HPSS Law Obtains Significant Victory for Subcontractors Pursuing COVID-Related Claims on Federal Projects

Since the COVID-19 pandemic emerged in early 2020, it has had wide-ranging and significant impacts on the construction industry. However, the ability of contractors to recover additional costs incurred in relation to COVID-19 has been repeatedly limited by the traditional notion that additional time, and not money, is the only remedy available for pandemic-related impacts under a firm-fixed-price agreement. Through a recent decision of the United States Armed Services Board of Contract Appeals denying the government’s motion to dismiss, which was briefed and argued on behalf of the subcontractors by Martin Salzman, J.T. Gallagher, and Jason Kamp of HPSS Law, a potential path to recover additional costs incurred as a result of government actions and inactions in relation to COVID-19 remains opened.  

In the matter of the Appeal of McCarthy HITT Next NGA West JV, the prime contractor, McCarthy HITT JV, appeals the contracting officer’s final decision denying three subcontractors’ pass-through claims seeking a variety of damages the subcontractors allege were incurred due to the actions and inactions of the government in relation to the COVID-19 pandemic. The subcontractors contended that the government’s actions and inactions constituted constructive change, constructive suspension of the work, and violated the duty of good faith and dealing. The government moved to dismiss the claims asserting that they failed to state a claim for which relief could be granted under Federal Rule of Civil Procedure 12(b)(6). The Board denied the government’s motion finding that sufficient facts had been pleaded to state a claim for relief under each theory. 

Initially, it should be noted that the Board strictly complied with the standards applicable to deciding motions to dismiss at the pleading stage under the Federal Rules of Civil Procedure, which means the Board assumed that all facts pleaded in McCarthy HITT’s complaint were true. This is an important consideration, because it led the Board to disregard certain arguments made by the government that were not set out within the complaint or contained within the underlying subcontractor claims, with the Board explicitly stating in its decision, “[o]n a motion to dismiss for failure to state a claim … we cannot resolve the parties’ factual disputes.” This adherence to the applicable standard is significant, as it now allows the subcontractors’ claims to proceed to a decision based on the actual merits of the case.   

In viewing the pleadings under this standard, the Board first found that McCarthy HITT’s complaint had alleged sufficient facts to state a constructive change claim, identifying the allegation that the United States Army Corp. of Engineers ("USACE") required compliance with government guidance on COVID-19 as plausibly suggesting that the subcontractors were required to perform differently than set forth in the Contract. Second, the Board found that the complaint pleaded sufficient facts to state a claim for constructive suspension, through allegations suggesting that the USACE’s actions and inactions in administering the Contract once the pandemic struck had the effect of unreasonably disrupting, delaying, and hindering the work on the Project. And, third, the Board found that the complaint alleged sufficient facts to plausibly suggest that the government violated its duty of good faith and fair dealing. Specifically, the Board cited the allegations that the government declined to cooperate with McCarthy HITT in managing or addressing impacts and insisted that McCarthy HITT and the subcontractors continue performance as though nothing of consequence was occurring, used the DO-C2 rating as a means of exerting pressure to maintain schedule at all costs, and was not responsive to requests for help. Indeed, the Board stated, “[t]hese allegations suggest that the government essentially left McCarthy-Hitt ‘twisting in the wind’ by insisting on uninterrupted performance in the face of extraordinary circumstances and are sufficient to make out a plausible claim for breach of the duty of good faith and fair dealing.” 

Of additional importance, the Board rejected the government’s argument that the “Sovereign Acts Doctrine” barred the claims brought by McCarthy HITT and its subcontractor. The Board held that, for an affirmative defense to result in dismissal at the pleadings stage, “the applicability of the defense must be clearly indicated on the face of the pleading.” The Board also affirmed that the sovereign acts defense requires the government to prove both that “(1) the government action was public and general; and (2) that the act rendered performance of the contract impossible.” The Board found that it was not clear in the face of the pleadings that the government would be able to prove either of these two elements. Pertinently, this holding can be viewed to mean that the government cannot fall back on the “Sovereign Acts Doctrine” as a get out jail free card for its action and inactions in response to COVID-19, it will have to prove the doctrine’s applicability on each occasion through evidence.           

