Year: 2017

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NLRB Comes to its Senses on Joint-Employer Liability, Overruling its Browning-Ferris Decision

On December 14, 2017, the National Labor Relations Board (“NLRB”) in Hy-Brand Industrial Contractors, Ltd. overruled its 2015 decision in Browning-Ferris Industries, which had redefined the joint-employer liability standard under the National Labor Relations Act (“NLRA”). Going forward, the NLRB will apply its earlier joint-employer liability standard.

“Joint employer” is the legal doctrine whereby one business can be held legally liable for the employment law violations of another business, such as a subcontractor or franchisee. In Browning-Ferris, the NLRB held that simply having the right to control another business’s workers, even if that right is never exercised, was sufficient to confer joint employer liability. The NLRB’s Browning-Ferris decision was roundly denounced by businesses. In response, Congress proposed legislation—the Save Local Business Act (H.R. 3441)—that, if passed, would restrict the definition of “joint employer” under both the NLRA and the Fair Labor Standards Act (FLSA) to businesses that actually control another business’s workers. The Save Local Business Act passed the House with bipartisan support and is pending in the Senate.

The NLRB must have seen the writing on the wall when it issued an opinion in Hy-Brand Industrial Contractors, Ltd. that described the Browning-Ferris decision as “a distortion of common law … contrary to the [NLRA], … [and] ill-advised as a matter of policy …” Based on this reversal of Browning-Ferris, the NLRB announced that in future and pending cases, two or more entities will be deemed joint employers under the NLRA only if there is “proof that one entity has exercised control over essential employment terms of another entity’s employees (rather than merely having reserved the right to exercise control) and has done so directly and immediately (rather than indirectly) in a manner that is not limited and routine.” This means that going forward, “proof of indirect control, contractually-reserved control that has never been exercised, or control that is limited and routine will not be sufficient to establish a joint-employer relationship.”

The NLRB’s rejection of its own Browning-Ferris fiasco is welcome news to employers. But take heed: even under the more restrictive definition of joint employer, the NLRB still found that the respondents in the Hy-Brand Industrial Contractors, Ltd. case were joint employers and thus liable for each other’s violations of the NLRA because the same decisionmaker decided employee terminations for both businesses and the two businesses’ employees participated in the same benefits plans and attended the same corporate training. It is still critical that businesses evaluate potential liability for subcontractors’ or franchisees’ misdeeds, particularly when providing or sharing labor.

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Writing Off Bad Debt

It is an unfortunate fact of life that businesses often have difficulties collecting debts. It is important that businesses take proactive steps to address their bad debt so that they can either collect the debt or obtain the benefit of a tax deduction.

The Internal Revenue Code (as of the date this article was published) allows businesses to take an ordinary deduction for a debt that is “worthless” and if the business has suffered an actual loss or claimed the debt as income. This would include businesses using accrual accounting or debts relating to defaulted loans. The Internal Revenue Code does not define “worthlessness,” but courts have determined a debt to be worthless if the creditor is justified in abandoning hope of recovery. This must be determined on a case-by-case basis, but generally the business must establish that it has exhausted all of the usual reasonable means of collection without a full recovery.

The burden is on the business to establish that the debt is “worthless.” An attorney experienced in creditor’s rights can assist with collecting debts and proving that the business has used all reasonable methods to pursue the debt. This may include reducing the debt to a judgment and then pursuing collection activities based on the judgment, including levies and garnishments. In Virginia, and depending upon the nature of the debt, there may be other remedies available, including landlord’s and mechanic’s liens. In many cases, it is possible to collect a portion of the debt and at the same time establish that the remainder of the debt is “worthless.”

Businesses should be proactive in managing their debt. Often, the more aggressive creditor is more likely to be paid. If the debt cannot be collected, the Internal Revenue Code only allows a deduction for the tax year that the debt became “worthless.” Vandeventer Black LLP has attorneys experienced in creditor’s rights and tax law who can assist with pursuing collection of debts and establishing that the business has taken all reasonable efforts to pursue collection.

