GSBE Business Update and Employment Update 07/26/17
Prompt Payment – What Do Owners and Generals Have the Right to Withhold?
Under California Civil Code section 8814, if a direct contractor has withheld a retention from a subcontractor, the direct contractor must pay the subcontractor the retention amount within 10 days of receiving a retention payment, unless a “good faith dispute exists between the direct contractor and the subcontractor.” In turn, section 8818 provides that if an owner or direct contractor does not make retention payments as required by section 8814, then the owner or direct contractor is liable for a penalty of 2 percent per month on the amount wrongfully withheld.
So what then constitutes a “good faith dispute?” Under Martin Bros. Constr. Inc. v. Thompson Pacific(2009) 179 Cal.App.4th 1401, a “good faith dispute” for private projects included both contract price disputes and change order disputes; however, in East West Bank v. Rio Sch. Distr. (2015) 235 Cal.App.4th 742, the Court of Appeals held that a “good faith dispute” in a public project did not extend to disputes over change orders. Once the legitimate purpose for retaining the funds ends, the public entity must release the funds or suffer the statutory penalties.
Seems straightforward enough, right? On private projects, a good faith dispute means contract price disputes and change order disputes, on public projects it only means contract price disputes.
Enter United Riggers & Erectors v. Coast Iron & Steel, Co. (2015) 243 Cal.App.4th 151, which extends the East West Bank decision from the public works context to private projects. In the matter, Coast Iron withheld retention from United Riggers for claimed additional change order costs and damages related to mismanagement. The trial court found in favor of Coast Iron, citing Martin Bros.; however, the Court of Appeals reversed, citing East West Bank, holding that allowing Coast Iron to withhold retention when there was no dispute that it was owed (under the contract) would “unduly increase the leverage of owners and primary contractors over smaller contractors and subcontractors by discouraging subcontractors from making legitimate claims for fear of delaying the retention payment.”
In March of last year, the California Supreme Court granted Coast Iron’s petition for review. Brief were submitted July 2016.
The take-away – The law, as it stands right now is: On private projects, a good faith dispute means contract price disputes and change order disputes, on public projects it only means contract price disputes. Of course, that may change once the Supreme Court rules on United Rigger. Stay tuned!
Bills that are Still Moving
SB 33 (Dodd; D-Napa) Discrimination Against Arbitration Agreements — Unfairly discriminates against arbitration agreements contained in consumer contracts for goods or services with a financial institution, as broadly defined, which is likely preempted by the Federal Arbitration Act and will lead to confusion and unnecessary litigation.
Increased Labor Costs
AB 1209 (Gonzalez Fletcher; D-San Diego) Public Shaming of Employers — Imposes new data collection mandate on California employers to collect and report data to the Secretary of State regarding the mean and median salaries of men and women in the same job title and job description, determine which employees perform “substantially similar” work, and then have that report posted on a publicly accessible website, where such employers will receive undue scrutiny and criticism for wage disparity that is not unlawful and justified by a bona fide factor.
SB 63 (Jackson; D-Santa Barbara) Imposes New Maternity and Paternity Leave Mandate — Unduly burdens and increases costs of small employers with as few as 20 employees by requiring 12 weeks of protected employee leave for child bonding and exposes them to the threat of costly litigation.
Increased Unnecessary Litigation Costs
SB 49 (de León; D-Los Angeles) Creates Uncertainty and Increases Potential Litigation Regarding Environmental Standards — Creates uncertainty by giving broad and sweeping discretion to State agencies to adopt rules and regulations more stringent than the federal rules and regulations in effect on January 19, 2017 through an expedited administrative procedure, when the State agencies determine that federal action leads to less stringent laws and regulations than those in effect on January 19, 2017; and increases the potential for costly litigation by creating private rights of action under California law, which may be triggered when a State agency takes the foregoing discretionary action.
Tax Increases; Not Subject to Deadline
The following nine tax-related job killer bills are not subject to the July 21 deadline. Although these bills aren’t moving in the Legislature, they could be taken up at any time before the end of the session.
- AB 43 (Thurmond; D-Richmond) Targeted Tax on Contractors — Unfairly targets one category of taxpayers to fund a benefit for all of the state by imposing a tax on contractors for the privilege of doing business with the Department of Corrections and Rehabilitation, and requires the contractor to absorb the cost while maintaining a price of lowest responsible bidder. Held on the Assembly Appropriations Committee Suspense File, 5/26/17.
- AB 479 (Gonzalez Fletcher: D-San Diego and C. Garcia; D-Bell Gardens) Targeted Tax on Alcohol — Unfairly imposes an additional targeted excise tax on manufacturers, importers, and wholesalers of distilled spirits and a floor tax, that will increase their costs and force them to reduce in other areas, including labor. Failed passage in Assembly Revenue and Taxation Committee, 5/8/17.
- AB 1003 (Bloom; D-Santa Monica) Targeted Tax on Sweetened Beverages — Unfairly imposes a targeted excise tax on distributors of sweetened beverages to fund health-related programs for all, which will force distributors to reduce costs through higher prices to consumers or limiting their workforce. In Assembly Rules; no hearing date set.
- AB 1356 (Eggman; D-Stockton) Targeted Tax on High Earners — Unfairly increases the personal income tax rate to 14.3%, the highest in the country, on one category of taxpayers (including sole proprietors), who already pay over half of the income tax revenue to the general fund, forcing them to mitigate costs through means including reducing workforce, in order to fund higher education that will benefit all of California. In Assembly Higher Education Committee; no hearing date set.
