Month: November 2016

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.

If you would like assistance in reviewing your business’s FLSA compliance, please contact us to set up a meeting with our labor and employment law team.

Anne G. Bibeau


Dean T. Buckius


Arlene F. Klinedinst


Situs of Injury under the Longshore Act

Under the Longshore and Harbor Workers Compensation Act (“LHWCA”), a worker injured over water clearly falls under the Act, no matter his occupation. If the individual is injured on land, he is covered only if his occupation is “maritime” in nature and does not work too far away from the water to qualify for LHWCA coverage.

The most litigated and ambiguous issue of the LHWCA is in the situs section, with particular emphasis on the catch-all “other adjoining area customarily used by an employer in loading, unloading, repairing, dismantling, or building a vessel” language, as it could have many potential meanings. The Supreme Court has never enunciated what an “other adjoining area” is under the LHWCA. Two different tests arose, one under the 9th (West Coast) and 5th Circuits (Gulf Coast), and the other under the 4th Circuit (Atlantic Coast), to determine if an injury occurring outside the easily defined boundaries of a terminal or shipyard would be covered.

The first inquiry, originally adopted by the 9th and 5th Circuits, was known as the “functional relationship” or “totality of the circumstances approach,” with its specific inquiries as to the purpose and suitability for maritime use, focused on the function, not the physical location, of the area in question.

The 4th Circuit, in Sidwell v. Express Container Service, declined to follow that approach, as neither, in its opinion, followed the language of the statute.  The Sidwell decision held that an area is “adjoining” navigable waters only if it actually “adjoins” navigable waters; that is, if it is “contiguous with” or otherwise “touches” such waters.  If there are other areas between the navigable waters and the area in question, the latter area simply is not “adjoining” the waters under any reasonable definition of that term.  Therefore, an “other adjoining area” as to which coverage extends must be like a pier, wharf, dry dock, terminal, building way, or marine railway, that is, a “discrete shore side structure or facility.”  Finally, the asserted area must be customarily used by an employer in loading, unloading, repairing, dismantling, or building a vessel, as the statute provides.

The 4th Circuit’s delineation of the zone of coverage is clearly more restrictive in that it requires virtually a direct connection between the water and the place of employment and injury while the 5th and 9th Circuits only required that the area be used in maritime employment, no matter where it actually was.   Because of the difference in applicable tests a court will follow depending on the state/jurisdiction you are in, it is important for an employer to know of these unique differences.

If you would like to receive more information regarding this article, please contact the authoring Attorneys: F. Nash Bilisoly and Spencer Guld, and

GETTING PAID: Government Contracts

Authored by Attorney Neil Lowenstein,

While we have discussed payment mechanisms for government projects previously, we thought a short refresher might be of interest. Typically, government construction projects, whether federal, state or local, have payment bonds to protect contractors who provide labor or materials for the project. But, Refresher Point #1 is that is not always the case. Generally speaking, construction bonds are only required for federal construction projects over $100,000, while in Virginia the threshold is a higher $500,000 ($350,000 for road or transportation projects). So, step one to getting paid is confirming whether there is a payment bond or not.

Refresher Point #2 is that if there is a payment bond, you may be required to give notice before you can bring action to recover against the payment bond. The notice requirements are similar for federal and Virginia government projects; but not the same. Notice is not required for either if you have a direct subcontract or purchase order with the prime contractor. If not, both require written notice to be given to (actually received by) the prime contractor within 90 days of when you last furnished or supplied labor or materials.

Notices for both must state with substantial accuracy the amount claimed and the name of the person for whom the work or materials were performed or furnished. Federal project notices. For federal projects the notice can be delivered by any means that provides written verification of delivery or by any means by which the United States Marshal’s office can serve summonses. However, for Virginia projects the notice must be served by registered or certified mail, postage prepaid, in an envelope addressed to the prime contractor at any place the prime contractor regularly maintains for transacting business.

Refresher Point #3 is that not all persons that furnish work or supply materials for a bonded project can recover under the bond. Besides the notice precondition, third-tier subcontractors or suppliers who do not have direct contracts with the general contractor or a second-tier subcontractor are not covered by the payment bonds for federal projects. The Virginia courts have not ruled on whether these lower tier subcontractors and suppliers would have a claim against a payment bond on a government contract, although the terms of the payment bond itself may provide more coverage than required by the statute.