An Overview of Virginia Law on Electronic Signatures

As business increasingly takes place digitally instead of on paper, electronic signatures have become an important facet of completing transactions.  Now, instead of executing transactions the traditional way by having the parties provide signatures in ink on paper, many transactions are now completed by clicking a button, typing one’s name into a form, signing a tablet using a finger or a stylus, or even via audio or video recording where the signers denote that they agree to complete a transaction.   Such electronic signatures aid efficiency in that as soon as the transaction is completed, there is presumably a digital record of what took place.  However, in light of the challenges presented by identity theft, many forms of electronic signatures may also lend themselves to scrutiny as to their legitimacy.

Virginia law recognizes electronic signatures as valid.  Virginia’s version of the Uniform Electronic Transactions Act, which is set forth in Virginia Code sections 59.1-479 through 59.1-498, provides that an electronic signature will suffice when the law requires a document to be signed.  The law defines an electronic signature to include “an electronic sound, symbol, or process” affiliated with a document that is made by a person with intent to sign that document.  The law also provides that a document can be notarized electronically.  However, it should be noted that while the Virginia Uniform Electronic Transactions Act applies to most transactions, it does not apply to wills, codicils or testamentary trusts, and it does not apply to transactions to the extent they are governed by certain parts of the Virginia Uniform Commercial Code.

When creating processes involving electronic signatures, companies should create policies and procedures to ensure an electronic signature will be upheld as a valid signature of the signer in court.  When determining the impact of an electronic signature, Virginia law provides that courts should examine whether the signature is able to be verified, whether the signature is unique to the signer, whether the signature was under the signer’s control only, whether it is possible that the document could have been changed after the signature was executed, and whether the procedure used to create the signature was sufficiently reliable for the purpose of the signature.  Signatures executed using stringent processes to ensure their legitimacy are most likely to be upheld as valid by a court of law.

Virginia’s version of the Uniform Electronic Transactions Act also enables non-court governmental entities, including local governments and state agencies, to allow or disallow electronic signatures when parties are contracting with the government entity.  The law also gives these governmental entities the ability to specify their individual requirements and procedures for electronic signatures in a transaction in which the government entity is a party.  Thus, companies that transact business with governmental entities should consult the electronic signature rules of the relevant entity.

In light of the increasing reliance on technology in business, it is likely that compliance with Virginia’s electronic signature rules will continue to be an important issue for businesses in the future. Businesses with questions about Virginia law on the issue of electronic signatures should seek the assistance of legal counsel.

Can an Architect Be Held Liable for Defects in Construction

It is common on commercial construction projects for the owner to hire the architect to perform services during construction, in addition to designing the project.  Among other things, the architect’s construction phase services will typically consist of periodic observations and evaluations of the progress of the construction work.  An architect may be charged with observing the work to determine whether or not the building is being constructed in accordance with the contract documents, including the drawings the architect has prepared.

When there are defects in the construction, an owner may attempt to hold the architect liable (usually in addition to the contractor) for said defects, even if there are no errors or omissions in the architect’s design or specifications.  The theory behind such an assertion is typically that, even if the defect was caused by the contractor, the architect was charged with observing the work and should have called out the contractor’s defect and seen that it was corrected.

In such a situation, can the architect be held liable for defects in the contractor’s work?  The answer – as is so often the case – depends on the architect’s contract with the owner.  While many owner/architect agreements contain provisions requiring the architect to make periodic inspections of the work, it is typical for the agreements to contain language limiting the architect’s responsibility, such as the language used in the AIA Document B101-2017 Standard Form of Agreement Between Owner and Architect:

“The Architect shall not have control over, charge of, or responsibility for the construction means, methods, techniques, sequences or procedures …, nor shall the Architect be responsible for the Contractor’s failure to perform the Work in accordance with the requirements of the Contract Documents.”

AIA B101-2017, at § 3.6.1.2.

