Construction Work Stoppage – Now What?

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by James L. Rudolph and Jocelyn J. Campbell

Giving Notice on Lien and Bond Claims

We expect that some of the construction projects which have already been or may be shut down will not resume so quickly. Many construction contracts have provisions in them allowing the general contractor (or owner) to terminate or suspend the contract for convenience. Keep in mind that, although a project may not be terminated now, but rather suspended, consideration for lien or bond claims should be given now, and that the date from which you count how long you are off the job, or last supplied labor or materials, is the date the project was shut down or earlier, depending when labor and materials were last furnished.

Contractors, subcontractors, suppliers, and any other parties that may have rights under the lien statute or a payment bond, will be wise to keep this in mind. We recommend that each project contract, where the foregoing may apply, be reviewed immediately.

Remember that “the squeaky wheel gets the grease.” Keep in touch with the party that owes you the money. Inevitably owners and general contractors may need to decide which contractor(s) get paid first. General contractors, subs and material suppliers are reluctant to file liens, however, the threat of filing a lien, if necessary, can be persuasive. Experience shows that over 95% of the time, the actual filing of the lien results in payment.

Delays and Extensions of Time

Contractors should read their contracts and look for language describing delays or events beyond the control of the parties. Most contracts have clauses entitled “Force Majeure” or “Delays” that describe what constitutes a delay under the contract, who has to give notice and when, and whether the resulting increase in costs may be added to the contract price.

Many contractors use AIA documents. In AIA’s A-201 2017 General Conditions, section 8.3 covers delays and extensions of time.

§ 8.3 Delays and Extensions of Time
§ 8.3.1 If the Contractor is delayed at any time in the commencement or progress of the Work by (1) an act or neglect of the Owner or Architect, of an employee of either, or of a Separate Contractor; (2) by changes ordered in the Work; (3) by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions documented in accordance with Section 15.1.6.2, or other causes beyond the Contractor’s control; (4) by delay authorized by the Owner pending mediation and binding dispute resolution; or (5) by other causes that the Contractor asserts, and the Architect determines, justify delay, then the Contract Time shall be extended for such reasonable time as the Architect may determine.

Also, in Section 9.10.3 of the General Conditions, when the “final completion thereof is materially delayed through no fault of the Contractor” the Contractor may seek payment of the balance due for the work that has been completed without terminating the contract. This language may allow a contractor to be paid for its work to date, even if the work stoppage has interrupted a schedule of values or other predetermined payment schedule.

Contractors should give written notice to the Owner or General Contractor, as applicable, that its work has been stopped on a specific date. Notice should be given in compliance with the contract notice provisions even though we are all aware of what is happening in this Global crisis; this may help to protect the contractor’s rights. Contractors should also keep track of all costs related to the work stoppage. Notice should include the date that work stopped and an Impact Statement given, explaining the actual and potential cost increases and additional time needed to complete the work once the stop work order is lifted.

Force Majeure, Impossibility and Frustration of Purpose

Force majeure is a French phrase meaning “greater force” that describes any event that is unexpected by all parties, not caused by any party, and affects the relationship between them, limits the ability of either to perform a duty, or requires one to intrude on a privilege of the other.

If you can no longer perform your obligations pursuant to the terms of a written contract (business, loan, lease, employment, etc.), you should review contract terms now, as many contracts have strict notice requirements. Generally, force majeure clauses excuse performance and liability where a party cannot carry out its contractual obligations as a result of an event that is beyond that party’s control, but there are exceptions. Likewise, various other contract terms, such as “impossibility of performance”, “impracticability” and “frustration of purpose” may serve to help excuse performance of obligations pursuant to the terms of a written contract. Although it is unclear at this time how the Coronavirus may trigger these terms, we are advising all clients to comply with contractual notice requirements on a timely basis.

Legal Considerations Regarding Coronavirus (COVID-19)

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by James L. Rudolph and Robert P. Rudolph

The outbreak of Coronavirus (COVID-19) has impacted all of our lives and generated numerous questions on various employment and other legal issues. We are working diligently to counsel our clients as issues arise throughout these uncertain times. This article is intended to provide answers to some of the most common legal issues related to COVID-19 to date.

Pay to Non-Exempt (hourly) Employees During Business Closures: Under the Fair Labor Standards Act (“FLSA”), employers are obligated to pay non-exempt employees for all hours actually worked. It does not require employers who are unable to provide work to non-exempt employees to pay them for hours the employees would have otherwise worked.

