failure to release retainage as required by the law will subject the party holding retainage to interest of one percent per month from the date the retention was due and owing. Under the prior version of the law, a contractor had to complete performance of all of its contractual obligations before submitting a final invoice for payment. Second, Section 756-c now provides that no more than five percent retainage may be retained by the owner, contractor, or subcontractor and, in no case, shall retainage exceed the actual percentage retained by the owner. The prior law set no limits for retention and allowed the owner, contractor, or subcontractor to withhold retainage of a “reasonable amount of the contract sum.” The new law applies to all contracts entered on and after November 17, 2023.

In the wake of the U.S. Supreme Court’s decision in Students for Fair Admissions, Inc. v. President & Fellows of Harvard College, 600 U.S. 181 (2023) (SFFA), which limits the reach of race-based affirmative action programs in college admissions, a federal lawsuit was recently filed in the Eastern District of Kentucky alleging discrimination against the U.S. Department of Transportation’s Disadvantaged Business Enterprise (DBE) program: Mid-America Milling Co., LLC v. Department of Transportation, Case No. 3:23-cv-72.

Initially adopted in 1983, the DBE program aimed to address discrimination in federally assisted transportation projects. Most recently, it was reauthorized in November 2021 when President Biden signed the Infrastructure Investment and Jobs Act (IIJA). The IIJA also mandated that 10% of all new surface transportation funding (which amounts to more than $37 billion) shall be expended through small business concerns owned and controlled by socially and economically disadvantaged individuals. The DBE program requires state and local transportation agencies receiving federal assistance to establish overall goals for the participation of disadvantaged business enterprises and contract-specific DBE subcontracting goals. The applicable federal regulations (15 U.S.C. § 637(d) and 13 C.F.R. § 124.103-104) require the local transportation agencies to presume that certain racial and ethnic groups and women are socially and economically disadvantaged when considering bids for federally funded projects.  

The plaintiffs in Mid-America have challenged the use of the DBE presumption when determining whether a person is socially disadvantaged on the grounds that such an affirmative action program giving preference to certain companies based on race and gender constitutes unconstitutional racial discrimination. The plaintiffs allege that such a program prevents them from competing on government contracts on equal footing with firms owned by women and certain racial minorities and should be permanently dismantled under SFFA.

The plaintiffs seek a court order declaring the race and gender-based classifications in the DBE program unconstitutional and an order to enjoin the federal government from applying both the presumption of social disadvantage in the DBE program and the IIJA 10% set aside for socially and economically disadvantaged individuals. Mid-America may be heading toward the U.S. Supreme Court, where the viability of the DBE program will hang in the balance.

This week we are pleased to have a guest post by Robinson+Cole Labor Relations Group chair Natale V. DiNatale.

The NLRB has reversed decades of precedent and made it far easier for unions to represent employees, including construction employers, without a secret ballot election.  Initially, it is important to understand that this new standard applies to traditional “9(a)” relationships, not prehire agreements under 8(f) of the NLRA.  While both types of relationships exist in the construction industry, 9(a) relationships require support from a majority of employees, while prehire agreements do not and tend to be project specific.  The NLRB’s new standard (announced in Cemex Construction Materials Pacific, LLC, 372 NLRB No. 130 (2023)) emphasizes union authorization cards that are gathered by union officials and union activists who often employ high-pressure tactics to obtain a signature.  Employees often sign authorization cards without the benefit of understanding the significance of the cards.  Even if they don’t want a union, they may sign because they feel pressured by a coworker, don’t want to offend a colleague, or want to avoid being bothered.

The new standard still permits an election, but the NLRB will only conduct an election if the employer petitions for an election promptly, usually within two weeks of the union’s demand for recognition.  Even if an employer petitions for an election, the NLRB will set aside that election if the employer commits virtually any misstep during the period leading up to the election.  Thus, if the union loses the election and the Employer commits an unfair labor practice, the NLRB will look to union cards and likely order that the employer recognize and bargain with the union.  The impact of this new standard is that any union that gathers authorization cards from a majority of employees in an appropriate bargaining unit has a relatively easy path to recognition without an election and despite an election loss.

The New Process – Union Demand for Recognition & Employer Response

Under the NLRB’s new standard, once a labor union gathers authorization cards from a majority of employees, it must simply request that the employer recognize it as the representative of employees in an appropriate bargaining unit.  The NLRB did not address what makes a request for recognition sufficient (e.g. verbal or written) or to whom the union must make this request.  Once a union makes this request, an employer must file a petition for an election, “usually within two weeks.”  If it fails to do so, the employer essentially waives its employees’ ability to vote on unionization in a secret ballot election.

