A.        Change To Statutory Prompt Payment Period

       S.B. No. 293 introduces an important change to the statutory prompt payment requirement under Business and Professions Code section 7108.5. Previously, Section 7108.5 provided that contractors and subcontractors were required to pay the amount owed to their subcontractors within ten days after receipt of each progress payment. S.B. No. 293 amends that section to require such payments be made to subcontractors not later than seven days after the contractor’s or subcontractor’s receipt of each progress payment.

       Contractors must comply with this requirement in order to avoid possible disciplinary action and assessment of statutory prompt payment penalties at the rate of two percent of the amount due per month for each month that payment is not made. Importantly, Section 7108.5 expressly allows parties to agree in writing to different timing for progress payments.

       B.        Maximum Allowable Retention Reduced From 10% to 5%

       S.B. No. 293 also introduces an important change to the maximum allowable retention that may be withheld from payments by public entity owners to contractors, and by contractors to their subcontractors. Public entities customarily withhold ten percent of the contract price as retention proceeds until final completion and acceptance of the project. Pursuant to S.B. No. 293, Public Contract Code section 7201 now prohibits public entities from withholding more than five percent of the contract price as retention until completion and final acceptance. Public entities may withhold more than five percent retention, however, under one of the following exceptions: (1) for projects awarded by state departments, where the head of the department has made a finding prior to bidding that that the project is “substantially complex,” and the department includes this finding and the actual retention amount to be withheld in the bid documents; or (2) for projects awarded by local entities, where the governing body of the local entity has approved or ratified by a majority vote during a properly noticed hearing prior to bid that the project is substantially complex, and the local entity includes this finding and the actual retention amount in the published bid documents. Also, retention proceeds between an original contractor and a subcontractor, or between two subcontractors, shall not exceed the specified retention percentage specified in the contract between the public entity and the contractor.

       The new bill does not define the term “substantially complex,” and does not provide any criteria or other guidance as to the specific circumstances under which a project may be determined to be substantially complex. The statutory language is clear, however, that such a finding must be made by the public entity prior to bidding, and must be disclosed in the bid documents. Thus, contractors and subcontractors may be unable to influence an owner’s determination as to whether a project is complex, given that the determination must be made prior to bidding.

       Contractors should ensure that the payment and retention withholding provisions of their contracts and subcontracts are updated to reflect this important change in the law. If contractors ignore this new legislation and continue to withhold up to ten percent of the contract amount from their subcontractors, they will run afoul of Public Contract Code section 7201. Also, before bidding on jobs for state and local entities, contractors should thoroughly review the published bidding materials to determine whether the public entity has made a finding that the project is substantially complex, and if so, what percentage of the contract price the owner will actually withhold as retention. This may require updated contracts and subcontracts on a project-by-project basis.

       C.        Changes To Notice Requirements For Payment Bond Claims

       The third significant change introduced by S.B. No. 293, and potentially the most confusing, relates to the statutory notice requirements for subcontractors and suppliers who wish to assert claims against a contractor’s payment bond. The legislative intent behind the changes is to prevent lower-tier subcontractors and suppliers from asserting surprise claims against payment bonds on private and public works projects after progress payments have been made to the direct subcontractors.

       Existing law under Civil Code section 3252, requires a claimant to give a preliminary notice in order to enforce a claim against a payment bond on a public or private or public work of improvement. However, if the claimant does not give a preliminary notice, the claimant is allowed to enforce a claim by giving written notice to the surety and bond principal within 15 days after recordation of a notice of completion, or if no notice of completion has been recorded, within 75 days after completion of the work of improvement.

       S.B. No. 293 amends several provisions of the Civil Code to expressly provide that if preliminary notice was required to be given by a non-direct, lower-tier subcontractor or supplier, and if that subcontractor or supplier does not give a preliminary notice, the subcontractor or supplier may still enforce a claim by giving written notice to the surety and bond principal within 15 days after recordation of a notice of completion, or within 75 days after completion of the work of improvement if no notice of completion was recorded. However, in order to effectuate the legislative intent to prevent surprise claims, the bill also provides that the 15/75 day fall-back notice provisions do not apply if all progress payments, have been made to a direct subcontractor to whom the claimant has provided materials or services. Unfortunately, the new statutory language has the potential to create confusion that may undermine the legislative intent behind the bill. In order to understand the potential sources of confusion under the new language, it is important to first understand several provisions governing notice requirements for direct subcontractors.

