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Employers take notice. Governor Paterson has signed legislation affecting the obligations of employers vis-a-vis their employees. Here is what this means to you, as an employer.

Written by Gregory J. Spaun on . Posted in Legal Alerts.

Past Due Wages: As of November 24, 2009, the Commissioner of Labor will be empowered to prosecute claims to collect underpaid or unpaid wages before administrative judges within the Department of Labor. This process is similar to that which is used to determine contested unemployment eligibility claims. The legislation also permits the judge to impose an additional assessment against the employer (“liquidated damages”), unless the employer can demonstrate that it had a good faith basis to believe that its underpayment of wages was legal. Previously, the Commissioner of Labor was required to prosecute such claims by starting a civil lawsuit, and the burden required to recoup liquidated damages was the employee’s (by demonstrating that the employer’s underpayment was willful).  

Employer Retaliation: In connection with the past due wage legislation, there has been an increase in the penalties which can be imposed upon an employer who is determined to have retaliated against an employee for complaining of a wage or other Labor Law violation (by, for example, firing the employee or reducing the employee’s work hours or benefits, or by reassigning the employee to a less favorable task or position). These penalties, which previously had a range of $200 to $1,000, now range from $2,000 to $10,000. The penalty provision has also been expanded to include officers and agents of limited liability companies and partnerships.  

New Hire Notice: Commencing October 26, 2009, employers will be required to notify all newly hired employees, in writing, of: 1) their base rate of pay; 2) their overtime rate of pay; and 3) the employer’s regular paydays. The employer must also obtain from the new employee a written acknowledgment of the receipt of this notice.  

If you have any questions about the information set forth in this Legal Alert, call us at 
914-428-2100.  Please understand that this alert provides general information only.  It is not intended to provide legal advice. We encourage you to contact an attorney should you desire to discuss specific situations for which you may need legal advice.   

Home Improvement Contractor License – New Home.

Written by WB&G on . Posted in Legal Alerts.

Do you need a home improvement contractor license when you perform work associated with the construction of a new home? The appellate Division, Second Department says yes, if the work you are performing, in this case landscaping, is not part of the construction of the new home’s envelope. 

New Law Protects Subcontractor’s and Supplier’s Right to Payment

Written by Anthony P. Carlucci, Jr. on . Posted in Legal Alerts.

Governor Patterson recently signed legislation which limits subcontractors and suppliers exposure of a general contractor passing along the risk of non-payment by an owner on a construction project. The new law, contained in the New York State General Obligations Law, voids as against public policy any contract clause which attempts to condition a subcontractor’s or supplier’s right to file and pursue a claim against a labor and material payment bond until after the exhaustion of mechanic’s lien remedies. 
 
Prior to the 1995 New York State Court of Appeals case, West-Fair Electric Contractors, Inc., et al v. Aetna Casualty & Surety Company of America, et al (argued successfully by Welby, Brady & Greenblatt, LLP), construction contracts routinely contained clauses which conditioned a subcontractor’s or supplier’s right to payment on the general contractor’s receipt of payment from an owner. In West-Fair, the New York State Court of Appeals ruled that any clause which attempted to pass along the risk of non-payment by an owner to a subcontractor or supplier was void. 
 
Subsequent to West-Fair, clauses have appeared in construction contracts attempting to circumvent the Court’s decision by requiring subcontractors and suppliers to exhaust their mechanic’s lien rights before they are able to pursue collection against a labor and material payment bond, which traditionally offered an independent remedy. As many in the construction industry know, mechanic’s lien enforcement proceedings are both lengthy and costly. In many cases, by the time the mechanic’s lien proceedings concluded, there was no money available for payment to the subcontractor and supplier and the statute of limitations to pursue claims against the labor and material payment bond expired, thereby eliminating the subcontractor’s or suppliers ability to collect payment. 

Although this new law makes it easier to pursue claims against labor and material payment bonds, you must be sure that you comply with all statutory and bond provisions with respect to timely and adequately providing notice and commencing a lawsuit to preserve your rights for payment under the bond. In essence the new law underscores the independent and alternative remedy the payment bond offers to subcontractors and suppliers. For peace of mind, it is also wise to contact a construction attorney should you need any assistance.  