If the employer does nothing, a union seeking representation may either file a representation petition (consistent with prior precedent) or file an unfair labor practice (ULP) claiming a refusal to bargain.  If, during that ULP proceeding, the union establishes that it has union authorization cards from a majority of employees in an appropriate bargaining unit, the Board will order the employer to recognize the union, without an election.  In that situation, the obligation to bargain will be retroactive to the union’s demand for recognition, so any changes that an employer makes to working conditions after the demand for recognition would be a separate violation of the NLRA.

If the employer timely files a petition for an election, the NLRB will process the petition according to its new expedited election rules (effective December 26, 2023), which likely means an election in about three weeks from the date that the employer files the petition.

In another dramatic break from precedent, “if the employer commits an unfair labor practice that requires setting aside the election, the petition will be dismissed, and the employer will be subject to a remedial bargaining order.”  Cemex Construction Materials Pacific, LLC, 372 NLRB at 26 (emphasis added).  The standard for ordering bargaining without an election is much broader that the narrow “Gissel” standard authorized by the U.S. Supreme Court in 1969.  Gissel Packing Co., 395 U.S. 575 (1969).  Thus, if the employer commits “unfair labor practices that frustrate a free, fair, and timely election, the Board will dismiss the election petition and issue a bargaining order, based on employees’ prior, proper designation of a representative . . .,” i.e., whether the authorization cards establish majority support.  Cemex Construction Materials Pacific, LLC, 372 NLRB at 28.

For a bargaining order, the question is whether “the employer rendered a current election (normally the preferred method for ascertaining employees’ representational preferences) less reliable than” authorization cards.  While the Board provided certain examples of conduct that erode majority support evidenced by authorization cards (“nip-in-bud” discharges of union supporters; coercive statements; and unlawful granting or withholding of benefits made just before an election), the standard is broader.  Thus, during the “critical period” between the petition and the election, the NLRB has set aside an election based on certain violations unless the “violations are so minimal or isolated that it is virtually impossible to conclude that the misconduct could have affected election results.”  The new standard does not require a finding that every ULP is disruptive of the election process, but requires consideration of all relevant factors, including:

  • number of violations;
  • severity of violations;
  • extent of dissemination;
  • size of the bargaining unit;
  • closeness of the election (if one has been held);
  • proximity of the conduct to the election date; and
  • number of unit employees affected.

Further, the NLRB acknowledged that, under specific factual circumstances, it has found that an employer’s maintenance and dissemination to all employees of certain generally applicable handbook rules and policies have required setting aside an election, which is especially important considering the Board’s new, much stricter standard (announced in Stericycle, Inc. 372 NLRB No. 131 (2023)) for evaluating handbook rules and policies.

Takeaway – The Focus is on Union Authorization Cards

With the emphasis that the NLRB’s new standard places on union authorization cards, it becomes more important for employees to understand their significance.  If an employee does not understand the full legal weight of signing a card or what. it means to have a union, employees who would otherwise reject a union may sign an authorization card to avoid offending their coworkers or because of group pressure.  Also, while it’s improper for union organizers and adherents to coerce employees or misrepresent the nature and purpose of an authorization card, gathering that evidence and establishing it before a judge can be challenging.

It is important to know that employers need not wait.  Employers are permitted to speak with their employees about unions and union authorization cards.  The NLRB specifically recognized that an employer is free and legally permitted to persuade employees with lawful expressions of its views concerning unions.

It is also important to know that employers that accept and examine union authorization cards or that otherwise gain independent knowledge of a union’s majority support are at risk of a bargaining order.  Employers could have a union without employees ever hearing from their employer or having the opportunity to vote in a secret ballot election.

At this critical time, it’s important for employers to gather internal stakeholders (e.g., HR, legal, compliance and senior management) to set priorities, identify risks and develop action items so that a plan is in place before the issue arises.  Employers may want to provide supervisor training so that supervisors understand the simple rules for communicating with employees about unions and ensure that workplace policies comply with the new NLRB standard for evaluating the lawfulness of common workplace policies.  Employers should also consider contacting competent legal counsel to identify, discuss, and mitigate any existing or potential risks.