Ultimately, the Board found that the allegations of the complaint were sufficient for the Appeal to proceed to the discovery phase where both the government and the subcontractors, through McCarthy HITT, will have the opportunity to fully develop the facts and resolve the Appeal on its merits. Thus, the path to potential recovery on claims related to government actions and inactions in relation to COVID-19 remains open, representing, in this firm’s view, a significant victory and a glimmer of hope for contractors and subcontractors bringing COVID-related claims.

If you have any questions regarding the pursuit of claims on under government contracts, please do not hesitate to call or email Martin Salzman, J.T. Gallagher, or Jason Camp. You can e-mail Martin by clicking here, and he can be reached directly at (404) 522-4824. You can e-mail J.T. by clicking here, and he can be reached directly at (404) 469-9175. You can e-mail Jason by clicking here, and he can be reached directly at (404) 469-9193.

DOL Publishes Final Rule on Misclassification Issue

Way back during October, 2022, we informed you that the Department of Labor (DOL) published its Notice of Proposed Rulemaking, stating its objective was, “to help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.” This issue is commonly referred to in the construction industry as the misclassification issue.

On January 9, the DOL, released its final rule on the misclassification issue. The final rule significantly changes the rule that existed under the Trump administration. Under the Trump administration, the DOL’s rule on the misclassification issue focused on two core factors of control over the work and opportunity for profit or loss carried greater weight among other factors. By focusing on these two core factors, the DOL lowered the bar on properly classifying a worker as an independent contractor rather than an employee. Under the Biden DOL’s final rule, the bar has risen dramatically, making it more difficult for employers to argue that workers have been properly classified as independent contractors rather than employees.

The DOL’s final rule takes the focus away from the two core factors previously considered and instead provides for a totality of the circumstances analysis, with the analysis focusing on the following six factors:

·      The worker’s opportunity for profit or loss;

·      Investments by the worker and potential employer;

·      The degree of permanence of the relationship;

·      The nature and degree of the potential employer’s control over the work;

·      The extent to which the work is “integral” to the potential employer’s

business; and

·      The worker’s skill or initiative.

Notably, while the final rule does consider whether the work is integral to the potential employer’s business, the final rule does not adopt what is commonly referred to as the ABC Test. While the ABC Test provides definitively that a worker will be an employee under the law if the worker is engaged in the same trade or business as the employer, the fact that the worker may be engaged in the same business as the employer is only one factor considered in the analysis, under the final rule.

As it concerns the nature and degree of the potential employer’s control over the work, the final rule does make one significant change from what was originally proposed during October, 2022. Under the final rule, if the employer is exercising control to comply with the law or applicable regulations, that control will not be used against the employer in the analysis.

With regard to the investments factor, the final rule notes the relative investments of the employer and the worker to determine whether the worker is making “similar types of investments” that “suggest the worker is operating independently.”

The DOL’s final rule becomes effective on March 11, 2024, barring any litigation that seeks to halt or postpone its implantation. In anticipation of the new rule, now is a good time to conduct a “relationship audit” with your workers to determine whether they are properly classified. Both Philip Siegel and Scott Calhoun can assist your company with its relationship audit. You can reach Philip directly at (404) 469-9197, or you can e-mail him by clicking here. You can reach Scott directly at (404) 469-9195, or you can e-mail him by clicking here.

Be Sure to Comply with OSHA's Form 300A Posting Requirement

Between February 1 and April 30, covered employers must post OSHA's Form 300A in a place easily accessible to employees, such as the break room. Form 300A summarizes the total number of work-related injuries and illnesses that occurred during the prior calendar year and entered into OSHA Form 300, which logs such injuries and illnesses. Whereas Form 300 should include details, such as the nature of the injury and where it occurred, Form 300A only lists information such as the total number of deaths, cases involving days away from work, and total number of days away from work for all recordable cases. Recordable cases are those that involve a death; days away from work; restricted work or transfer to another job; medical treatment beyond first aid; loss of consciousness; diagnosis of a significant injury or illness by a healthcare professional; or a needlestick or sharps injury involving contamination by another person's blood or other potentially infectious materials.

Construction employers must post Form 300A even if no recordable injuries occurred during the prior year, with zeroes entered in the spaces. 

Again this year, employers also need to concern themselves with OSHA's Improve Tracking of Workplace Injuries and Illnesses regulation, often commonly referred to as OSHA electronic recordkeeping regulation. Construction employers with 20 to 249 employees are subject to the rule and must electronically submit their 2023 300A Annual Summary to OSHA no later than March 2, 2024.  Construction employers with 100 or more employees must also submit Forms 300 and 301.