If you have any questions about the information set forth in this Legal Alert, please call Anthony P. Carlucci, Jr. at 914-428-2100. Please understand that this alert provides general information only. It is not intended to provide legal advice. We encourage you to contact an attorney should you desire to discuss specific situations for which you may need legal advice. Under the ethical rules that govern the practice of law, this communication may be considered as attorney advertising. 

 

Worker Notification – Wage Rates

Written by WB&G on . Posted in Legal Alerts.

If you do public works contracting in New York, be aware of the new wage rate notification requirement under section 220 of the Labor Law, which became effective on February 24, 2008, even though it was not approved until April 23, 2008.

Arbitrator’s Authority to Decide Jurisdictional Questions

Written by WB&G on . Posted in Legal Alerts.

A court’s jurisdiction is established by statute. It sets forth the limitiations and powers of 
the court to decide cases that come before it. For example, small claims courts and district courts 
have a dollar amount limits on judgments they can award. Similarly, the state Court of Claims 
can only decide cases brought against the state. Determining whether a case fits within a court’s 
particular jurisdiction, is decided by that court. 
 
Arbitration is different. In arbitration, the arbitrator’s jurisdiction is established by the 
parties’ arbitration agreement, not by statute. Determination of whether a particular dispute is 
arbitrable – that is, within the arbitrator’s jurisdiction – was a question for the courts to decide. 
 
 Recently, New York’s highest court, the Court of Appeals, ruled that where empowered 
by the parties, an arbitrator can decide questions of his or her own jurisdiction. The case is Life 
Receivable Trust v. Goshawk Syndicate 102 at Lloyd’s.1
 
 Life Trust owned a portfolio of life insurance policies. It purchased contingency cost 
insurance from Goshawk as a hedge on payments that would have to be made on those policies. 
Life Trust paid premiums for the contingency cost insurance to Goshawk, however, Goshawk did 
not pay any claims. The contingency cost insurance agreements contained an arbitration 
agreement. Goshawk commenced arbitration before the American Arbitration Association’s 
International Center for Dispute Resolution. Life Trust, not wanting to arbitrate the dispute, 
made a motion in court to stay the arbitration based upon arbitrability grounds.2
 
 
The lower court denied Life Trust’s motion, noting that the contingency cost insurance 
agreements contained an arbitration provision indicating that “All disputes and differences arising 
under or in connection with this Insurance shall be referred to arbitration under the American 
Arbitration Association Rules.” The lower court further found that the arbitration provision was 
plain and expansive and indicated that the parties agreed to arbitrate their disputes under the AAA 
rules. Those rules, said the court, gave the arbitrator, not the court, the authority to decide the 
“existence, scope, or validity” of the arbitration agreement. 
 
 Life Trust appealed the denial of its motion to stay the arbitration to the Appellate 
Division (First Department). The appellate court upheld the lower court, by a 4 – 1 majority, 
indicating that although questions of arbitrability are generally ruled upon by the court, 
when the parties arbitration agreement specifically incorporates the AAA rules, which 
give the arbitrator the power to rule on his or her own jurisdiction, including challenges 

 

 1
 2008 WL 4461446 (N.Y. Sup.), affirmed, 66 A.D.3d 495, 888 N.Y.S.2d 458 (1st Dept. 2009), 
affirmed, 14 N.Y.3d 850, 901 N.Y.S.2d 133 (2010). 
 
2
 Life Trust argued that the U.S. Supreme Court’s decision in Hall Street Assoc. LLC v. Mattel, 
Inc., 128 US 1396 (2008), nullified the arbitration agreement with Goshawk because the arbitration 
agreement expanded the scope of the court’s review beyond the grounds of review set forth in the Federal 
Arbitration Act. Life Trust also argued that Goshawk’s obligation to pay claims was absolute and the 
agreement precluded Goshawk from asserting any defense. Goshawk argued that the parties unequivocally 
agreed that the arbitrators, and not the Court, would decide issues of arbitrability. 
 
  
to the existence, scope or validity of the arbitration agreement itself3
 and the agreement 
uses expansive “all disputes” language, the courts will leave the question of arbitrability 
to the arbitrator. 
 
Life Trust appealed to the Court of Appeals, however that court agreed with the 
lower courts. 
 
 What is the ramification of this on the construction community? 
 