An architect in this situation would likely argue that this provision is exculpatory in nature, i.e., that it relieves the architect from any liability for the contractor’s acts or omissions.  The argument, according to the architect, is that the language “nor shall the Architect be responsible for the Contractor’s failure to perform the Work in accordance with the requirements of the Contract Documents” truly means that the architect cannot be responsible for the contractor’s failure to perform the work in accordance with the contract documents.  Some courts have adopted this position, and have dismissed claims by owners suing architects for construction defects.

But the majority of courts have taken a more nuanced view of this often-used contract language.  These courts have found that exculpatory language such as the quoted-language from the B101 doesn’t necessarily mean the architect is off the hook.  The Supreme Court of Alabama explained this distinction in one such case:

While the agreement may have absolved the Architect of liability for any negligent acts or omissions of the contractor and subcontractors, it did not absolve the Architect of liability arising out of its own failure to inspect reasonably.  Nor could the Architect close its eyes on the construction site and not engage in any inspection procedure, and then disclaim liability for construction defects that even the most perfunctory monitoring would have prevented, or fail to advise the owner of a known failure of the contractor to follow the plans and specifications.

Watson, Watson, Rutland/Architects, Inc. v. Montgomery Cty. Bd. of Educ., 559 So. 2d 168, 173 (Ala. 1990) (emphasis added).  In other words, while the architect is not responsible for the contractor’s negligence, the architect is required to perform its construction observation services reasonably, as required under its contract.  Further, when the architect actually observes deviations from the contract documents, it is required to report these to the owner.

There are several takeaways respecting such designer liability:

First, courts distinguish between full-time construction observation, and periodic evaluations of the work.  Courts will hold the architect to a higher standard vis-à-vis construction defects in the latter situation.  Architects should make sure that, unless they are truly being engaged to perform full-time observation, their contracts require observations of the work to occur only at periodic, reasonable intervals.

Second, the contract language matters. For example, an obligation to notify the owner of any defects in the work, whether or not observed by the architect, can be interpreted as something more akin to a guarantee of the contractor’s work; which is at odds with the exculpatory language, discussed above.

Lastly, performance matters.  Whatever the contract language, all parties to the contract must perform as contracted, and if they do they have meet their obligations. Even the strongest exculpatory language will absolve an architect for failing to perform the construction administration services it agreed to perform. But performance as agreed shields that architect when performed as agreed.

Handling Document Subpoenas

Businesses, large and small, are served with subpoenas with regularity.  My experience leads me to believe that many businesses do not understand the significance of subpoenas.  The purpose of this article is to provide some recommendations for handling subpoenas.

First, what is a subpoena?  Although subpoenas are usually signed by attorneys, rather than by judges or clerks of court, they are nevertheless court orders.  The reason is that attorneys are advocates, but they are also officers of the court. Both the applicable federal and Virginia rules provide for the issuance of subpoenas by attorneys.

Subpoenas come in different forms.  Some demand the production of documents; some demand the appearance of a witness for testimony; some demand both.  In any event, the recipient of a subpoena must provide what it demands and only what it demands; object to portions of it; or seek to have it quashed by a court of competent jurisdiction.  It is essential that you engage counsel to assist you in complying with a subpoena because failure to comply could result in a finding that you are in contempt of court.

Many subpoenas are overbroad and your counsel can sometimes work with the issuer to agree to narrow the scope of the subpoena.  If an agreement cannot be worked out, then your counsel may wish to file objections as well as a motion for a protective order or a motion to quash the subpoena.

Some subpoenas, of course, are fairly innocuous.  Your counsel will work with you in responding properly to a subpoena, especially with respect to the preservation and production of electronically stored information (“ESI”).  More and more litigation all over the country, in federal and state courts, concern ESI that has disappeared for one reason or another.

If your business has professional liability insurance (“PLI”), it is essential that you notify your PLI carrier.  Many such policies contain coverage for handling subpoenas and many PLI policies require you to notify the carrier immediately upon receipt of a subpoena.

In conclusion, treat subpoenas very seriously.