Under current rules, injury and illness records must be maintained at the worksite for at least five years. Also, copies of the records must be provided to past and current employees, or their representatives, upon request.

Corporate Transparency Act Filing Requirements Begin

Enacted in 2021, the Corporate Transparency Act aims to combat illicit activity including tax fraud, money laundering, and financing for terrorism by capturing more ownership information for specific U.S. businesses operating in or accessing the country’s market. Under the legislation, businesses that meet certain criteria must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), providing details identifying individuals who are associated with the reporting company. The filing requirements began starting January 1, 2024.

Key terms to understand are: reporting companies, beneficial owners, and company applicants. Businesses also need to pay attention to the filing deadlines and ongoing filing requirements.

What Is A Reporting Company? Reporting companies include those businesses which are required to file formation paperwork when they are created (with a state’s Secretary of State or equivalent office) and do not qualify for an exemption. As a general rule this means that all corporations, limited partnerships, and limited liability companies need to comply with the filing requirements unless they are exempt. Note that a sole proprietorship is not required to file because those business forms are not created by filing paperwork with a state’s Secretary of State. The regulations provide a lengthy list of exemptions, most of which relate to business entities involved in the financial services industries, or tax exempt entities.

However, a “large operating company” is exempt from filing. To qualify for this exemption, the company must have more than 20 full-time employees (averaging 30 hours or more per week), have an operating presence at a physical location within the United States, and have a filed a tax return for the previous year demonstrating $5,000,000 or more in gross receipts or sales (excluding receipts or sales form sources outside the U.S.).

Who Are Beneficial Owners? Beneficial owners required to file a BOI Report include stockholders of corporations, general partners and limited partners of limited partnerships, and members of limited liability companies. But the statute and regulations define “beneficial owner” more broadly to include persons with substantial control of an entity. This could include members of the board of directors of a corporation, senior officers, or managers of a limited liability company, even if these persons do not actually have any ownership in the company. 

Who Are Company Applicants? A “company applicant” can be either the person that actually files the paperwork creating the entity or the person who makes the decision to create the entity and directs someone else to prepare and file the necessary paperwork. 

When Is Filing Required? Because the statute and regulation are so broad and have such an extensive reach across American business, the filing requirements are being phased in. All business which were created prior to January 1, 2024 have until January 1, 2025 to comply with the filing requirements. All entities created on or after January 1, 2024 and before January 1, 2025, must file within 90 days after the entity is created. And beginning January 1, 2025, all new entities must file within 30 days after they are created.

In addition to the initial filing requirements, all BOI Reports must be updated within 30 days in the event changes occur. Typical changes requiring updates include a change in the identity of beneficial owners or senior officers, a change of address for beneficial owners, or new identifying documents for a beneficial owner (such as a new driver’s license).

How Does a Company File? FinCEN has posted FAQ’s here. A separate website has been established for filing BOI Reports. The information requested includes name, date of birth, home address and a unique identifying number (such as a driver’s license or passport), along with an uploaded image of the identifying document.

A number of companies have established compliance programs to assist businesses meet the filing requirements. Your business may find that using these services is generally more efficient than spending time and resources complying with these requirements.

What Are The Consequences Of Not Filing? Any person who willfully fails to comply with these filing requirements is subject to a fine of up to $500 per day that the violation continues. In addition, potential criminal penalties include up to two years of imprisonment and a $10,000 fine.

Conclusion. The Corporate Transparency Act imposes significant and intrusive filing requirements on small businesses and their owners. Penalties for failure to company are serious. For companies created before January 1, 2024, the time to comply is reasonably generous. For new entities, and in the event of any changes in the required information, the time restrictions ar much more limited and care needs to be exercised to ensure compliance.  

If you have further questions about how the Corporate Transparency Act may affect your business, please contact Scott Calhoun. You can e-mail Scott by clicking here, or you can reach him directly at (404) 469-9195.

NLRB Issues Final Rule Expanding Standard for Joint Employer Status

On October 26, 2023, the National Labor Relations Board (“NLRB”) promulgated its final rule, greatly expanding the standard for determining when an entity will be considered a “joint employer” under the National Labor Relations Act (“NLRA”). The new rule will take on February 26, 2024 (the effective date was extended by the NLRB to facilitate resolution of legal challenges to the rule).