 If you are using AIA forms of contracts, or contracts containing broad arbitration 
clauses incorporating the AAA Construction Industry Arbitration Rules, what is or is not 
arbitrable under the contract will be decided by the arbitrator, not by a court. Contractors 
should therefore be mindful of any arbitration agreement in their contracts. They must be 
alert, when it comes time to select an arbitrator. If the dispute involves questions 
pertaining to whether or not a particular issue is subject to arbitration, additional 
consideration should be given to select an arbitrator who has experience with arbitrability 
questions. Merely selecting an arbitrator based upon his or her construction or design 
background may put significant questions of whether an issue is arbitrabile in the hands 
of someone without experience or knowledge of such jurisdictional matters. In such 
situations the parties may want to have an attorney with construction law background as 
their arbitrator. 
 
This alert provides general information only. It is not intended to provide legal advice. 
We encourage you to contact an attorney should you desire to discuss specific situations 
for which you may need legal advice. 

 

Inspection of House.

Written by Thomas S. Tripodianos on . Posted in HVBRA Newsletter.

Question. Prior to closing on their home, the Purchasers hired an Engineer who performed an inspection of the house. The inspection revealed the presence of termites in the crawl space in front of the house. In his inspection report, the Engineer noted, in addition to the termite condition, among other things, the boiler was in “good shape, showing no sign of leaking activity.”

In accordance with certain provisions in the Rider attached to the Contract of Sale, upon being advised of the results of the inspection, the Seller hired a Pest Control Company to treat the termite condition, which it did by spraying in the crawl space and placing termite baits around the perimeter of the house. After taking possession of the premises, the Purchasers discovered extensive termite damage throughout the house and a leak in the oil line feeding the boiler tank, resulting in contamination of the soil under the house, (which ultimately had to be removed by a specialty company, monitored by the Department of Environmental Conservation). The Purchasers would like to sue the Pest Control Company, the Seller, and the Engineer for breach of contract with regard to all, negligence with regard to the Engineer and the Pest Control Company, and fraud in the inducement with regard to the Seller. May they do so?

Answer. NO as to the Seller. MAYBE as to the Engineer. NOT LIKELY as to the Pest Control Company.

The Seller made the premises fully available for inspection by the Purchasers and their agents without restriction as to length or scope of inspection. Under these circumstances, the facts represented were not matters peculiarly within the Seller’s knowledge and the Purchasers had the means available to them of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation. It was their responsibility to make use of those means, (which they did through the Engineer) and cannot now complain that they were induced to enter into the transaction by misrepresentations Since, the Seller or his agents did not thwart the Purchasers efforts to fulfill their responsibilities fixed by the doctrine of caveat emptor (buyer beware) they have no claim against the Seller.

In addition, pursuant to the Contract of Sale the Purchasers specifically disclaimed reliance on any representations, written or oral, of the Seller and/or his representative. and declared that the buyers had inspected the premises and agreed to accept it “as is”, and understood that no representations were made as to its condition. Any claim of fraud against the Sellers was therefore extinguished upon closing.

As to the Pest Control Company, there can be no breach of contract claim against them by Purchasers since they were hired by Seller. There is also no indication that there were any representations made to the Purchasers by the Pest Control Company or that there continues to be a termite infestation problem so it would seem that a negligence (or third party beneficiary) claim would not survive either.

As to the Engineer however there remains a question fact as to whether he properly executed his duties to the Purchasers. In other words, a claim may be stated against the Engineer but it remains to be seen whether he actually did anything wrong. Nor can the Engineer avoid the claim by relying on his invoice which is entitled an “inspection agreement”. Neither the invoice nor the inspection report, which also contained a provision limiting liability, was signed by either of the Purchasers. Absent documentary proof of the Purchasers’ agreement to these provisions limiting liability the claim would be allowed.

Court Rules on Extra Work and Delay Claims

Written by WB&G on . Posted in Attorneys' Column.

Of the many problems that contractors must struggle with, obtaining compensation for extra work and delays are some of the most common. Contracts will frequently contain a “no-damages-for-delay clause” and the procedures necessary to obtain change orders for extra work. Courts will usually enforce the no-damages-for-delay clause and deny recovery when a contractor fails to comply with the contract’s change order requirements, despite the contractor’s performance of change order or extra work. 