       Under California Civil Code section 3252, a claimant can enforce a payment bond claim in connection with a public work if the claimant has served a 20-day public works preliminary bond notice as provided in Civil Code section 3098. Civil Code section 3098, however, excludes direct subcontractors from having to provide preliminary notice. Also, no statutory provision requires that direct subcontractors are required to provide notice under the fall-back 15/75 day notice provisions when a preliminary notice was not served. However, because of the subtle wording changes in the legislature’s attempt to clarify the preliminary notice statute, (changing from Section 3252 to Section 9300 on July 1, 2012), and the new language Civil Code section 9560 as a result of S.B. No. 293, give rise to the argument that direct subcontractors are, in fact, required to either serve a preliminary notice or otherwise meet the 15/75 day fall-back notice requirement in order to enforce a payment bond claim.

       Specifically, Civil Code section 9560 now provides that “[i]n order to enforce a claim against a payment bond, a claimant shall give the preliminary notice provided in Chapter 3 (commencing with Section 9300).” The section does not state that direct subcontractors are excluded from the term “claimant,” and it does not explain that under the new Section 9300, direct subcontractors are excluded from a party required to provide a preliminary notice. In addition, Section 9560 does not make clear that direct subcontractors are also not required to comply with the 15/75 day fall-back notice provisions. Rather, Civil Code section 9560, subdivision (b), merely provides that “[i]f preliminary notice was not given as provided in Chapter 3 (commencing with Section 9300), a claimant may enforce a claim by giving written notice to the surety and the bond principal within 15 days after recordation of a notice of completion,” or if no notice of completion was recorded, “75 days after completion of the work of improvement.” Thus, subdivision (b) can arguably be read to require direct subcontractors to follow the 15/75 day fall-back notice provisions if they did not serve a preliminary notice despite being excluded from the requirement in Section 9300.

       Subdivision (b) of Section 9560 is arguably unnecessary to the new statute because it does not clarify who is covered by the term “claimant.” Subdivision (c) of Section 9560 provides is nearly identical to subdivision (b), but applies the 15/75 day notice provision specifically to non-direct, lower-tier subcontractors and suppliers. Subdivision (d) of Section 9560 is an exception to subdivision (c) only, but not to subdivision (b). Subdivision (d) effectuates the legislative intent by providing that lower-tier subcontractors and suppliers may not avail themselves of the 15/75 day notice provisions if all progress payments have been made to the direct subcontractor. Thus, although subdivision (b) of Section 9560 was likely never intended to apply to direct subcontractors on public works projects, it can arguably be read to do so.

       Regardless of the reasons for inclusion of subdivision (b) under the new Civil Code section 9560, it is now possible that prime contractors and sureties will argue that direct subcontractors are required to either: (1) serve a preliminary notice; or (2) meet the alternative 15/75 day notice requirement under subdivision (b). Furthermore, because the term “claimant” in subdivision (b) was not defined, non-direct, lower-tier subcontractors and suppliers who do not file preliminary notices may also argue that they may validly assert performance bond claims even if all progress payments have been made, as long as they comply with the 15/75 day notice requirement under subdivision (b) even though subdivisions (c) and (d) were intended to limit this right.

       In light of these changes, and the potential confusion that surrounds them, direct subcontractors should exercise caution in preserving their right to assert claims against payment bonds. Direct subcontractors on public works of improvement (in addition to private works) should serve preliminary notices out of an abundance of caution. If direct subcontractors do not serve preliminary notices, they may now be confronted with the argument that they are required to meet the 15/75 day fall-back notice requirement in order to preserve their right to bring a claim.

       In addition, general contractors should be wary of relying too heavily on the expressed legislative intent to prevent non-direct, lower-tier subcontractors and suppliers from asserting claims after all non-disputed progress payments have been made. As a condition of payment, general contractors should contractually require subcontractors to provide a full list of all vendors used by the subcontractor and its lower tiers for a project as a condition of payment. If general contractors do not do so, lower-tier subcontractors and suppliers may serve written notice of claims on the contractor’s payment bond after all progress payments have been issued, arguing that subdivision (b) of Section 8612 (private works) or 9560 (public works) allows them to still assert claims as long as they comply with 15/75 day notice requirement.