Sexual Harassment: Reducing Employer Risk of Liability

Recent events involving powerful figures from the media, Hollywood, and Silicon Valley have created a renewed focus on sexual harassment claims.  From former Fox News political commentator Billy O’Reilly to former Uber CEO Travis Kalanick, and even Hollywood’s Harvey Weinstein, 2017 has been a year in which companies have been forced to re-evaluate their internal culture and policies regarding sexual harassment claims and investigations.  In light of the current landscape, all employers should do the same in order to limit their risk of liability for unlawful harassment and discrimination.

Starting with the basics, every employer should establish a written policy prohibiting unlawful harassment and discrimination in the workplace.  To be effective, the policy must cover all forms of harassment and it must include a user-friendly internal complaint procedure.  The anti-harassment policy and internal complaint procedure should be provided to all employees, no exceptions, with each employee signing a form to acknowledge their receipt and review of the policy.  As part of the policy and procedure, an internal investigation plan or protocol should be established.  The way complaints are investigated and resolved is critical.  Mishandling this process could swing the door of liability wide-open.

Employers should develop a uniform plan for internal investigations, with built-in flexibility so that investigations can be adapted to each situation.  The plan should include at least four inflexible mainstays that apply uniformly to all investigations.  First, all investigations must begin promptly after the complaint is received. Failure to do so may allow any existing harassment to continue or escalate, which in turn exposes employers to liability and perhaps even punitive damages if a court finds that the employer knowingly allowed unlawful harassment to persist. Second, the plan should provide for the appointment of a neutral investigator who is trained, credible, and knowledgeable about state and federal anti-harassment law.  If necessary, an outside investigator may need to be retained.  Third, both the accuser’s and the accused harasser’s work history and personnel file should be thoroughly reviewed in connection with the investigation.  This would include performance evaluations, prior disciplinary notices, and all similar records.  Lastly, the investigator’s results should be documented in a written report.  The report should include the investigator’s conclusions as to the credibility of witnesses, the accuser, and the accused harasser; factual findings regarding the underlying events; and recommendations for appropriate corrective actions.

The flexible aspects of the investigation would include the length of the investigation, the number of witnesses or other persons involved, and the range of corrective actions to be taken on valid complaints. The appropriate time span for an investigation depends on the circumstances, but could range from a few weeks to several months. The key is that the investigation begin promptly, and courts will judge this “promptness” based on an objective reasonableness standard.  Once the investigation is completed, the employer should notify the accuser and the accused harasser of the results as soon as possible.  If the investigator finds that unlawful harassment occurred, then appropriate corrective action must be taken. The corrective action should be implemented in a timely manner and be tailored to the underlying conduct.  An off-color remark may warrant a mere verbal warning, while inappropriate unwelcome touching may instead require a suspension or discharge.  Further, the employer should be prepared to withdraw or correct any prior action taken against the accuser by the accused harasser or incidental to the harassment.  Here are additional preventive measures employers can take:

· Train supervisors on how to identify, prevent, and eliminate unlawful harassment and discrimination.

· Do not presume that harassment or discrimination cannot involve persons of the same gender.

· Implement a zero-tolerance policy for retaliation against employees who make complaints of unlawful harassment.

· Foster a culture where employees feel free to say something if they observe potentially harassing or discriminatory conduct.

For more information about this article or a review of your organizations’ anti-harassment policies or procedures, please contact the Vandeventer Black Labor and Employment Law team. 

Also, consider attending one of our upcoming Labor & Employment Law seminars on either January 30, March 14, or May 1, 2018.  Register here. 

Changes on the Horizon in Labor and Employment Law

As 2017 winds down, there are a few developments that may change the legal landscape for employers:

· Class-Action Waivers in Employment Arbitration Agreements. Arbitration agreements, in which employees agree to submit disputes with their employer to arbitration rather than to court, have become common. Often, the agreement stipulates that all claims must be submitted on an individual basis, thus precluding class actions. The National Labor Relations Board (NLRB) opposes such class action waivers, arguing that they violate employees’ rights under the National Labor Relations Act (NLRA). Federal appellate courts are divided on the issue: the Fifth Circuit has held that such arbitration clauses are lawful, whereas the Seventh and Ninth Circuits have held that they are prohibited by the NLRA. On October 2, the U.S. Supreme Court heard arguments in three cases on this issue that have been consolidated before the Court. Depending on the Court’s decision, employers may need to revise their employment agreements.