This post was authored by Jon Schaefer, who is a member of Robinson+Cole’s Environmental, Energy + Telecommunications Group. Jon focuses his practice on environmental compliance counseling, occupational health and safety, permitting, site remediation, and litigation related to federal and state regulatory programs.

On July 20, 2023, the Occupational Safety and Health Administration (OSHA) published a notice of proposed rulemaking to clarify the personal protective equipment (PPE) standard for the construction industry.

Currently, the PPE standard for the construction industry, unlike for general industry or maritime, does not state clearly that PPE must fit each affected employee properly. OSHA’s proposed change would clarify that PPE must fit each employee properly to protect them from occupational hazards. In the notice, OSHA expressed concern over the use of standard-size PPE to protect physically smaller construction workers properly, as well as access to properly fitting PPE, as these have long been safety and health concerns in the construction industry, especially for smaller-stature workers. The proposed rule clarifies the existing standard (29 CFR 1926.95).

While OSHA does not expect the change will increase employers’ costs or compliance burdens, it is reasonable to expect that employers will incur some costs to put in place new protocols, acquire new PPE, and confirm compliance. At the end of the day, OSHA is making it clear that they expect each employee on a construction worksite to have appropriate and properly fitting PPE.

OSHA is accepting comments, and hearing requests, on the proposed rulemaking through September 18, 2023. Comments must be submitted using the Federal eRulemaking Portal and reference Docket No. OSHA-2019-0003.

Most bond forms in use today, including the standard form AIA A312-2010, contain express condition precedents that trigger a surety’s obligations under the bond. Under a performance bond, the bond obligee is required to provide formal notice to the surety that the principal has materially defaulted and that the surety must begin to perform under the terms of the bond.  This principle is grounded in the idea that the surety should have an opportunity to address the default and investigate the claim so as to mitigate its own liability. Failure to provide sufficient notice will discharge the surety of its obligations under the bond.

The critical importance of providing a performance bond surety with notice of a principal’s default was the basis of a recent decision by the Rhode Island Supreme Court.  In Apex Development Company, LLC v. Department of Transportation, 291 A.3d 995 (R.I. 2023), the Court affirmed the grant of summary judgment for the sureties due to the failure of the owner of the project to provide any formal notice of default.  Here, the Rhode Island Department of Transportation (RIDOT) filed a third-party complaint against the sureties for indemnification after a landowner alleged that RIDOT trespassed and damaged its property during the reconstruction of a portion of the I-95 highway.  The sureties filed a motion for summary judgment arguing that the bond only applied to direct construction costs and not to third-party damages.  The sureties further argued that the bond became null and void upon substantial completion of the project, and even if it did not, the sureties’ obligation under the bond was discharged because of RIDOT’s failure to give notice of the alleged contractor default to the sureties.  RIDOT argued that the sureties’ interpretation was too narrow because the public works bond was more expensive than other bonds, and it also covered all the contractor’s responsibilities under the contract, including indemnification. The lower court granted the sureties’ motion for summary judgment, which the Supreme Court affirmed. It reaffirmed the principle that the purpose of a bond is to guarantee the work in question was to be completed and not intended to compensate for indirect losses or for indemnification.  Moreover, the Court also found that the obligations of the sureties under the bond is conditional. Specifically, “[i]n order to trigger surety’s obligation to perform under a bond, it must first have notice of the principal’s default or breach.” In this case, RIDOT failed to meet these conditions as it never notified the sureties of the claims arising out of the contractor’s alleged trespass and, thus, the sureties were discharged from all obligations under the bond.

Most subcontracts include a flow through provision (also called flow down and incorporation clauses) stating that the subcontractor and contractor are bound by the same obligations as set forth in the prime contract between the contractor and owner.  Many jurisdictions interpret such provisions narrowly, as illustrated in a recent case out of New York.  In Amerisure Insurance Company v. Selective Insurance Group, Inc., 2023 WL 3311879, the U.S. Court of Appeals for the Second Circuit affirmed the District Court’s interpretation of a flow through clause in a construction subcontract. The Amerisure case involved a dispute over insurance coverage for a personal injury to a subcontractor’s employee on a construction project.  The owner of the project sought defense and indemnity from the general contractor (GC) and its insurance company, who in turn sought coverage for the owner as an additional insured under the subcontractor’s policy.  The GC based its argument for coverage on the flow through provision in the subcontract.

