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In a decision that has important consequences for contractors and subcontractors who perform work on public construction projects, the Pennsylvania Supreme Court considered whether the Contractor and Subcontractor Payment Act (“CASPA”), a contractor-friendly statute that provides relief when contractors and subcontractors are not paid, applies on public works projects. In a unanimous decision, Pennsylvania’s highest court determined that CASPA does not apply to contracts and subcontracts on construction projects where the “owner” is a governmental entity. This means that when payment is not forthcoming on a public works project, contractors and subcontractors seeking statutory relief must now rely on the Commonwealth Procurement Code or “Prompt Pay Act.” Although both CASPA and the Prompt Pay Act allow for the demand of penalties, interest and attorneys’ fees against entities who fail to pay, recovery under the Prompt Pay Act is less certain than CASPA and requires adherence to different procedures.
Facts of the Case
In Clipper Pipe & Service, Inc. v. The Ohio Casualty Insurance Co., the United States Department of the Navy (“Owner”) entered into an agreement with Contracting Systems, Inc., II (“General Contractor”), as the general contractor responsible for renovations to the Navy/Marine Corps Reserve Training Center in the Lehigh Valley. The General Contractor, in turn, entered into a subcontract with Clipper Pipe & Service, Inc. (“Subcontractor”) for the performance of mechanical and heating, ventilation, and air conditioning work. Later, when payment was not received, the Subcontractor filed suit in the United States District Court for the Eastern District of Pennsylvania against the General Contractor as well as its surety, the Ohio Casualty Insurance Company (“Surety”), for failure to pay for work performed in the amount of $150,000. The Surety and General Contractor moved for summary judgment with the trial court, arguing that CASPA did not apply because the United States Department of the Navy was not an “Owner” as defined by CASPA. After accepting a certified question from the Third Circuit, the Pennsylvania Supreme Court considered the issue.
The Court’s Decision
CASPA provides that when a contractor or subcontractor performs work, it is entitled to payment from the party with whom it has contracted. If payment is withheld, CASPA imposes penalties, interest, and attorneys’ fees for failure to comply with its payment terms. Under CASPA, the term “Owner” is defined as “[a] person who has an interest in the real property that is improved and who ordered the improvement to be made.” A “Person” under CASPA is “[a] corporation, partnership, business trust, other association, estate, trust foundation or a natural individual.”
Here, the court determined that the Department of the Navy was not a “Person” under CASPA and, therefore, not an “Owner.” In short, even though the Department of the Navy was not directly involved in the payment dispute between the General Contractor and Subcontractor, CASPA’s definitions of “Owner” and “Person” were central to its determination of the statute’s applicability. In addition, the court acknowledged the Prompt Pay Act as the relevant statutory regime.
The Prompt Pay Act is widely considered to be a less favorable remedy for those denied payment, while CASPA is perceived to be more contractor-friendly. The two statutory schemes are different with respect to the timing for required notices, the rate of interest on delayed payments, and the burden of proof required for the awards of penalties and attorneys’ fees. For example, CASPA requires the imposition of a penalty of one percent (1%) per month while the Prompt Pay Act provides a court with the discretion to award an additional one percent (1%) penalty only if the court determines that the nonpaying party acted in an “arbitrary” or “vexatious” manner in withholding payment.
In addition, CASPA mandates an award of reasonable attorneys’ fees to the substantially prevailing party in litigation or arbitration. Under the Prompt Pay Act, the court is permitted, but is not required, to award attorneys’ fees to the prevailing party and only if the party withholding payment acted in “bad faith.” The rate of interest also differs between CASPA and the Prompt Pay Act, in that the CASPA rate is one percent (1%) per month on any unpaid amount that is considered late under the contract or statute. For the Prompt Pay Act, the interest rate is determined by the Secretary of Revenue and thus is less clear and fluctuates. (Currently, the rate is .25% per month.)
In short, for anyone prosecuting or defending against payment claims on public works projects, the PA Supreme Court’s decision in Clipper will likely have a far reaching impact. This decision is viewed as a victory for those defending against payment claims on public projects because CASPA no longer applies. However, for those pursuing payment claims on public works projects, this decision presents an additional hurdle for recovery.
In a recent New Jersey case, Huston v. Lieber, the court held in favor of homeowners and against a contractor on its claim of nonpayment because the contractor failed to include its contractor registration number and the right to cancel notice in the contract, and awarded the homeowners their attorneys’ fees. This drastic outcome is all too common for unwary contractors on residential construction projects in New Jersey.
The Huston case
Robert and Eileen Lieber hired Dennis Huston to install a new deck in one of their Avalon rental properties. The Contractor prepared a hand-written estimate of approximately $16,000 based upon Lieber’s oral specifications. Lieber added written clarifications to the estimate and paid the Contractor just over $8,000 to begin the work. Neither party signed the contract. After the project was finished, the Liebers complained that there were defects in the work and refused to pay the balance due.