· Joint Employer Bill. The Save Local Business Act (H.R. 3441) is progressing through the House of Representatives with bipartisan support. This bill, if it passes, will restrict the definition of “joint employer,” thereby reversing the NLRB’s infamous Browning Ferris decision. “Joint employer” is the legal doctrine whereby one business can be held legally liable for the employment law violations of another business, such as a subcontractor or franchisee. In Browning Ferris, the NLRB held in 2015 that simply having the right to control another business’s workers, even if that right is never exercised, was sufficient to confer joint employer liability. The pending legislation would limit joint employer liability under both the NLRA and the Fair Labor Standards Act (FLSA) to businesses that actually control another business’s workers.

· Evolving Policy for Transgender Employees. U.S. Attorney General Jeff Sessions has announced that Title VII’s prohibition on sex discrimination “does not encompass discrimination based on gender identity per se, including transgender status.” This announcement reverses the past administration’s policy that deemed employment discrimination against transgender individuals to be discrimination on the basis of sex in violation of Title VII. Under President Obama’s administration, the Equal Employment Opportunity Commission (EEOC) pursued several cases against employers for Title VII discrimination against transgender individuals. Attorney General Sessions’ pronouncement signals a departure from those enforcement efforts.

Employers still should be cautious in taking any adverse action against transgender or gay individuals, however, because several courts have held that Title VII does prohibit discrimination on the basis of gender identity and sexual preference. Even in jurisdictions where courts share Attorney General Sessions’ view, plaintiffs’ attorneys routinely file such cases, claiming that the employer discriminated against an individual because he or she failed to conform to gender stereotypes. The law is well-settled that discrimination based on gender stereotypes violates Title VII.  Also, under current law, federal government contractors are prohibited from discriminating against applicants and employees based on sexual preference and gender identity (which includes transgender individuals).

USCIS Changes Form 1-9 . . . Again

United States Citizenship and Immigration Services (“USCIS”) has again changed the Form I-9, less than a year after its last revision. You may recall that in January 2017, a new Form I-9, dated November 14, 2016, replaced the prior version of the form, which had not been updated since 2013.  The core Form I-9 requirements were unchanged, but the November 14, 2016, version included additional instructions and enhanced formatting, including to provide for completion in a fillable-PDF format.

Less than 6 months later, on July 17, 2017, USCIS released yet another updated Form I-9. Until last week, employers had the option of using the November 2016 or the July 2017 version of the form. However, the July 2017 version became mandatory on September 18, 2017.

The July 17, 2017, Form I-9 reflects changes to the prior version in the following, almost entirely non-substantive, ways:

· In the accompanying “Instructions for Form I-9, Employment Eligibility Verification,” the “Office of Special Counsel for Immigration-Related Unfair Employment Practices” was changed to “Immigrant and Employee Rights Section.” This change simply reflects the change in the name of this division of the Department of Justice.

· Also in the accompanying Instructions, specifically those related to “Completing Section 1,” the phrase “the end of the first day of employment” was changed to “the first day of employment.” It appears this change was made simply for consistency with Section 1 of the Form I-9, which already referenced “the first day of employment” (not “the end of” the first day).

· List C “Documents that Establish Employment Authorization” was changed by adding Form FS-240 “Consular Report of Birth Abroad” as an acceptable document, combining all Department of State-issued certifications of report of birth (Form FS-240, Form DS-1350, and Form FS-545), and renumbering the List C documents.  Other than adding Form FS-240 as an acceptable document, these changes were purely to format.

As was the case with the prior change, employers do not need to use the new Form I-9 on existing employees—they should simply start using the form for employees hired or who require recertification on or after September 18, 2017.  Proper compliance requires the employer to use the version of the form in effect on the date the employee was hired or recertified.  If the wrong form was used, the employer should redo the employee’s Form I-9 using the correct form.  USCIS’s issuance of the new Form I-9 did not affect applicable retention requirements, which remain the same: employers must retain Form I-9s for all current employees and, for former employees, must retain Form I-9 for the longer of (1) one year after the employee’s termination date; or (2) three years after the employee began work for the employer.