The prime contract required the GC to procure commercial liability insurance including the owner as an additional insured for claims caused by the GC’s negligent acts or omissions.  The subcontract likewise required the subcontractor to procure commercial general liability insurance but required only that the GC be named as an additional insured.  However, the subcontract also included a flow through clause, binding the subcontractor to the terms of the prime contract and assuming toward the GC all the obligations and responsibilities that the GC assumed toward the owner. However, the subcontract did not expressly require that the subcontractor name the owner as an additional insured, and in order for the owner to qualify as an additional insured under the subcontractor’s insurance policy, the subcontractor must have agreed in the subcontract to name the owner as an additional insured.

The District Court rejected the GC’s argument that the flow through clause in the subcontract incorporated all the GC’s obligations, including the GC’s obligation to provide additional insurance coverage to the owner.  The Court examined the flow through clause under both Virginia and New York law, reaching the same conclusion for each.  It relied on a New York case for its rationale, Persuad v. Bovis Land Lease, 93 A.D.3d 831 (2d Dep’t 2012), which provides “under New York law, incorporation clauses in a construction subcontract, incorporating prime contract clauses by reference into a subcontract bind a subcontractor only as to the prime contract provisions relating to the scope, quality, character and manner of work to be performed by the subcontractor.”  The Court concluded that because the subcontractor did not expressly assume an obligation to name the owner as an additional insured, the flow through clause would not apply to an additional insured obligation, and therefore the owner was not an additional insured under the subcontractor’s policy.

Contracting parties need to be conscious of overreliance on flow through clauses. In jurisdictions like New York, which narrowly construe these provisions, only the obligations pertaining to the scope of work are likely to flow down to a subcontractor.  Disputes involving flow through provisions typically involve important risk management provisions such as insurance, indemnification, and arbitration, which are not necessarily considered to pertain directly to the scope of work.  The better approach to ensure an obligation flows down to a subcontractor, regardless of the jurisdiction governing the contract, is to make sure the subcontract itself specifically includes what the parties agree on.

A common provision often deleted from the standard form AIA documents is the provision in the AIA A201 General Conditions requiring an Initial Decision Maker (IDM) for claims between the contractor and owner. In the A201, the contracting parties have the option of naming their own IDM for the project. If an IDM is not selected (which is typically the case) the architect serves this role by default. While it is in all parties’ best interests to resolve disputes quickly and efficiently, using the architect as the IDM is not the best way to achieve such a resolution.

Several reasons work against using the architect as the IDM. Contractors typically don’t trust architects to be impartial in resolving disputes because the architect is paid by the owner. Most architects don’t have the temperament or any training to facilitate dispute resolution. An architect’s “initial decision” could even drive the parties further apart and lead to further issues later in the project. The architect may also be perceived to be part of the problem that led to the dispute in the first place. Also, many architects simply prefer to avoid serving the thankless role of an IDM altogether. Lastly, inserting the architect into the dispute resolution process as a required IDM adds an additional unnecessary step to dispute resolution, which can delay the overall procedure.

Rather than serving as an IDM, an architect is better suited to facilitate a resolution in a different capacity, as part of a “settlement team.” The architect is readily familiar with the project and can offer insight on and analysis of the facts that led to the dispute. The architect can point out strengths and weaknesses to both sides without taking a position one way or the other.  Moreover, disputes can be resolved or reduced without direct payment of additional compensation and the architect is well-suited to propose and/or evaluate such potential resolutions.

Not all projects and parties are the same and what may work to resolve disputes on one project may not work for another. However, the concept of a team approach to settle disputes (more like that expressed in the Consensus DOCS 200) should at least be considered for every contract. As a general proposition, if a claim cannot be resolved informally, a construction contract should require authorized representatives for the owner and contractor to meet with the architect at an initial settlement meeting.  Such a meeting should be held promptly and made a condition precedent before moving onto mediation or arbitration/litigation. The parties should be required to analyze and exchange their best, good-faith settlement offers, along with the backup supporting their positions, prior to the initial settlement meeting.  Copies should be submitted to the architect as well. The sooner each party seriously examines their respective claims, the more likely a resolution can be reached. Additional provisions can also be added to the contract to incentivize the process.

 If all the issues are not resolved at the initial settlement meeting, either party can immediately move forward with the next step toward dispute resolution. Much of the work required for the next step should already be completed and the parties can quickly line up a qualified mediator to help resolve the dispute short of litigation or arbitration.