The Contractor filed a complaint in Cape May County for the amounts owed by the Liebers. The Liebers filed a counterclaim seeking attorneys’ fees, arguing that the Contractor was not entitled to his payment because he had violated the New Jersey Consumer Fraud Act (CFA) and its regulations. They claimed that the Contractor failed to (a) sign the contract, (b) include his contractor registration number in the contract, and (c) include language advising the Liebers that they had the right to cancel the contract within three days of its receipt. These are technical violations of the CFA regulations — the Home Improvement Practices Regulations (HIPR) and Contractor’s Registration Act (CRA).
The Superior Court of New Jersey found that the Contractor violated the CFA and was unable to recover the amounts owed to him, even though his work was not defective and even though the violations were technical and committed without the intent to deceive the Liebers. The Court also ordered that the Contractor pay the Liebers’ attorneys’ fees.
How could this happen?
The New Jersey Consumer Fraud Act
New Jersey enacted the CFA to protect consumers against fraudulent and unlawful practices in the sale of consumer goods and services, including unscrupulous contractors who perform home renovations and improvements. There are three types of unlawful practices (violations) under the CFA:
1. Affirmative acts (false representations);
2. Knowing omissions (withholding information); and
3. Violations of related acts and regulations.
While the first two violations are unsurprising given the purpose of the CFA, the third is not as obvious and serves as a trap for the unwary. Under this third category, one can unknowingly violate the CFA, without intending to mislead the consumer. These violations, often technical in nature, can result in severe ramifications, including denial of a contractor’s otherwise valid claim to recover the cost of work performed, as well as payment of treble damages and attorneys’ fees to the homeowner.
The Home Improvement Practices Regulations & Contractor’s Registration Act
The two most important CFA regulations for contractors are the Home Improvement Practices Regulations (HIPR) and Contractor’s Registration Act (CRA). The HIPR requires that all contracts over $500 be in writing, signed by all parties, and must contain certain information, including:
• Contractor’s legal name and business address;
• Description of the work and products that will be used;
• Total contract price, including the hourly rate;
• Start and finish dates;
• Statement of any guarantee or warranty for the services; and
• Right-to-Cancel Notice in 10-point bold font.
In addition, contractors may not: ask the homeowner to sign a certificate of completion or make final payment prior to completion; fail to begin or complete the work on the date stated; fail to give written notice of reasons for any delays; or substitute materials or products. Further, under the CRA, a contractor must, among other things, provide a copy of its insurance certificate and telephone number of the insurance company, and include its registration number on all advertisements and documents.
Employees Are On the Hook
The CFA defines “seller” and “contractor” broadly to include individual employees. As a result, an employee may be held personally liable if she took part in the violation. For example, if the project manager forgot to update the completion date in writing after a weather-related delay or chose to substitute a different product without consulting the homeowner, she can also be sued, individually.
Even if You Win, You May Still Lose
Under the CFA, homeowners have extensive remedies, including actual damages, triple damages, and the recovery of attorneys’ fees. Because the HIPR and CRA are meant to punish contractors who commit violations, a court can order a contractor to pay the homeowner’s attorneys’ fees for a technical violation of the regulations, even if the homeowner suffered no other damages as a result of the violation.
If the homeowner withheld payment due to alleged defective work, as in Huston, failing to sign the contract has nothing to do with the contractor’s quality of work or the homeowner’s reasons for nonpayment. Nevertheless, the court can require the contractor to pay the homeowner’s attorneys’ fees because of this simple, technical error.
There are numerous other examples of such decisions in the New Jersey courts. Whether it was an intended consequence of the CFA, these legal decisions encourage homeowners to bring an action under the CFA or assert a counterclaim against a contractor because of the likelihood of recovering their attorneys’ fees.
What Can you Do?
• Follow all of the requirements of the Home Improvement Practices Regulations and the Contractor’s Registration Act.
• Put everything in writing, even for simple modifications or minor delays mid-project, and insist on signatures.
• Beware of “estimates,” as these may be construed as contracts that violate the CFA.
• Review your documents. We can help you update your advertising and contracts to comply with the law and protect you from opportunistic homeowners.
Many employers have adopted employee handbooks that include dress codes and grooming policies. Some of these policies require that employees wear uniforms, refrain from wearing hats, ripped clothing, or excessive jewelry, arrive at work cleanly shaven, or cover their tattoos. But are these policies legal? What happens when an employee asks for an exception to accommodate his or her religious beliefs? Or what about an employee who says that he cannot shave due to a medical condition? On June 1, 2015, the Supreme Court of the United States issued an important decision against national retailer Abercrombie & Fitch that creates a new rule of law and makes it substantially more difficult for employers to maintain dress codes and grooming policies.