In the recent case of ADC Contracting & Construction, Inc. v. Town of Southampton, the court addressed claims by a contractor for delay and extra work where the parties’ contract contained a no-damages-for-delay provision and the requirements for obtaining change orders for extra work. 

Background 

ADC Contracting & Construction, Inc. contracted with the Town of Southampton for the construction of an animal shelter. During the course of construction, the contractor’s work was delayed and additional work was performed. 

The contractor sued when the Town refused to pay for the delay and additional work. According to the contractor, the problems with the construction were traced to the Town’s decision to act as its own general contractor. The contractor argued that the Town’s representatives lacked the requisite experience and qualifications for commercial construction. This lack of experience resulted in the interference with and hindrance of the contractor’s ability to orderly and efficiently perform under the contract. Additionally, the contractor argued that the Town’s lack of supervision and coordination resulted in more delays and additional work, all of which increased the contractor’s costs.

In response, the Town argued that the damages claimed by the contractor were barred by the parties’ contract. The Town argued that the contract contained a no-damages-for-delay provision, which expressly barred the delay damages claimed by the contractor. The Town also argued that the contract established specific procedures for obtaining change orders, which procedures were not followed by the contractor. Based on the Town’s defenses to payment, the Town moved for summary judgment. 

Decision

On the issue of delay damages, the trial court ruled in favor of the Town. The court relied on the express language of the parties’ contract, which stated in part, “where Contractor is prevented from completing work due to a delay beyond his control, an extension of the time to complete the specific task shall be Contractor’s sole and exclusive remedy for such delay.” Though the court recognized exceptions to the no- damages-for-delay provision, the court stated that at worst, the Town’s conduct amounted to “inept administration”, which was within the scope of a no-damages-for-delay clause. 

As for the contractor’s request for compensation for additional work performed, the court in this instance denied the Town’s motion for summary judgment. Although the Town offered proof that the contractor did not comply with the contract’s notice and documentation requirements, the court noted that the contract did not explicitly require the contractor to strictly comply with its terms. The court also relied upon evidence presented by the contractor which tended to show that the Town, through the conduct of its employees, may have waived its right to insist upon strict compliance with the contract’s change order requirements. Given the possibility that the contract’s change order requirements were waived by the Town, the court denied that portion of the Town’s motion for summary judgment. 

Comment 

Though typically short paragraphs within a multi-page construction contract, the no-damages-for-delay clause and the procedures for obtaining change orders are each significant provisions for the contractor. Here, in light of the no-damages-for-delay clause, even the Town’s “inept administration” of the construction project did not entitle the contractor to additional compensation for delay. Though the court found evidence to suggest that the change order requirements may have been waived by the Town, the prudent contractor should not rely on obtaining such a judicial finding. Rather, the prudent contractor should be wary of these clauses during contract negotiations and be thoroughly familiar with their contractual requirements. 

Court Rejects Owner’s Claim That Contractor was Required to Bond Project

Written by WB&G on . Posted in Attorneys' Column.

Generally, in the construction industry, when a bid is accepted on private work, it becomes a legally enforceable contract. Before a contract can exist, however, there must be a meeting of the minds of the two contracting parties as to the essential terms. If its essential terms are missing or too uncertain, there cannot be a meeting of the minds and no contract will exist.

In determining whether a binding contract exists, courts would look to the course of conduct and communications between the parties, which may indicate their true intent to create a binding contract.

In the recent case of Wallkill Medical Development, LLC v. Sweet Constructors, LLC, the court looked to the actions of the parties to determine if their course of conduct showed a mutual intent to be bound to a contract.

Background

Sweet Constructors, LLC, a design-build firm, entered into a binding written contract with Wallkill Medical Development, LLC, as owner, to provide design services for the construction of a medical office building located in Dutchess County, New York. The parties also discussed entering into a contract for the construction of the project, however, no written agreement was ever entered into. The contractor was terminated from the project because it failed to obtain payment and performance bonding for the project. Despite the absence of a written agreement for the project’s construction, the owner argued that a verbal agreement was reached, which required the contractor to build the project and obtain payment and performance bonds.