It is important for employers to ensure they strictly comply with the Form I-9 requirements—including by using the correct version of the form.  Fines for Form I-9 paperwork violations, which include using an outdated version of the Form I-9 range from a minimum of $216 to a maximum of $2,156 for each and every Form I-9 violation occurring after November 2, 2015.  The new Form I-9 and associated forms can be found here:  https://www.uscis.gov/i-9

Counting Down to Deadline for DoD Requirements for Safeguarding Covered Deference Information and Cybersecurity Incident Reporting

Defense Federal Acquisition Regulation Supplement (DFARS) 252.204-7012 goes into effect on December 31, 2017. This “Cyber Clause” applies to most companies that do business directly with the Department of Defense as well as subcontractors and vendors. The Cyber Clause applies to Covered Defense Information (CDI), which is broadly defined to include almost all nonpublic information. If the Cyber Clause applies to your work your information system that contains CDI, must be compliant with National Institute of Standards and Technology (NIST) Special Publication (SP) 800-171, Rev. 1. For all contracts awarded prior to October 31, 2017, contractors are required to notify the government of any security requirements specified by NIST SP 800-171 that were not implemented at the time of award. When a contractor discovers a cyber incident that affects a covered contractor information system or CDI the contractor must analyze the incident and rapidly report the incident to the government. To avoid or reduce the cost of compliance you need to determine as soon as possible whether a contract includes CDI. This should be done at the pre-bid stage and continue after contract award. Once you determine the scope of the identified CDI you can evaluate which steps to take for compliance. These may include: (1) Bringing your entire information system into compliance – likely the most costly method; (2) Disputing the identification of the CDI to reduce its scope; (3) Proposing alternative less costly security measures; (4) Establishing a segregated in-house information system that is NIST compliant; and, (5) Adjusting your prices and rates to account for the cost of compliance. In almost every circumstance compliance will be costly and time-consuming, but the penalty for non-compliance could be substantial. For more information, please contact the authoring attorney.

Project Fatality: Now What? (Part 4)

PART FOUR: Crisis Planning More Generally

This is the fourth and last of a multi-part series regarding project fatalities and related considerations for construction companies.

Authored by Attorney Neil S. Lowenstein, nlowenstein@vanblacklaw.com; 757-446-8672

There is no “one shoe fits all” for your company’s crisis planning, but the aspects above are all important parts of your company’s evaluation process for effective crisis planning. Respecting the implementation of your company’s crisis plan after its development, the following sequential six phase process can be assistive to expedited, effective crisis response:

Phase 1

Situation development

Event identification and reporting
Phase2

Crisis assessment

Leadership evaluation of situation and desired end state
Phase 3

Course of action development

Collaborative consideration and development of realistic courses of action consistent with situation and desired end state
Phase 4

Course of action selection

Leadership review of realistic courses of action and selection of best overall course of action
Phase 5

Execution planning

Course of action refinement and implementer planning and direction to team members to implement selected course of action
Phase 6

Execution

Implementation of selected course of action and then transition back to pre-crisis mode

Again, company practice of that processed implementation of your plan is the most effective way to maximize your plan’s effectiveness. Regardless of your crisis plan’s content or approach, leadership involvement and guidance is critical throughout your crisis planning and implementation; but company leaders need to remain flexible during plan implementation since even well-developed plans can go awry during implementation.

The bottom-line remains now as it was historically: crises, including fatalities, are an unfortunate element of the inherently dangerous nature of construction. However, pre-planning, safety training, and proactive safety management can all help mitigate related risks; and allow companies to effectively deal with crisis incidents, and limit or perhaps even avoid significant negative incident impacts on the incident project, your workers, and your projects overall; and may be the difference needed for your company’s sustainability after fatality or other significant incident.

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