Pay to Exempt, Salaried Employees, Including Requiring Use of Vacation or Leave Pay During Business Closures Due to COVID-19: Under the FLSA, employers are generally required to pay exempt, salaried employees their full salary in any week in which they perform any work, subject to limited exceptions. The FLSA does not require employer-provided vacation time. Where an employer offers a bona fide benefits plan or vacation time to its employees, the employer may require salaried employees to use accrued leave or vacation time on a specific day, provided the employee still receives payment in an amount equal to the employee’s guaranteed salary. If an employee does not have enough accrued leave time to cover the absence, the employer must still pay the employee the full guaranteed compensation amount for any absence occasioned by the office closure in order for the employee to remain exempt. An employer cannot make deductions from the predetermined compensation amount for absences occasioned by the office closure during a week in which the employee performs any work. Employers are not required to pay exempt, salaried employees in weeks in which they perform no work. (The U.S. Department of Labor, Wage and Hour Division has issued additional guidance on common issues that employers may face in connection with responding to COVID-19.)

Requiring or Encouraging Teleworking as An Infection Control Strategy: An employer may encourage or require employees to telework as an infection-control or prevention strategy. Telework also may be a reasonable accommodation. Employers are still required to maintain an accurate record of hours worked for all hourly employees and must pay the employees for the hours actually worked. Employers are encouraged to work with employees to establish hours of work for employees who telework and a mechanism for recording each teleworking employee’s hours of work. Employers must not single out employees to telework or to continue reporting to the workplace on the basis of any protected class.

Other Employment Considerations: Employers should keep the following in mind when making or assessing employment decisions:

  • Under Massachusetts law, any employee who is terminated must be paid the employee’s final paycheck, any accrued, unused vacation time, and provided with a COBRA notice, if applicable, at the time of termination.
  • Does the employee have an employment agreement entitling the employee to certain wages, hours per week, or notice of any changes to the terms and conditions of employment?
  • Does the employer provide a benefit plan which requires employees to work a minimum number of hours for employees to qualify? It is best to check with your benefits provider.
  • Ensure that any decisions are legitimate business decisions and not made to use COVID-19 as a cover to terminate an otherwise difficult, unwanted or protected employee. Employment decisions should impact all similarly situated employees equally.

Unemployment Information: On March 16, 2020, Governor Baker filed emergency legislation waiving the one-week waiting period for any person making a claim for unemployment benefits who has become separated from work as a result of any circumstance relating to or resulting from the outbreak of COVID-19 or the effects of the Governor’s March 10, 2020 declaration of a state of emergency. This means that the Department of Unemployment Assistance would be authorized to pay benefits without delay to persons who become unemployed because of layoffs or business shutdown.

  • Unemployment information from the Commonwealth of Massachusetts can be found here.
  • Unemployment pamphlets are available in multiple languages and can be found here.

Business Interruption Insurance: It is recommended that you reach out to your personal broker for clarification on your eligibility. However, business interruption insurance generally requires physical loss of or damage to the insured’s property as the result of a covered cause of loss. Our understanding is that since COVID-19 is viral, it will generally not be covered by most policies.

Contract Considerations – Force Majeure, Impossibility and Frustration of Purpose: If you can no longer perform your obligations pursuant to the terms of a written contract (business, loan, lease, employment, etc.), you should have key contract terms reviewed immediately, as many contracts have strict notice requirements. Generally, Force Majeure clauses excuse performance and liability where a party cannot carry out its contractual obligations as a result of an event that is beyond that party’s control, but there are exceptions. Likewise, various other contract terms, such as “impossibility of performance”, “impracticability” and “frustration of purpose” may serve to help excuse performance of obligations pursuant to the terms of a written contract. Although it is unclear at this time how COVID-19 may trigger these terms, we are advising all clients to comply with contractual notice requirements on a timely basis.

COVID-19 Small Business Recovery Loan Fund: Governor Baker announced economic support for small businesses with a $10 million loan fund to provide financial relief to Massachusetts business that have been affected by COVID-19. It will provide emergency capital up to $75,000 to Massachusetts based businesses impacted by COVID-19 with under 50 full-and part-time employees. Loans are immediately available to eligible businesses with no payments due for the first 6 months. Massachusetts Growth Capital Corporation has capitalized the fund and will administer it. More information and applications can be found here.

Suggested Guidelines for Employers:

  • Stagger employees’ work schedules in order to limit gatherings of people.
  • Allow employees to telecommute.
  • Employees feeling sick or experiencing any respiratory or flu like symptoms should stay home.
    Engage in safe social distancing and use the telephone in lieu of face-to-face meetings.
  • Wash hands often with soap and water or use alcohol-based sanitizer, particularly after coming in contact with “high touch” areas such as door handles, banisters, railings, levers on toilets, telephones, elevator buttons, and other surfaces frequently used by the public.
  • Do not shake hands, hug, kiss or touch others. Avoid sharing office supplies such as pens, paper and working files.
  • Refrain from touching your face, particularly nose, mouth, and eyes.
    Encourage employees to use their accrued personal, vacation, and sick time.