       Although courts may ultimately invoke the legislative intent to rule that subdivision (b) of Civil Code section 9560 does not apply to direct subcontractors on public works projects, and does not circumvent the restrictions on claims by lower-tier subcontractors based on the legislative intent, the confusion surrounding these changes creates the risk that contractors will have to engage in litigation in order to resolve these issues if not proactively handled.

       These legislative changes are confusing and we predict different courts may interpret the statutes in conflicting ways. Please contact us if you need assistance in complying with the new requirements under S.B. No. 293.

By:        Laura B. MacNeel, Esq. and Chad T. Wishchuk, Esq. of Marks, Finch, Thornton & Baird, LLP.

       In August 2011, the National Labor Relations Board (the “NLRB”) issued a new rule which would have required all employers to post a notice informing employees of their rights under the National Labor Relations Act (the “Posting Rule”). A copy of this notice can be found on the NLRB’s website. The Posting Rule was originally supposed to take effect on November 14, 2011; however, the NLRB delayed the implementation date to April 30, 2012. Now, due to a recent federal Court of Appeals decision, implementation of the rule is on hold indefinitely.

       The case at issue is National Association of Manufacturers., v. National Labor Relations Board, Case No, 12-5068, which is currently pending in the U.S. Court of Appeals for the District of Columbia. In that case, the National Association of Manufacturers and other employer organizations seek to invalidate the Posting Rule on the grounds that the NLRB lacked the statutory authority to issue such a rule. The Court of Appeal issued an injunction pending its consideration of the validity of the Posting Rule which prohibits the NLRB from enforcing the rule until the appeal is decided. This will not be until sometime after September 2012, when oral arguments in the case are scheduled to take place. The Court of Appeals may then invalidate the rule completely, partially, or choose to uphold it. In the meantime, employers do not need to comply with the Posting Rule.

       This case, however, does not affect a previous, similar rule issued by the Department of Labor. Under the Department of Labor rule, federal contractors and subcontractors were already required to post a similar notice informing employees of their rights under the National Labor Relations Act. That rule remains in effect. More information about that rule and a copy of the required poster can be found on the Department of Labor’s website.

(This article is for informational purposes only. It should not be interpreted as providing legal advice or proposing any type of transaction. This article should not be relied upon in reaching a conclusion in a particular area of law, and receipt of this or any other article or publication from Marks, Finch, Thornton & Baird, LLP, does not create an attorney-client relationship. Marks, Finch, Thornton & Baird, LLP is not responsible for inadvertent errors that may occur in the publishing process.)

By:        Laura B. MacNeel, Esq. and Chad T. Wishchuk, Esq. of Marks, Finch, Thornton & Baird, LLP.

       On April 12, 2012, the California Supreme Court issued the long-awaited decision in Brinker Restaurant Corporation v. Superior Court, Case No. S166350 (”Brinker.”) Brinker clarifies several issues relating to employers’ obligations regarding employee meal and rest breaks.

       Brinker clarifies that an employer need only provide employees with an off-duty meal break. An employer satisfies this obligation if it: (1) relieves the employee of all duty; (2) relinquishes control over the employee’s activities; (3) permits the employee a reasonable opportunity to take an uninterrupted 30-minute break; and (4) does not impede or discourage the employee from doing so. These new standards likely require that an employer do more than merely have a policy offering meal periods. However, an employer is not obligated to police meal breaks, nor must employers ensure that an employee does not perform any work during the meal break. The precise steps that an employer will need to take to meet the new Brinker standards will depend upon the specific circumstances of the employment situation.

       Other points clarified by Brinker include the following:

• Timing of Meal Breaks
• An employee’s first meal period must be provided no later than the end of an employee’s fifth hour worked;
• If applicable, an employee’s second meal period must be provided no later than the end of an employee’s tenth hour worked;
• And so forth for every next five hours worked.
• Frequency of Rest Breaks
• Employee is entitled to one ten-minute rest period if he or she works 3.5 to 6 hours;
• Employee is entitled to two ten-minute rest periods if he or she works 6+ to 10 hours;
• And so forth for every next four hours worked.
• Timing of Rest Breaks
• Employers must make a “good faith effort” to authorize and permit the rest break in the middle of each four hour period.
• In a normal 8-hour day, the first rest break should be given sometime before the meal break and the second should be given sometime after the meal break.