The case involves a teenager, Samantha Elauf, who applied for a job at an Abercrombie & Fitch store in Omaha, Nebraska. Elauf is a devout Muslim who wears a headscarf for religious reasons. The interviewer at the popular teen fashion chain gave Elauf high scores during her interview and told her that she should expect a call to schedule orientation. However, Abercrombie ultimately did not hire Elauf, explaining that the headscarf she wore during the interview violated the company’s “Look Policy” that prohibits its employees from wearing caps. Neither Elauf’s headscarf nor the Look Policy was discussed during the interview.
How Did Abercrombie & Fitch Violate the Anti-Discrimination Laws?
Federal law makes it illegal to fail or refuse to hire any individual because of such individual’s religion. In this case, the Supreme Court held – for the first time – that an employee is not required to prove that her need for a religious accommodation was the sole reason she was not hired. Rather, she only needs to show that it was a “motivating factor.” In other words, an employer may violate the law even if it also has other, non-religion-related reasons for not hiring the applicant.
Abercrombie offered a two-pronged defense. First, the company argued that it was only enforcing its Look Policy, which was neutral, non-discriminatory, and applied to all applicants equally. Second, Abercrombie stated that it could not have discriminated against Elauf because it did not even know that she wore her headscarf for religious reasons.
It is the Employer’s Responsibility to Inquire into Whether Any Religious Accommodations are Needed
The Supreme Court rejected Abercrombie’s first defense. The Court clarified that, while neutrality is often the goal of anti-discrimination laws, that rule of thumb does not apply when it comes to religious practices. When it comes to religion, rather than asking whether everyone is treated the same, employers must ask whether there is anyone who needs to be treated differently for religious reasons.
The Court also rejected Abercrombie’s argument that it did not discriminate against Elauf because it did not even know that she wore the headscarf for religious purposes. The Court determined that Elauf had no obligation to disclose the religious purpose of the headscarf. Rather, Abercrombie had a duty to ask the right questions to determine whether a religious accommodation was needed. The Court reasoned that a job applicant does not know what policies exist before she is hired and trained. On the other hand, the employer is in the best position to know the policies and rules, as well as when a would-be employee might need an accommodation. For that reason, the employer should be responsible for identifying potential conflicts with internal policies.
Employers Must Choose Between “Awkward Conversations” and Illegal Discrimination
The Supreme Court’s ruling begs the question of how an employer conducting an interview will know whether an applicant might need an accommodation. Indeed, lawyers for Abercrombie pointed out that the ruling requires employers to initiate “awkward conversations” about religion during interviews. The Supreme Court was explicit in its advice to employers: If the employer has reason to suspect that an employee needs a religious accommodation to comply with a workplace policy, the employer should explain the company’s dress, grooming, and break policies, and ask whether the candidate has any concerns about those policies. The Court encouraged employers to explicitly ask if any religious accommodations are needed in these situations.
The Court’s decision serves as a strong reminder for employers of all sizes to review any policies they have concerning employee dress and grooming standards. It also serves to remind employers that they should consult with human resources or legal counsel prior to making any employment decision because of an applicant’s or employee’s protected class. In addition, they should provide appropriate training to any supervisors or managers who participate in the hiring process so they know how to deal with religious and disability-based accommodations.
If you have any questions regarding your company’s dress code or grooming policy, or whether your company may be required to make exceptions to applicants or employees, please feel free to contact us.
Jon is a Partner and Catherine is an Associate with the Firm, both practicing in the Labor & Employment Group.They can be reached at (215) 564-1700, email@example.com or firstname.lastname@example.org.
Our newsletter team recently sat down with the partners of our D.C. Office.
Q: What has prompted the firm’s expansion to Washington, D.C.?
A: Ed — Our expansion into D.C. is part of a broader five-year plan. The Firm already has a number of clients and active matters in the D.C.-metropolitan area. Having a dedicated office gives our construction and federal contracting attorneys better access to numerous courts and the government agencies that they deal with every day. Given the Firm’s expanding practice in the region, devoting more resources to the area and opening an office in the nation’s capital was a natural fit.
Apart from geographic concerns, Paul’s existing scientific research misconduct practice is the perfect complement to Chris Carusone’s work representing clients facing
investigations and regulatory enforcement actions brought by local, state and federal governments. Paul and Chris will head-up the new Internal Investigations practice group for the Firm. Together they hope to expand their existing practices into the rapidly growing field of investigations against universities facing allegations of Title IX violations, which concern allegations of sexual harassment on university campuses. The new federal law now requires an investigation by the university in order to continue to receive federal funds and avoid sanctions.
Q: How will this affect the Firm’s Federal Contracting Practice?
