The Construction Advantage, ‘For What it’s Worth…’ & ‘Proposed Independent Contractor Rule’
For What it’s Worth….
After an undisclosed number of years practicing construction law and representing contractors in construction disputes, I have become aware of certain recurring fact patterns. I want to share some of these observations with contractors and others who may find them valuable, starting today with a common situation faced by contractors working with lower tier subcontractors and suppliers.
In a large percentage of construction disputes, contractor clients have told me that they were working with a particular subcontractor or supplier for the first time. Typically, they chose the subcontractor or supplier based solely on a low price, in some cases much lower than the competition.
In many such cases, contractor clients confess that they did not do enough “due diligence” regarding the proposed new sub or supplier, that they had a “bad feeling” based on their initial contact and that they should have heeded their first instincts. And they express regret, in hindsight, that they passed on the reputable sub or supplier well known to them in favor of an unfamiliar alternative.
In my conversations with these clients, they have offered varied explanations: They were working with low margins and trying to save money. The project owner was pushing a particular subcontractor. A supplier was promising faster delivery. Clients have acknowledged in retrospect that these reasons did not justify going with the unknown, and that the dispute has now cost them far more than they may have saved in the first instance.
Of course, these are not universal characteristics of construction disputes, which arise in a limitless variety of circumstances. But this fact pattern has repeated itself often enough in my practice to come to my attention, and I have shared this observation with clients and colleagues on many occasions. Given the cost of resolving disputes on construction projects, I now share it with you “for what it’s worth.”
Proposed Independent Contractor Rule
On September 22, 2020, the United States Department of Labor issued a proposed rule to clarify whether a worker should be classified as an employee covered by the Fair Labor Standards Act, i.e. subject to overtime and minimum wage requirements, or an independent contractor. There will be a thirty (30) day comment period after the proposed rule is officially published in the Federal Register.
The proposed rule is designed to ease the confusion surrounding whether a worker should be classified as an employee or independent contractor by using an “economic realities” test. Under the proposed economic reality test, the DOL would use two core factors and three guiding factors to determine whether a worker should be classified as an independent contractor or employee. The two core factors will have greater weight than the guiding factors.
The two core factors are:
- The nature and degree of the worker’s control over the work. Under this factor, the DOL would lean towards classifying a worker as an independent contractor when the worker exercises substantial control over key aspects of the performance of the work, such as:
- Setting the work schedule;
- Choosing assignments;
- Working with little or no supervision;
- Being able to work for others, including the potential employer’s competitors.
- The worker’s opportunity for profit or loss based on initiative or investment. Under this factor, the DOL would lean towards classifying a worker as an independent contractor when the worker has an opportunity for profit or loss on either:
- The exercise of personal initiative, including managerial skill or business acumen;
- The management of investments in or capital expenditure on helpers, equipment, or materials.
The three guiding factors are:
- The amount of skill required for the work.
- The degree of permanence of the working relationship between the worker and the potential employer. The DOL would lean towards classifying a work as an independent contractor if the working relationship is definite in duration or sporadic, rather than indefinite in duration or continuous.
- Whether the work is part of an integrated unit of production. Under this factor, the DOL intends to analyze whether an individual works in circumstances similar to a production line. To the extent the worker is an integral part of a company’s production process, then the DOL will lean towards classifying the worker as an employee.
In the event the proposed rule becomes a final rule, then employers will need to re-evaluate whether certain workers are properly classified as independent contractors or employees. Further, employers should ensure that they are following state laws concerning the classification or workers as independent contractors or employees, if applicable.
Asha Echeverria Elected Chair of the Portland Regional Chamber of Commerce Board of Directors
Asha Echeverria, Shareholder and Chair of the Construction Practice Group, was elected as the new Chair of the Portland Regional Chamber of Commerce Board of Directors. The PRCC supports regional businesses through professional development, marketing, business building, and advocacy efforts. It is an organization dedicated to helping link people and organizations together, and it provides a strong voice to advocate for the region’s professional community at both the local and state level.
Mechanic’s Liens – A Three State Survey of NH, ME & MA
Please join our Bernstein Shur construction attorneys for a virtual seminar in partnership with the Associated Builders and Contractors – NH/VT Chapter regarding the basics of the mechanic’s lien laws in New Hampshire, Maine & Massachusetts.
We will cover topics for mechanic’s lien law for each state, including:
- What is a mechanic’s lien?
- Who can file?
- Timing rules
- Impact of lien waivers
- Bonding and other substitute security
DATE: October 13th, 2020
TIME: 1:00 – 3:00 PM
Please register below if you are interested in attending.
Zoom details will be forwarded with confirmation.