       While Brinker confirms some finer points about meal and rest period obligations, as a practical matter, the risk of individual and class action lawsuits remains, and employers should be wary about allowing employees to skip meal and rest periods. Indeed, in Brinker the court allowed the employees’ rest break claims to proceed as a class action. To help minimize exposure for such claims, employers should implement written meal and rest break policies which comply with the California Labor Code, applicable Wage Orders, and the points set forth in Brinker.

       Employers should also keep accurate records of employee rest breaks. Employers must keep accurate records of employee meal periods. A record of an employee’s meal periods is required by law. Indeed, the concurring opinion in Brinker suggests that an employer’s failure to keep records regarding meal periods may lead to a presumption that the employee was not provided the required meal period. An employee’s time card should show at least the following: the time the employee started work, the time the employee started the meal break, the time the employee returned from the meal break, and the time the employee left work. The meal period reflected on the time card should show at least a thirty-minute meal break. Preferably, the time card should be either completed by the employee or the time should be recorded by a mechanical device, such a time clock, and confirmed by the employee as accurate at the end of the pay period.

       The California Court of Appeal recently held that a general contractor may be held liable for an independent contractor’s injuries on a direct liability theory where the general contractor retains control over safety conditions on the jobsite and the general contractor’s negligent exercise of that control affirmatively contributed to the injury. (Tverberg v. Fillner Construction, Inc. (2012) 202 Cal.App.4th 1439 (“Tverberg II”).)

       The facts of this personal injury case are simple. Fillner was the general contractor on a gas station project. For the canopy portion of the project Fillner subcontracted with Lane Supply to provide the canopies. Lane Supply subcontracted the installation of the canopies to Perry Construction Company. Perry Construction Company hired “J.T. Construction,” the plaintiff, an independent contractor operating as a licensed contractor to act as its foreman and oversee the work of Perry Construction’s two person installation crew.

       The canopies were installed in an area where holes were dug for the installation of concrete bollards by subcontractor Alexander Concrete. On plaintiff’s first day on the job, the holes were marked off with stakes and safety ribbons but plaintiff asked Fillner to cover the holes with metal plates. Plaintiff also removed some of the stakes marking the edges of some of the bollard holes. Fillner asserted that it did not have the necessary equipment to cover the holes and the holes were not covered up. The next day, plaintiff again asked Fillner to cover the holes but they remained uncovered. Later that day, plaintiff fell in a bollard hole and sustained injury. In 2006, he filed a personal injury action against Fillner and Perry Construction for negligence and premises liability. In support of his negligence claims, plaintiff asserted a number of theories of liability against Fillner, including: (1) vicarious liability on a peculiar risk theory; (2) negligent exercise of retained control; and (3) breach of nondelegable regulatory duty.

       While the facts in Tverberg were simple, the six year legal saga behind the Tverberg decision is lengthy and complex. It underwent two appeals to the California Supreme Court and two remands to the Court of Appeal. Initially, the Supreme Court affirmed summary judgment holding that the general contractor could not be held vicariously liable on a peculiar risk theory for injuries arising from the risks inherent in the nature of the location of the hired work (“Tverberg I”). In the 2011 remand (Tverberg II), the Court of Appeal held that the plaintiff could proceed to trial on his negligence claims under a negligent exercise of retained control theory and breach of nondelegable regulatory duty theory. The basis of the regulatory duty theory is that the general contractor had a nondelegable regulatory duty under the OSHA regulations to barricade or securely cover pits. The Supreme Court granted review and transferred the case back to the Court of Appeal to reconsider its earlier ruling on the breach of regulatory duty theory in light of the California Supreme Court’s ruling in Seabright Ins. Co. v. U.S. Airways, Inc,. (2011) 52 Cal.4th 590. In Seabright, the California Supreme Court rejected hirer liability on a breach of regulatory duty theory where the hirer delegates its duty to provide a safe workplace to the subcontractor.