A: Michael — Our federal practice is a national practice and our clients are located throughout the United States and also internationally. In our representation of federal contractors, we frequently deal with the Department of Defense and its various components. The headquarters of all federal agencies are located in the Washington, D.C. area, as are the courts and boards that decide cases involving federal contracting issues. Proximity to these various entities, as well as the Government Accountability Office and the U.S. Department of Justice, will be a great benefit to our attorneys and clients. In an age where electronic communication is dominant, we look forward to increased personal interaction with those we represent and regularly deal with in the federal contracting field.
Q: What new developments can be expected from D.C.?
A: Paul — Quite literally, new development – the D.C. metropolitan area is undergoing incredible growth right now. In fact, it was recently ranked in the top ten most rapidly growing housing markets in the country. A huge boom in residential housing projects is already underway in the area’s construction market. Pent-up demand following the 2013 and 2014 sequester battle in Congress also is expected to make large contributions to commercial growth in the area as government institutions resume economic activities.
Q: What services does the D.C. office offer to the Firm’s clients?
A: Paul and Lars — Our office has a strong civil litigation background. Our previous firm started nearly twenty years ago, and throughout the years we expanded our areas of practice. One of Paul’s areas of concentration is referred to as “scientific misconduct.” Paul represents scientists or institutions engaged in investigations into allegations of misconduct in the field of scientific research. He’s handled dozens of these cases across the country for over twenty years. We are excited for Paul to join Chris Carusone in establishing the Firm’s Internal Investigations practice. Lars has represented a variety of clients in constitutional takings cases involving land use and leasehold interests and expanded the Firm’s federal litigation presence by successfully prosecuting whistleblower actions as well as False Claims Act cases in the technology and Medicare fraud areas.
Karen Karas and Jackson Nichols are also joining the Firm with strong commercial litigation backgrounds. Karen has experience as an assistant general counsel for the local transportation authority, the Washington Metropolitan Area Transit Authority. Jackson brings several years of litigation experience and trial practice to the Firm’s commercial and construction law groups. Both Karen and Jackson work with us on many of our internal investigation matters.
Members of our D.C. office can be reached at (202) 466-4110.
Greetings from the Editorial Team at Construction In Brief! In this issue, we are happy to introduce you to our new DC office. We also have news on the New Jersey Consumer Fraud Act and new hiring guidelines in light of a recent US Supreme Court decision. Enjoy the end of summer and bring along this latest edition of Construction in Brief.
On June 29, we merged with Washington, DC-based Thaler Liebeler LLP. Paul Thaler, nationally known for his work in scientific and research misconduct matters, will merge his experience with that of Cohen Seglias’ partner Christopher Carusone, chair of the Government Law & Regulatory Affairs Group, to form a new Internal Investigations practice group. The merger strengthens the Firm’s Federal Contracting Group, which has grown rapidly over the last seven years. Closer proximity to key federal courts, construction trade associations and other agencies with whom the Firm works on a daily basis, provides key advantages for both the Construction and Federal Contracting practice groups. In addition to Mr. Thaler, attorneys in the DC office will include of counsel Lars Liebeler, senior counsel Karen Karas and associate Jackson Nichols.
Cohen Seglias now numbers 60 attorneys in nine locations. You can learn more about the new DC office in this issue’s Q&A on page 7.
Please join us in welcoming Michael Richard to our Federal Contracting Group. As an associate, Michael focuses his practice on helping small businesses navigate the requirements of the SBA, assisting contractors with their day-to-day business challenges, including drafting and negotiating contracts and contract administration. He is a proud University of Washington Huskie, graduating with honors from both the undergraduate and law school programs.
Cohen Seglias’ Construction and Labor and Employment Groups Recognized by Chambers USA
Again this year the Firm was recognized by Chambers USA. We’d like to send a special thank you to our clients, as Chambers’ researchers rely heavily on your feedback. We couldn’t have done it without you! The Construction Group was acknowledged for “being very good at negotiating” and not “let(ting) things drag out. Resolutions come quickly and without a lot of delay and they get right to the point.” Chambers’ researchers highlighted Roy Cohen as experienced in representing a broad spectrum of clients in the construction industry and sources praised him as “tenacious and able to navigate through problems.” Ed Seglias was recognized for his jury trial practice: “He is very knowledgeable about construction law and aggressive in fighting for (his clients’) interests.” Researchers found that Marc Furman is well-respected for his representation of employers in labor disputes and for “really going out of his way to help his clients.”
Women’s Initiative Golf Clinic
The Cohen Seglias Women’s Initiative held its first Golf Clinic at Trump National Golf Club Philadelphia on May 14th!
Kerstin is the Firm’s Marketing Director. She can be reached at (215) 564-1700 or email@example.com.