- AB 1512 (McCarty; D-Sacramento) Targeted Tax on Opioids — Unfairly imposes an excise tax on opioid distributors in California, which will increase their costs and force them to adopt measures that include reducing workforce and increasing drug prices for ill patients who need these medications the most, in order to fund drug prevention and rehabilitation programs that will benefit all of California. In Assembly Revenue and Taxation Committee; no hearing date set.
- ACA 4 (Aguiar-Curry; D-Winters) Lowers Vote Requirement for New Tax Increases — Adds complexity and uncertainty to the current tax structure and pressure to increase taxes on real property by giving local governments new authority to enact special taxes, including parcel taxes, to fund construction, reconstruction, rehabilitation, or replacement of public infrastructure or affordable housing, or the acquisition or lease of real property for public infrastructure or affordable housing, and lowering the vote threshold to impose such new taxes from two-thirds to 55%. Referred to both the Assembly Local Government Committee and Assembly Appropriations Committee; no hearing dates set.
- ACA 11 (Caballero; D-Salinas) Targeted Retail Industry Tax Increase — Exposes the retail industry to increased taxes by imposing a quarter-cent sales tax increase to fund affordable housing and homeless shelters, without creating greatly needed market rate housing. Referred to both the Assembly Housing and Community Development Committee and the Assembly Revenue and Taxation Committee; no hearing date set.
- SB 567 (Lara; D-Bell Gardens) Multiple Tax Increases on California Employers — Proposes multiple tax increases on California employers, including requiring payment of capital gains on the inheritance of a family business as well as eliminating a deduction for corporations with regard to CEO compensation, when California already has the highest personal income tax and sales tax rates in the country, as well as one of the highest corporate tax rates, which will discourage job growth in California. Senate Floor; Inactive File, 6/1/17.
- SCA 6 (Wiener; D-San Francisco) Lowers Vote Requirement for Tax Increases — Adds complexity and uncertainty to the current tax structure and pressure to increase taxes on commercial, industrial and residential property owners by giving local governments new authority to enact special taxes, including parcel taxes, by lowering the vote threshold from two-thirds to 55%. Held under submission in Senate Appropriations Committee Suspense File, 5/25/17; no hearing date scheduled.
The next significant deadline for the job killer bills is September 1, the date by which fiscal committees must send the bills along for consideration by the entire Senate or Assembly.
USCIS Issues New Form I-9
The newest version of the Form I-9 was published by U.S. Citizenship and Immigration Services (USCIS) July 17.
The form, used by HR to verify employment eligibility, will be mandatory beginning Sept. 18.
“Employers will be able to use this revised version or continue using Form I-9 with a revision date of 11/14/16 N through Sept. 17,” the agency said. “On Sept. 18, employers must use the revised form with a revision date of 07/17/17 N.”
Current storage and retention rules have not changed.
“The new version brings very subtle changes to the form’s instructions and a list of acceptable documents, which were created with the theoretical goal of making the form easier to navigate,” said Davis Bae, managing partner of the Seattle office of law firm Fisher Phillips. “Besides changing the wording on the form in almost imperceptible ways, the new version renumbers all List C documents except the Social Security card and streamlines the certification process for certain foreign nationals.”
The revisions to the form relate to USCIS’s List of Acceptable Documents and specifically update List C to reflect the most current version of the certification or report of birth issued by the U.S. State Department.
Employers completing the Form I-9 on a computer will be able to select the newly added Consular Report of Birth Abroad Form FS-240, which is issued to certain employees born overseas to a U.S. citizen parent. E-Verify users will also be able to select Form FS-240 when creating a case for an employee who has presented this document for employment eligibility verification. “The FS-240 has actually been in use for a long time, and so this change should help some employers that were previously told it was not acceptable,” said John Fay, vice president and general counsel at the LawLogix division of Hyland Software, a company that specializes in cloud-based I-9, E-Verify and immigration compliance services.
All birth certificates issued by the State Department (Form FS-545, Form DS-1350 and Form FS-240) will be compiled into selection C#2 in List C.
The new form will also modify the form’s instructions by removing “the end of” from the phrase “the first day of employment” in reference to completing Section 1. “While the agency did not specify the reason for this change, it was likely made to ensure consistency with the regulations which indicate that Section 1 must be completed ‘at the time of hire,’ without any reference to the time of day,” Fay said. “Following this updated guidance, employers may want to revisit their own I-9 policies and procedures to ensure that Section 1 is completed no later than when the employee starts work for pay.”
The last change is a revision of the name of the Department of Justice’s Office of Special Counsel for Immigration-Related Unfair Employment Practices to its new name, the Immigrant and Employee Rights Section.
Switch Over to New Form Now
“Although you will be able to use this new version or continue using the previous Form I-9 through September 17, it makes sense to scrap the use of the November 2016 version and begin using the updated version right away,” Bae said. “You should recycle all older versions you already have printed out, and instruct your hiring managers and human resources representatives to download [the new version] of the form for use with new hires from this point forward.”
Although the changes to the Form I-9 are minimal, failure to comply by the Sept. 18 deadline can result in significant fines. Immigration and Customs Enforcement announced increases in fines for Form I-9 violations last year.
“Every change to the Form I-9, no matter how small or seemingly insignificant, can have an impact on an employer’s ability to stay in compliance with the law,” Fay said. “Sometimes, the biggest obstacle is just making your organization aware that a new version exists, particularly for those employers who are still completing the I-9 on paper.”