       On reconsideration, plaintiff conceded that he could not proceed on a breach of regulatory duty theory and this theory was rejected by the Court of Appeal on reconsideration as overruled by the Seabright decision. Excepting the breach of regulatory duty theory, the Court of Appeal affirmed its prior decision and allowed the plaintiff to proceed on his negligence claims on a negligent exercise of retained control theory. Under this “negligent exercise of retained control” theory, a hirer may be held liable for the injuries of an employee of an independent contractor where: (1) the hirer retains control over safety conditions at a jobsite; and (2) negligently exercises that control in a manner that affirmatively contributes to that employee’s injuries. In allowing the plaintiff to proceed to trial on this theory over Fillner’s summary judgment motion, the court found that ordering the holes to be created and requiring plaintiff to perform work near them may have constituted a negligent exercise by Fillner of its retained control. The court also found that a jury could infer affirmative contribution to the injury from Fillner’s response to plaintiff’s request to cover the holes. The Tverberg case is pending trial on plaintiff’s remaining theory of liability and the jury’s answer to these esoteric questions and inferences remains unknown.

       While jobsite safety is of paramount importance to general contractors and trade subcontractors, jobsite accidents like the one that occurred in Tverberg happen. As seen from the Tverberg decision and its history, the toll that these accidents exact on the injured employee and the implicated general contractor can be extremely high. For the general contractor, it is potentially facing liability arising out of conditions that were created by others and for areas that were under the control of others. Also, in the case of the general contractor in Tverberg, it was embroiled in six years of litigation and the case is still pending. In the absence of insurance or an indemnity agreement from a solvent subcontractor, a six year old personal injury action will likely have a devastating impact on a general contractor’s business and may place the assets of the company and its principals at risk. This is especially true in this current economic climate.

       From a construction contract drafting and insurance/risk management perspective, the best way for a general contractor to insure against or distribute the costs associated with claims like Tverberg is to: (1) include a “type 1” or “type 2” indemnity provision in their subcontracts; and (2) require all subcontractors provide additional insured endorsements naming the general contractor (and the owner if possible) as an additional insured. While these contractual provisions and insurance agreements will not prevent claims or stem rising litigation costs of the type exemplified by Tverberg, they do offer the general contractor and its primary general liability insurer the protection of having the insurer for the responsible trade subcontractor pay or defray the litigation costs associated with the defense of these claims. Also, these types of indemnity provisions and additional insured requirements provide the general contractor with added contractual tools to bring all the subcontracting parties and their insurers to the table to resolve claims quickly and within policy limits. Finally, having insurance in place from subcontractors will give contractors like the one in Tverberg peace of mind that any jury result will be adequately covered by insurance.

       Please contact us if you need any assistance in drafting these indemnity and insurance provisions in your subcontracts.

The following is a list of some of the new laws recently passed in California. Contact MFTB’s Labor and Employment Department to ensure you are in compliance.

1. The California “Wage Theft Prevention Act” creates new notice requirements to non-exempt employees about their pay. (Lab. Code, §§ 200.5, 240, 243, 1194.3, 1197.2.)
2. The Labor Commissioner may now award liquidated damages against an employer for unpaid wages, in addition to the unpaid wages, interest, and penalties. (Lab. Code, §§ 98, 1194.2.)
3. A court may impose additional penalties (up to $25,000 per violation) for willfully misclassifying employees as independent contractors. (Lab. Code, § 226.8.)
4. Penalties have quadrupled for prevailing wage violations and not timely submitting certified payrolls. (Lab. Code, §§ 1775, 1776, 1777.1.)
5. Written contracts are required by January 1, 2013, for all commission-paid employees. (Lab. Code, § 2751.)
6. Clarifies that employees have the right to continuation of group coverage while on pregnancy disability leave. (Gov. Code, § 12945.)
7. E-Verify cannot be a condition for state, city, or county projects, except where using E-Verify is required by federal law or is a condition to receive federal funds. (Lab. Code, § 2812.)
8. Limits an employer’s ability to do credit checks on applicants or employees. (Lab. Code, § 2751.)
9. To be eligible for public contracts over $100,000, contractors who provide medical insurance to employees and their dependents must also provide the benefits to employees’ same-sex spouses and registered domestic partners. (Pub. Contract Code, § 10295.3.)
10. The definition of “public work” now includes certain renewable energy/solar projects completed under private contracts. (Lab. Code, § 1720.6.)