Refresher Point #4 is that under both statutory schemes an action to enforce a payment bond claim must be filed in an appropriate court with jurisdiction (for federal projects, the federal district court where the project is located; and for Virginia projects, the circuit court where the project or the general contractor is located). That deadline is not flexible, and includes retainage claims as well.

If you would like to receive more information regarding this article, please contact the authoring Attorney.

EMPLOYERS BEWARE: Unpaid Officers and Directors may count as employees under the Virginia Workers’ Compensation Act

The Virginia Workers’ Compensation Commission (the “Commission”) has consistently held that the members of a board of directors of a corporation are counted as employees under the Virginia Workers’ Compensation Act (the “Act”) whether they are salaried or not.1 The treatment of unpaid directors as employees is important to note because the Act generally applies to employers with three or more employees regularly in service. One may assume that an “employee” is someone that receives some form of compensation for services rendered, but the Commission has not defined the term so narrowly. Although executive officers have the option of exempting themselves from the Act, this requires the filing of a formal notice with the Commission. Simply ignoring the requirements of the Act may lead to consequences.  If the Commission determines that the employer is covered under the Act, the Commission can issue a show cause order to determine if the employer should be fined for failing to carry workers’ compensation insurance. An employer’s understanding of the number of its employees therefore is of significant importance. The Act does provide certain exceptions to this rule including certain provisions related to 501(c)(3) organizations. Ultimately, a close reading of the Act coupled with a legal analysis of an employer’s circumstances is important to assessing the applicability of the Act and its insurance requirements to a particular employer.

1 See, e.g., Aguilar v. Sary Inc., 2015 WL 5462051, at *2 (Va. Workers’ Comp. Comm’n Sept. 11, 2015).

Loaning money to your own business

It happens to all entrepreneurs.  A payday arrives, a critical vendor demands immediate payment, or a great purchasing opportunity arrives at a time when there isn’t enough money in the company bank account.  Suddenly you’re reaching into your own pocket and loaning money to your business.  Although sometimes the company can pay you back within a few days, not infrequently another crisis or opportunity arrives and you’re increasing the amount loaned to your company.

Although no business owner likes to think about it, there is always a chance that a business can fail.  Perhaps an employee does something wrong—for which your insurance company claims there is no coverage—resulting in a big judgment against the company.  Perhaps the demand for your goods or services dries up.  Perhaps a competitor steals your key employees.  But, for whatever reason, you find yourself facing a bankruptcy.  If that isn’t bad enough, like most other general creditors of your company, you now face the prospect of getting only pennies for each dollar that you loaned to your company.

There is, however, a way to avoid this nightmare scenario and to put yourself first in line—or at least second in line-behind your banker.  You simply need to be a secured lender, rather than an unsecured lender, to your company.  The two primary steps in the process are (1) getting your company to sign a security agreement, granting you a security interest in the company’s accounts receivable, inventory, and other specified assets and (2) perfecting that security interest—usually by filing a UCC-1 financing statement with the proper state authority for a minimal fee.  A UCC-1 lasts for 5 years and, after it has been on file for four and a half years, you can renew it for an additional five years past the original expiration date.  Of course, it would be best to document all loans with promissory notes.  However, if you choose to document your advances as an account payable of the business, the perfected security interest will still protect you.

When your company reaches the point where it needs a term loan or line of credit, your banker will want the company to grant the bank a security interest in all of your company’s assets and to perfect that security interest—usually by filing a UCC-1.  Prior to granting the loan to your company, your banker will perform a UCC search and will discover (or, if you have told your banker about it—as you should—confirm) your security interest.  Since your banker will want a first priority security interest in your company’s assets, the banker may ask you to terminate your own financing statement.  Don’t do it.  A simple subordination agreement can rearrange the priorities so that even though the bank’s financing statement was filed second, it still gets first dibs on your company’s assets in the event of a default or bankruptcy.

While some business owners think that it’s bad karma to even think about the potential failure of their company, having your company grant you a perfected security interest is prudent insurance—just like your fire or liability insurance.  Like those insurances, you hope that you never need the coverage; however, if you do, those insurance policies are financial life savers.  Just like a perfected security interest.

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