Snell & Wilmer
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October 2019

Letter from the Editor

Welcome to the fall edition of our Under Construction newsletter. We hope your summer has left you relaxed and refreshed to make the final push to successfully finish the year strong and profitable.

Does an employer have to compensate an employee who gets injured on the way to work, even if it’s not on company property? In this issue, we start off with an article that dives into a recent court decision in Utah where this question was addressed.

Next, we have an article about the new Dynamex ABC Test in California that will be used to determine who is considered to be an independent contractor. This article will explain the test and look at possible outcomes. This new law should have a big impact on the construction industry in California.

In September, the National Labor Relations Board overruled established legal precedent, which gives unionized employers more flexibility managing their workforces. Our next article describes that under the new standard adopted by the Board, a contract coverage test will be implemented to determine if an employer may alter terms and conditions of employment affecting union-represented employees.

Colorado’s legislature had a busy summer session, which included the passing of HB1170. This new law strengthens tenant protections under the implied warranty of habitability, and our next article explains how landlord and tenants alike are now facing the results.

Lastly, we take a look at Arizona’s Registrar of Contractors and how important the agency is for businesses in the construction industry in Arizona.

We hope you will find these articles informative and enlightening. Please let us know if you want us to address a specific construction issue in a future newsletter. We hope you have a profitable, busy and safe fall season! Enjoy the fall colors and weather.

Regards,
James J. Sienicki

"Coming and Going" Does Not Include the Parking Lot

by Mark O. Morris

In its 55th opinion this year, the Utah Supreme Court clarified that worker’s compensation applies to an employee who is injured not only on the employer’s premises, but also on the premises of another “in such proximity and relation” to the employer’s premises as to be “in practical effect” a part of the employer’s premises. In Intercontinental Hotels Group v. Labor Commission, 2019 UT 55, the Utah Supreme Court in early September considered an appeal from a Utah Labor Commission ruling affirming the finding of an administrative law judge that an employee’s injury on an adjacent parking lot was compensable under Utah’s worker’s compensation system. In this case, an employee of a hotel had parked in a parking lot next to the place of her work where the hotel had a non-exclusive right to have employees park and where this employee had been directed to park. The Hotel did not own the parking lot. While walking to her job after parking, the employee tripped and injured herself, requiring surgeries and an amputation. The Hotel claimed that the “going and coming” exception to traditional worker’s compensation analysis applied, thus excluding the employee from coverage. While Utah law embraces the “going and coming” exception, the Utah Supreme Court here held that the exception does not come into play unless the injury does not occur on the employer’s premises. This begged the question and gave the Utah Supreme Court a rare opportunity to cite a 1928 decision of the United States Supreme Court affirming a Utah Supreme Court decision. Citing Bountiful Brick Co. v. Giles, 276 U.S. 154 (1928), the court reaffirmed that if an employee is injured “while passing, with the express or implied consent of the employer, to or from his work by a way over the employer’s premises, or over those of another in such proximity and relation as to be in practical effect a part of the employer’s premises,” the injury is compensable (emphasis added). That language provided the Intercontinental Hotels court with an operative definition of an employer’s premises for the purpose of the workers’ compensation statute, and thus affirm the Labor Commission.

The warning here for owners and contractors is that even if an employee is not parking on property you own, if they have been directed to park in an area with sufficient “proximity and relation” to your place of work, any injuries sustained there are likely to come within Utah’s worker’s compensation statutes.

The Brave New World of Determining Independent Contractors in California

by Michael J. Baker

California's Governor has signed into law a bill passed by the legislature amending Section 3351 of, and adding Section 2750.3 to the Labor Code and amending Section 606.5 and 621 of the Unemployment Insurance Code relating to employment (also known as AB 5). This bill, which will take effect January 1, 2020, is critically important to California employers and service providers – determining whether a worker is classified as an employee or independent contractor. While the law will have a significant impact on the gig economy businesses, it will undoubtedly impact many other businesses and industries. It will require all types of employers and service providers to carefully evaluate the facts and circumstances under which they rely on independent contractor classifications to operate their businesses and provide services to their customers.

What the new law does is codify the California Supreme Court's decision in Dynamex Operations West v. Superior Court, which held that an individual is presumed to be an employee unless the employer can satisfy the "ABC Test". Specifically, the ABC Test requires employer to show that the worker (A) is free from the employer's control, (B) performs work outside the employer's usual business (known as the killer "B" prong) and (C) is customarily engaged in the trade she is hired to do independent of the employer's business. What is particularly noteworthy and of critcal importance in the new law as applied to the California design and construction industry are the exceptions from this Dynamex ABC Test.

The new law excepts from the Dynamex's ABC test, workers involved in (1) professional services, (2) specific occupations, (3) business-to-business contracts for services, (4) the construction industry and (5) referral agencies. As it relates to the design and construction industry, the following occupations are excepted: 1) architects; 2) engineers; 3) lawyers, accountants and insurance professionals; and 4) certain relationships between the contractor and the individual performing construction work pursuant to a subcontract if seven criteria are met. Note, the exceptions described above do not automatically settle the question of independent contractor status. Just because a particular worker appears to fit the criteria of one of the exceptions does not automatically mean that the worker is an independent contractor – the circumstance of his or her work must still satisfy the criteria to establish independent contractor status, albeit different criteria, than the Dynamex ABC Test.