The new rule replaces the NLRB’s previous final rule issued in 2020. Under the new rule, an entity is definitively considered to be a “joint employer” merely by reserving the authority to control any essential terms or conditions of employment, even if it does not actually exercise such authority. Any reservation of the right to control such terms/conditions of employment is therefore a sufficient basis on its own to conclusively establish an entity’s status as a joint employer.

The specified “essential terms and conditions of employment” include:

1.     Wages, benefits, and other compensation;

2.    Hours of work and scheduling;

3.    The assignment of duties to be performed;

4.    The supervision of the performance of duties;

5.    Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;

6.    The tenure of employment, including hiring and discharge; and

7.     Working conditions related to the safety and health of employees.

Notably, the inclusion of “working conditions related to safety and health” as an essential term of employment means that businesses risk being identified as a joint employer merely by promulgating universal jobsite standards relating to safety (or even reserving the right to promulgate such standards).

The consequence of being named a joint employer under the NLRA is that joint employers must participate in collective bargaining over any term/condition of employment over which they have control. Further, the applicable “bargaining unit” will include not only your direct employees, but also a subcontractor’s employees over which you are deemed to be a joint employer.

If a business does not realize that it is classified as a joint employer and therefore fails to participate in collective bargaining with respect to the subcontractor’s employees, such failure may constitute an unfair labor practice under the NLRA. It is difficult to predict how aggressively the NLRB will enforce such requirements under this new rule. Regardless, it is important for any businesses at risk to consider whether its relationships or contracts with subcontractors should be amended to explicitly clarify that such business reserves no rights to control any essential terms or conditions of the subcontractor’s employment.

If you have any questions regarding the new NLRB rule or related employment questions, please call or email either Philip Siegel or Mark Husted. You can e-mail Philip by clicking here, and you can e-mail Mark by clicking here. Philip can also be reached directly at (404) 469-9197, and you can reach Mark direct at (256) 453-7506.

The Role of AI in Construction and Generally in the Workplace

Artificial Intelligence (“AI”) is here to stay. It’s being utilized in construction, generally in the workplace, and even in the legal world. And AI is only going to become more prevalent. Instead of a legal themed update, I thought I would take some time to look into the various ways AI is changing construction and more generally how we work.

First, for anyone who has not taken a test drive with basic AI, it’s time to. The most popular is ChatGPT, which is an AI chatbot that provides answers and information in a conversational way. Think of it as Google on steroids without distracting ads or pointless links. It’s all about information. And it usually gives you the specific information you’re looking for very quickly. It’s pretty neat, and powerful. I highly recommend trying it out. If I need information quickly, I’m turning to ChatGPT first before a regular search engine. 

Although ChatGPT won’t be finishing construction projects any time soon, embracing AI will change how projects are bid, how projects are managed, and how quickly projects can be completed. And although AI will not be replacing all traditional labor (both in the construction and legal fields), it very well might replace the companies that do not utilize AI to make them more efficient, safer, and profitable. 

Here are just some ways AI is being utilized in construction:

·      Project planning and design

o  Utilizing algorithms to analyze date to optimize planning and design evaluating facts such as cite conditions, materials, and historical project data

·      Risk management and safety improvement

o  Utilizing AI to enhance safety conditions, including wearable devices with AI capabilities to monitor worker health and detect potential accidents

·      Supply Chain Optimization

o  Using AI to optimize supply chains, predicting inventory levels and disruptions, and ensuring a steady flow of materials

·      Autonomous construction equipment

o  Integrated AI into construction equipment for autonomous work and completing certain tasks without human intervention reducing safety issues and enhancing efficiency

In addition to making projects more efficient, safer, and profitable, utilizing AI in construction can drive workforce recruitment and retention. In an industry looking to attract younger workers, bringing in drones and robots and other AI powered tools can bring in and keep younger workers around who grew up on Xbox. 

Now, AI is not going to be the answer to all problems. But being on the lookout for vital ways AI will be able to make work more efficient, safer, and profitable will be key to successful companies going forward. Just ask ChatGTP about it.

If you have any questions regarding AI in construction, please do not hesitate to call or email either Philip Siegel or Ben Lowenthal. You can e-mail Philip by clicking here, or you can reach him directly at (404) 469-9197. You can e-mail Ben by clicking here, or you can reach him directly at (404) 469-9177.