       In Delmastro & Eells v. Taco Bell Corp., the Arizona Court of Appeals held that a properly recorded mechanic’s lien was invalid because the contractor’s preliminary notice contained “legally inadequate” descriptions of the jobsite and labor and materials to be performed. There, contractor agreed to build a child care center on one of two blocks of property and make improvements on both blocks. The contractor timely sent the developer preliminary notices that stated the contractor had provided “materials and/or labor” for a building, structure, or improvement located at a specific street address and “legally described as…Tutor Time Child Care.” After payment issues arose, the contractor recorded a notice and claim of lien, served the developer, and initiated an action to foreclose its lien.

       At the time it commenced the action, the contractor was unaware that Taco Bell had acquired title to the second block of land. After amending its foreclosure claim to add Taco Bell as one of the owners of the liened property, Taco Bell moved to dismiss the action based, in part, on the insufficiency of the contractor’s preliminary notice. The Court sided with Taco Bell, ruling that the contractor’s lien was invalid because its preliminary notice did not specifically describe the work performed or the second block of property. Thus, the Court found no basis for the notice recipient to clarify ownership of the second block. The Court rejected the contractor’s argument that Taco Bell had actual knowledge of the improvement, holding that this knowledge did not relieve the contractor of its duty to provide a preliminary notice in compliance with the Arizona statute.

       As Arizona’s preliminary notice and mechanic’s lien statutes are patterned after California’s statutory framework, Arizona and California contractors alike must take reasonable steps to ensure their preliminary notices adequately describe the jobsite location and materials and labor to be provided, or they risk losing their mechanic’s lien rights.

       Prior California law defined “public works” for purposes of regulating public works contracts as, among other things, construction, alteration, demolition, installation or repair work done under contract paid for, in whole or in part, with public funds. (Labor Code, § 1720.) The newly added Labor Code section 1720.6 expands the definition of “public works” to include certain work done under private contracts for the purpose of prevailing wage laws. California law requires workers employed on public works be paid at least the prevailing wage, which is often much greater than wages for comparable private contract work. (Labor Code, §§ 1770 et seq.) Failure to pay prevailing wages can lead to substantial penalties and possible license revocation.

       Now, construction, alteration, demolition, installation or repair work done under private contracts will be deemed a “public work” when the following conditions exist:

• The work involves the construction or maintenance of renewable energy generating capacity or energy efficiency improvements;
• The work is performed on the property of the state or a political subdivision of the state (i.e. city or county); and
• Either one of the following conditions exist:
  • More than 50 percent of the energy generated is purchased or will be purchased by the state or a political subdivision of the state; or
  • The energy efficiency improvements are primarily intended to reduce the costs that would otherwise be incurred by the state or a political subdivision of the state.

       This law will affect all contractors on a project so employers must be diligent in determining whether a previously private contract will now be treated as public. For example, as a result of this law, employers must pay prevailing wages to workers on private jobs for independent power producers (“IPPs”) who sell or will sell generated power to a public entity (typically under so-called “power purchase agreements”).

       If you need assistance with wage compliance or have any labor or employment concerns, Marks, Finch, Thornton & Baird, LLP has a full service labor and employment group to assist you.

No Cap On Attorney’s Fees For Petitions To Expunge – Civil Code Section 8488, Subdivision (c)

Existing law limits attorney’s fees to $2,000.00 on petitions to remove an untimely foreclosed upon mechanic’s lien. After July 1, 2012, if an owner has to file a petition to remove an untimely foreclosed upon mechanic’s lien, a prevailing owner will be able to recover all of its reasonable attorney’s fees in connection with the action.

The Deadline To Record Notices Of Completion Will Be Extended From 10 To 15 Days From Completion – Civil Code Sections 8182, Subdivision (a) [Private Works] And 9204, Subdivision (a) [Public Works]

Existing law requires real property owners to record notices of completion within 10 days of completion. After July 1, 2012, an owner may record a notice of completion within 15 days of completion.