According to the owner, the contractor’s failure to obtain payment and performance bonds was a breach of the parties’ construction agreement, which caused the plaintiff to rebid the construction work and sustain damages as a result of the project’s delay. The contractor argued that the parties intended to enter into a written contract for the construction of the project, separate from the written contract for the design of the project. Since the written design contract contained no bonding requirement, and the parties never entered into an agreement for the construction of the project, the contractor argued that it was not required to obtain payment and performance bonds, and its refusal to do so was not a breach of any contract.

The owner sued the contractor, seeking to recover its damages for project delay, claiming that the contractor’s failure to obtain payment and performance bonding was a breach of the parties’ contract. Both the contractor and the owner moved for summary judgment. The trial court denied the motions, holding that a question of fact existed as to whether a contract requiring the contractor’s supply of payment and performance bonding existed. Both parties appealed.

Decision

The appellate court ruled in favor of the contractor, holding that the parties never came to a complete agreement on the essential terms of anything other than the design contract, which did not contain a bonding requirement. According to the court, essential contract terms, such as the dates for commencement and substantial completion of the work, along with the contract price, were never agreed to. The court also found that the parties, by their actions, showed mutual intent not to be bound until the execution of a formal written construction contract. Accordingly, the court held that no enforceable obligation or agreement for the construction of the project existed. Since no contract existed requiring the contractor to obtain bonding, the owner was not entitled to delay damages for the contractor’s refusal to obtain the bonding.

Comment

Only in a limited number of circumstances is an agreement required to be in writing to be enforceable. However, when an agreement is not in writing it becomes much more difficult, after a dispute has arisen, to prove what the parties did or did not agree to. In this case, the court had no credible evidence before it that the contractor agreed to build the project or provide payment and performance bonding. Since the court had no evidence that such an agreement existed, the contractor’s failure to obtain bonding was not a breach of contract. Although the contractor prevailed in this case, a prudent contractor should reduce his agreements to a writing, so as to minimize any dispute as to whether the parties entered into a contractual agreement and what were its terms.

Court Rules Owner Waived Contract Requirement for Written Extra Work

Written by WB&G on . Posted in Attorneys' Column.

When the contract documents require changes and extras to be in writing, courts generally hold that a contractor who fails to obtain a written change order or extra prior to performing the change or extra will not be paid for that work. In some instances however, courts have allowed a contractor to recover, regardless of the existence of a provision in the contract documents requiring changes and extras to be in writing.

In the case of B. Reitman Blacktop, Inc. v. Missirlian, a court allowed the contractor to recover for extra work despite a standard contract provision requiring modifications to the contract to be made in writing.

Background

A paving contractor entered into a written agreement with a homeowner to install a driveway. The agreement stated that the contract price was to be determined by the final square footage of the installed driveway. The agreement also contained a provision requiring that modifications to the agreement must be in writing to be enforceable. During the course of construction, the homeowner requested the installation of Belgium blocks on part of the driveway. The written agreement did not address the installation of Belgium blocks. When the contractor sought to recover additional moneys from the homeowner on account of the increased costs associated with the Belgium block, the homeowner refused, and the contractor sued.

According to the homeowner, it only had to pay for the end square footage of the driveway, in accordance with the pricing set forth in the parties’ written agreement. The contractor, however, argued that the homeowner verbally requested the Belgium block upgrade and was responsible for paying for the added costs associated with the installation. The trial court ruled in favor of the contractor and the homeowner appealed.

Decision

The appellate court upheld the trial court’s decision. In so doing, the court stated that normally the law bars oral modifications to a contract which expressly provides that modifications must be in writing. However, the court also noted that an exception applies when there is part performance by the party disputing the existence of the subsequent agreement. In this case, the homeowner was willing to include the square footage of the Belgium block in the final square footage calculation of the driveway. In the court’s eyes, this provided clear evidence that a later agreement for the use of Belgium block was entered into between the parties. Since there was clear evidence that the homeowner requested a Belgium block upgrade, and the contractor supplied the Belgium block in response to the request, the court awarded the contractor its increased costs associated with the installation.

Comment

Where an owner consents to upgrades and modifications without written authorization, the consent may constitute a waiver of the written authorization requirement. The holding in this case, however, is an exception to the rule of law that a contract clause requiring written authorization for changes and extras is valid and enforceable. There is much more judicial support for the general rule that a contractor who fails to obtain the required written authorization for changes or extras will not be paid for that work. The prudent contractor should refuse to perform any changes or extra work until it receives a written order in the form specified by the construction documents.