What is this alternate criteria as it applies to subcontractors or individuals performing construction work pursuant to a construction contract? The criteria was established by the California Supreme Court in the S. G. Borello and Sons, Inc. v. Department of Industrial Relations which preceded the Dynamex decision. The criteria are defined by Labor Code 2750.3 (f)(1)–(7) as: (1) The subcontract is in writing; (2) The subcontractor is licensed by the Contractor’s State License Board and the work is within the scope of that license; (3) If the work is performed in a jurisdiction that requires the subcontractor to have a business license or business tax registration, the subcontractor has the required business license or business tax registration; (4) The subcontractor maintains a business location that is separate from the business or work location of the contractor; (5) The subcontractor has the authority to hire and to fire other persons to provide or to assist in providing the services; (6) The subcontractor assumes financial responsibility for errors or omissions in labor or services as evidenced by insurance, legally authorized indemnity obligations, performance bonds, or warranties relating to the labor or services being provided; and, (7) The subcontractor is customarily engaged in an independently established business the same nature as that involved in the work performed.

What will happen as a result of this new law? One can look at other states that have utilized the ABC Test and the lessons learned. In those states, lawsuits have not gone away and litigation still abounds as to worker classification. Adoption of the ABC Test in California will certainly not signal the end of the debate in the design and construction industry as concerns who is an independent contractor, particularly with respect to subcontractors and the Statutory incorporation of the Borello factors noted above. The legislation is likely to be challenged in court; and, there is even talk of a future California ballot measure to roll back this law or repeal it.

The Labor Board Gives Unionized Employers More Flexibility Managing Their Workforce

by Gerard Morales

It is well established that employers, whose employees are represented by a union, would commit unfair labor practices by making any material, substantial and significant change regarding most terms and conditions of employment affecting the unionized employees, without first providing the union notice and a meaningful opportunity to bargain about the change to agreement or impasse.1

On September 10, 2019, overruling established legal precedent, the National Labor Relations Board (Board) adopted a new standard to determine whether an employer is privileged, under the language of a collective bargaining agreement (union contract), to adopt and implement changes in the terms and conditions of employment affecting its union-represented employees, without bargaining with the union.

Under the new standard adopted by the Board, referred to as the contract coverage test, effect will be given to the plain meaning of contractual language “applying ordinary principles of contract interpretation”. Under this analysis, the Board will examine the union contract, typically the contractual management rights clauses, to determine if the employer’s unilateral change in question falls within the “compass or scope of contract language that grants the employer the right to act unilaterally”. Accordingly and most significantly, the Board will no longer require that the union contract “specifically mention, refer to or address the employer decision at issue.”

It is only if the Board determines that the union contract does not cover the disputed unilateral change, that the Board will require the employer to show that the union had waived its right to bargain over the change, in order to dismiss allegations that by making the change the employer had committed unfair labor practices.2

Know your Obligations: Colorado’s Statutory Expansions of the Implied Warranty of Habitability Are Now in Effect

by Luke Mecklenburg

The Colorado legislature had a busy session this year. Among the several significant bills it enacted, HB1170 strengthens tenant protections under the implied warranty of habitability. It became effective on August 2, 2019, so landlords and tenants alike are now subject to its requirements.

The bill makes numerous changes to Colorado’s implied warranty of habitability and interested parties should review the bill in detail. Landlords in particular may want to consider retaining legal counsel to make sure they have proper procedures in place to promptly deal with any habitability complaints within the new required timelines. This posting is not intended to provide a comprehensive guide to the changed law, but simply to highlight some of the most significant changes.

With that caveat, landlords and tenants should be aware that as of August 2, 2019:

  • The following conditions are now deemed to make a residential residence uninhabitable for the purposes of the implied warranty of habitability:
    • The presence of mold, which is defined as “microscopic organisms or fungi that can grow in damp conditions in the interior of a building.”
    • A refrigerator, range stove or oven (“Appliance”) included within a residential premise by a landlord for the use of the tenant that did not conform “to applicable law at the time of installation” or that is not “maintained in good working order.” Nothing in this statute requires a landlord to provide any appliances, but these requirements apply if the landlord either agreed to provide appliances in a written agreement or provided them at the inception of the tenant’s occupancy.
    • Other conditions that “materially interfere with the tenant’s life, health or safety.”
  • A tenant may now satisfy her obligation to notify her landlord of any habitability issues electronically. Electronic notice means “notice by electronic mail or an electronic portal or management communications system that is available to both landlord and tenant.” If the lease specifies an email address, phone number, or electronic portal for communications with the landlord, the notice must be sent only to that specified location.
  • A landlord that receives proper notice of a habitability issue must respond within 24 hours of receiving the notice. The response must indicate the landlord’s intentions for remedying the condition, including an estimate of when the remediation will commence and when it will be completed.
  • Landlords no longer have an undefined “reasonable time” to cure the problem. Instead, upon receiving reasonably complete written or electronic notice of a habitability condition, the landlord must commence remedial action by employing reasonable efforts within the following specified time periods:
    • 24 hours for conditions that “materially interfere with the tenant’s life, health or safety.”
    • 96 hours for issues concerning habitability requirements that are specifically identified in C.R.S. § 38-12-505, or where the premises is “otherwise unfit for human habitation,” if the tenant included within her notice permission to the landlord or its agent to enter the residential premises. These specific requirements include:
      • Functioning appliances, if they were provided by the landlord
      • Weather protection
      • Plumbing or gas facilities
      • Running water and reasonable amounts of hot water
      • Functioning heating facilities
      • Electrical lighting, with wiring and electrical equipment that complies with applicable law
      • Properly maintained common areas
      • Appropriate extermination of rodents or vermin infestations
      • Adequate exterior receptacles for garbage and rubbish
      • Properly maintained floors, stairways and railings
      • Locks on all exterior doors, and either locks or security devices on all windows that are designed to open
      • Compliance with applicable building, housing, and health codes, the violation of which would constitute a condition that materially interfere with the life, health or safety of the tenant
      • Lack of mold. This provision imposes detailed obligations on a landlord that receives reasonably complete notice of mold, and a landlord receiving such notice should review these requirements or consult an attorney immediately. See C.R.S. 38-12-503(2.2).
  • When a landlord receives proper notice of a condition that materially interferes with the tenant’s life, health or safety, the landlord is now required to provide a comparable dwelling unit or hotel upon request, at no cost to the tenant, until the condition is remediated. The tenant remains responsible for rent and any other expenses that arise after the relocation period.
  • Tenants must follow detailed procedures to legally deduct the costs of repairing unaddressed habitability breaches. See 38-12-507(1)(e). A tenant is not required to take this step, but if she opts to have the issue repaired and deduct those costs from her rent payments, she must now follow the procedures outlined in this section.
  • Written rental agreements must include statements indicating the name and address of the landlord or the landlord’s authorized agent, and landlords must provide notice to tenants of any change of the landlord or its agent within one business day.

In sum, HB1170 changes the legal landscape for habitability obligations and disputes between landlords and tenants. These obligations are now in effect, and landlords and tenants alike should familiarize themselves with their new rights and obligations.

Arizona’s ROC: A Business’s Primer

by Creighton P. Dixon

The Registrar of Contractors (“ROC”) is likely the most important Arizona agency for businesses in the construction industry. While the ROC may be a familiar entity for Arizona businesses, construction companies outside the state (e.g. California, Utah, Colorado, Texas, New Mexico, Nevada) planning to work in Arizona should familiarize themselves with the agency and all of its requirements before bidding on any work in Arizona.

The ROC has a broad mission to “Protect the health, safety and welfare of the public through a regulatory system designed to promote quality construction by Arizona contractors.” Much of the ROC’s work is focused on protecting owners and consumers, and the ROC’s website has resources owners and consumers can turn to and investigate. For example, owners can use the ROC’s website to determine if a contractor is licensed before hiring them for work. Further, the ROC’s website can direct homeowners to other programs, like the Recovery Fund.

For businesses, the ROC’s relevant scope includes licensing contractors and investigating contractors’ work. The first one, licensing, can be a costly trap for the unwary business. Pursuant to statute, a contractor, which has its own definition and includes (but is not limited to) someone who supervises constructing or altering a structure, must be licensed before performing contracting work or even submitting a bid or responding to a request for qualifications. There are numerous consequences if you improperly proceed without a license. For example, if an unlicensed contractor bids on a contract worth more than $1,000, they cannot get a license for a year after the bid (though there are exceptions). Another, perhaps overlooked but potentially severe consequence, is that contractors must be licensed at the time of contracting and at the time the cause of action accrues in order to be successful in a civil lawsuit to collect compensation for that project. If not properly licensed, you could be giving away your work.

Given the importance of licensing, businesses need to plan ahead because the licensing process is not instantaneous and there are a number of procedural requirements, including examinations. However, as previously noted in this July’s Under Construction, Arizona has recently made changes designed to facilitate recognition of out-of-state licenses. But even with a streamlined process, it is important to start the process early to allow for time to address unexpected developments.

Turning to the second goal, the ROC, by statute, has the power to investigate an issue once there is a complaint, or on the registrar’s own motion. The investigation process is generally governed by statutes and regulations and includes complaints, inspections, and citations. Ultimately, if not resolved earlier, there are administrative hearings before the Office of Administrative Hearings. The administrative hearings are distinct from a traditional trial and governed by different regulations.

In summary, before bidding work in Arizona, businesses related to the construction industry would benefit from a familiarity with the ROC and its requirements. A basic understanding can undercut any licensing or investigation issues and may even prove helpful if there is a problem with work someone does for you (e.g. a project at your house).

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Notes:

[1] NLRB v. Katz, 369 U.S. 736 (1962)  [back]

[2] MV Transportation, Inc. 368 NLRB No. 66 (Sept. 10, 2019) [back]

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