This is an evolving pandemic and we will continue to monitor it closely. Our offices remain open and we are using remote and conferencing technology to continue to serve our clients’ needs. Please do not hesitate to reach out to us if you have any questions or concerns.

This article is meant to highlight some of the legal issues regarding COVID-19. It is not meant to provide legal advice.

New Law Has Big Changes for Small Businesses Filing for Chapter 11

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by Thomas David Duquette, Jr.

The Small Business Reorganization Act of 2019 (“SBRA”) (H.R. 3311) is one of three bills set to make significant changes to the bankruptcy code starting in February 2020. The other two bills include The Honoring American Veterans in Extreme Need Act of 2019 (the HAVEN Act) and the Family Farmer Relief Act of 2019. The HAVEN Act provides disabled veterans greater protections in bankruptcy proceedings and excludes Department of Defense disability payments from calculations of a debtor’s disposable income. It is expected to impact up to 25 percent of the veteran population. The Family Farmer Relief Act of 2019 makes important changes impacting the farming and fishing industries, including raising the debt limit for farming and fishing operations seeking to reorganize from $4.3m to $10m. Of the three bills, the SBRA is expected to have the broadest impact on bankruptcy practice and the business community in particular.

The SBRA was based on recommendations from the National Bankruptcy Conference, a voluntary, non-partisan, not-for-profit organization composed of about sixty of the nation’s leading bankruptcy judges, professors and legal practitioners. They proposed that Congress enact a new subchapter of Chapter 11, Subchapter V, designed exclusively for small businesses. The SBRA was the result, and should have a major impact, with nearly half of all Chapter 11 filings projected to qualify under Subchapter V.

To qualify for reorganization under the SBRA a business must have an aggregate total of all noncontingent, liquefied, secured or unsecured debt of not more than about $2.74 million dollars. For those that do qualify, benefits to the new Subchapter include a streamlined reorganization process whereby filers can expect to have a scheduled status conference within sixty days, and have ninety days to file a reorganization plan. Filers also benefit from changes designed to make reorganization more palatable to small business owners.

Most significantly under Subchapter V a debtor can have a reorganization plan approved without an approving class of creditors as long as they devote all of their “disposable income” to the payment of creditors. In fact, there is a presumption against even the formation of a creditor’s committee without cause, and only the debtor business may file under the subchapter. This prevents reorganizations that amount to hostile takeovers by creditors and prevents priority creditors from insisting upon liquidation of the business.

New Section 1191(d) also defines “disposable income” very generously as income received by the debtor that is “not reasonably necessary to be expended” in operating the business. These two changes effectively write out the “absolute priority rule” for small businesses trying to reorganize, making liquidation much less likely. Shareholders in the debtor corporation would not be prevented from keeping their stocks until creditors are paid in full, and the hope is that more small businesses will be able to survive a reorganization and remain in operation during the process.

It should go without saying, the SBRA also changes the landscape of Chapter 11 for creditors. Creditors facing a reorganization under the new subchapter should consider options outside of the bankruptcy process. However, most commentators predict better results for creditors as well as debtors if the debtor stays in control of the process and the business is able to reorganize successfully.

Making Lemonade Out of a Lemon – Recent Court Decision May Help Auto Buyers Recover Under the Massachusetts “Lemon Law”

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by Mark Taylor Rumson

The Massachusetts “Lemon Law,” G.L.c. 90, Section 7N ½, obligates an auto manufacturer or dealer to repair any “nonconformity” to express or implied warranties – in other words, any defect that substantially impairs a vehicle’s use, market value or safety – that arises within one year or 15,000 miles of the purchase of a new vehicle. Under the law, if the vehicle cannot be repaired after a “reasonable number of attempts,” the purchaser is entitled to a refund.

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Reminder: Important Wage & Hour Updates Effective January 1, 2020

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by Robert Rudolph

Massachusetts Minimum Wage

Effective January 1, 2020, the Massachusetts Minimum Wage will increase from $12.00 per hour to $12.75 per hour. The Massachusetts Minimum Wage will continue to increase in yearly increments until it reaches $15.00 per hour on January 1, 2023. In Massachusetts, all workers are presumed to be employees, and almost all workers must be paid at least the minimum wage.

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