Separate Notices Of Completion Permitted (Private Works) – Civil Code Section 8186, Subdivision (a)

In projects where the scope of work is being performed under separate direct contracts with the owner, the owner can now record separate notices of completion upon completion of the scope of work under each separate contract.

“Completion” Redefined (Private Works) – Civil Code Section 8180, Subdivision (a)

Existing law states that acceptance by the owner is deemed “completion” for purposes of establishing the deadline for recording a mechanic’s lien. Section 8180, subdivision (a), has deleted acceptance by the owner as an act of completion, but maintains the remaining completion equivalents (i.e., (1) actual completion of the work of improvement; (2) occupation or use by the owner accompanied by cessation of labor; (3) cessation of labor for a continuous period of 60 days; or (4) recordation of a notice of cessation after cessation of labor for a continuous period of 30 days.) “Completion” has not been redefined on public works and a project will not be deemed completed unless accepted as complete by the public entity.

“Completion” Equivalents (Public Works) – Civil Code Section 9200, Subdivision (b)

The thirty-day cessation of labor period has now been expanded to sixty days. This completion equivalent does not apply to public works of improvement performed for state agencies.

New Service Requirements And Notice Language Changes For Preliminary Notices (Private Works) – Civil Code Sections 8200, Subdivision (a)(3), And 8202, Subdivision (a)(3)

In addition to serving the owner and direct contractor with a preliminary notice, a contractor on a private work of improvement will now be required to serve its preliminary notice on the construction lender or reputed construction lender. The required notice language for preliminary notices has also been updated.

Information On Post-Commencement Construction Lenders Must Be Given By The Owner – Civil Code Section 8210

Owners must now provide all entities who served it with a preliminary notice with the name and address of any construction lender who issued a post-commencement construction loan to the project.

Lien Release Bonds Made More Affordable – Civil Code Section 8424, Subdivision (b).

The amount of the bond required to release a lien has been reduced from 150 percent to 125 percent of the lien amount.

Service Of Lien And Notice Of Mechanic’s Lien Requirements – Civil Code Section 8416

Carried over is the new requirement effective for all mechanic’s liens recorded after January 1, 2011, that all mechanic’s liens must be accompanied by a “Notice Of Mechanic’s Lien” with the required notice to owner language. Further, a mechanic’s lien may not be recorded unless it has been accompanied by a proof of service of the lien and the Notice of Mechanic’s Lien on the property owner. More importantly, Civil Code section 8416, subdivision (e), provides that failure to serve the mechanic’s lien and Notice of Mechanic’s Lien as provided by section 8416 renders the lien invalid.

Landscape Architects Added As Design Professionals Who Can Assert A Design Professional Lien – Civil Code Section 8014

Landscape architects have now been included as a design professional entitled to assert a design professional lien.

Design Professionals’ Liens Can Now Be Converted Into Mechanic’s Liens – Civil Code Section 8319

Under existing law, design professional liens were extinguished upon commencement of work. After July 1, 2012, design professionals have the added protection of being allowed to convert their design professional liens into a mechanic’s liens.

Construction Contracts: Space Provided For Identification Of Lender – Civil Code Section 8170, Subdivision (b)

Construction contracts after July 1, 2012, must provide a space for the owner to identify any construction lender. This requirement does not apply to home improvement contracts or pool contracts. Also, this section does not relieve a contractor from the service of preliminary notice requirements. If a construction lender is not identified in the contract, a contractor as part of its due diligence should conduct a search of the county clerk records to identify any undisclosed construction lenders and serve them with the required Preliminary 20-day Notice prior to commencement of work. For subcontractors, Civil Code section 8202 requires direct contractors to make owner and construction lender information available to subcontractors seeking this information for their Preliminary Notices.

Terminology Updates

• The term “stop notice” has been replaced with “stop payment notice.” (Civil Code section 8044.)
• The term “original contractor” has been replaced with “direct contractor.” (Civil Code section 8018.)
• The term “materialman” has been replaced with “material supplier.” (Civil Code section 8028.)

Recordation Of A Certified Copy Of An Order Or Judgment Dismissing A Lien Foreclosure Action With Prejudice Releases The Property From The Lien – Civil Code Section 8490, Subdivisions (b) And (c).

In the event of a judgment or order dismissing a lien foreclosure action with prejudice, and provided the order contains the information required by Civil Code section 8490, subdivision (a), a property owner can have the property released from the lien by recording a certified copy of the order or judgment with the county clerk and recorder.

No Notice For Untimely Foreclosed Upon Mechanic’s Liens – Civil Code Section 8494

Persons dealing with property subject to a mechanic’s lien that has not been timely foreclosed upon are not charged with notice of the lien.
Priority Given To Optional Advances Made To The Limit Of The Original Construction Loan – Civil Code Section 8456
As long as the total amount of optional advances do not exceed the original amount of the construction loan, optional advances will relate back to the date of the recordation of the construction deed of trust and will have priority to mechanics’ liens. This change will benefit construction lenders, who can now wait until the last minute to decide whether to advance funds to a borrower who is in default under the loan agreement with the security that their trust deed will remain senior to mechanic’s liens.

Errors In A Claim Of Lien Will Not Invalidate The Lien – Civil Code Section 8422, Subdivisions (a) And (b)

This new Civil Code section codifies existing case law that holds that errors in a claim of lien (i.e., errors in a claimant’s demand, credits, and offsets deducted; the work provided; or the description of the site) do not invalidate the lien. However, such errors will render the lien invalid if a court determines that: (1) the claim of lien was made with the intent to defraud or slander title; or (2) an innocent third party, without notice, actual or constructive, became the bona fide owner of the property after recordation of the claim of lien, and the claim of lien was so deficient that it did not put the party on further inquiry in any manner.

If you need assistance updating forms or complying the new laws, please contact Marks, Finch, Thornton & Baird, LLP.

       Currently, the Labor Commissioner can assess penalties against a public works contractor for failing to pay the prevailing wage. Under previous law, the Labor Commissioner had discretion to set the penalties at $10 to $50 per violation. Under the new law, the range of penalties has quadrupled to $40 to $200 per violation.

       Also, on a public works project, a contractor must submit its certified payroll reports to the Labor Commissioner within 10 days of a request. Under prior law, for every day the submission was late, the contractor was penalized $25 per employee. The new law increases the penalty to $100. For example, if a contractor employing 10 employees is late producing certified payroll records by only one day, the Labor Commissioner can penalize the contractor $1,000.

       Finally, in addition to fines, the new law permits the Labor Commissioner to designate a contractor ineligible to bid or work on a public project for up to 3 years.

       But that’s not all, the deck is further stacked against public works contractors. A unique California law, the Private Attorney General Act (also known as “PAGA”) permits an employee to sue his own employer for penalties under the Labor Code on behalf of all employees of the business. A portion of the penalties may be recovered by the plaintiff in addition to attorneys’ fees incurred in the case. With the penalties under the Labor Code quadrupled, plaintiffs’ attorneys now have an increased incentive to sue contractors on behalf on any employee who ever worked on a public works project.

       If you need assistance with wage compliance or have any labor or employment concerns, Marks, Finch, Thornton & Baird, LLP has a full service labor and employment group to assist you.

• Civil penalties ranging between $5,000 to $15,000 per violation that increase to between $10,000 to $25,000 per violation if the employer engages in a “pattern or practice” of misclassifying;
• Disciplinary action by the Contractors State License Board against a contractor potentially resulting in the employer losing its contractor’s license;
• Posting for one year on the employer’s website a notice with the following information:
  • The employer committed a serious violation of the law by engaging in the willful misclassification of employees;
  • It has changed its business practices to comply with the law;
  • Any employee who believes he or she has been misclassified can complain; and
  • The notice has been posted pursuant to a court order

       Given California’s stagnant economy and tax shortfall, employers can expect increased enforcement of worker classification laws as government agencies look for new sources of revenue.

       Moreover, these increased penalties will incentivize plaintiffs’ attorneys to file lawsuits against employers under the Private Attorney General Act (known as “PAGA”). PAGA lawsuits allow a single worker to sue his own employer for penalties under the Labor Code on behalf of all workers of the business. As portion of the labor penalties may be recovered by the plaintiff in addition to attorneys’ fees incurred in the case, employers can expect more claims by employees on the complex issue of misclassification.

       If you need assistance with wage compliance or have any labor or employment concerns, Marks, Finch, Thornton & Baird, LLP has a full service labor and employment group to assist you.