Category Archives: Legal Advice Column

Urban Myths and Mysteries – Emergency “Board Up” Work – Legal Advice Column

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Construction LawBy Bryant Byrnes, Esq.

Emergency “Board Up” Work.

It has been bandied about as long as I can remember that emergency “board-up” work doesn’t need a contract – that there are special exceptions/waivers in the Business and Professions Code to the written contract requirements for home improvement services.

This is a contractor urban myth. There are no explicit statutory exemptions for emergency services from the writing requirement if the cost of such services exceeds $500.

I not only looked in the Business and Professions Code, but actually asked David Fogt, Chief of Enforcement for the Contractors State License Board.

Business and Professions Code Section 7151 defines what are considered home improvements, as well as home improvement goods or services. If any of the statutory criteria are meet, then a written contract is required. And it doesn’t take much.

Whether boards placed over the windows and other openings on a home after a fire or other emergency situations would be considered “affixed” as to meet the statutory requirement is an interesting question. Given that such boards/materials are temporary by their very nature, they may or may not be covered under Section 7151.

However, there are no clear statutory exemptions for such emergency services. If the cost to provide such were to exceed $500, it is advisable to have a written contract.

So what does one do in a “board-up” situation? Give the client a contract of course. The tougher question is – the regular long one with all of the notices, or a short one? If one is also going to do any follow up remedial work, use the long one.

“Stearman Fees”; What In The World Are They? This also came up recently. An attorney chasing after one of my contractor clients threatened him with these critters; “…and we are going to request Stearman Fees too.” I was, for once, a bit clueless when asked about them.

Although you may not be familiar with the term now, you probably will be at some future time. The term comes from a California lawsuit in which the plaintiff was Stearman. These specific fees/costs are becoming more common as a threatened measure of recovery by homeowners against contractors in construction defect cases. (I recently saw them again in a second matter.) However, they appear only applicable to a very specific group of contractors in very specific circumstances.

“Stearman fees” or “Stearman costs” are not really fees or costs at all, but a specific type of damagesthat may be claimed by a homeowner plaintiff in an action alleging construction defects to a residential property. These damages entitle homeowners to recover any expert fees incurred for repair or expert investigative services involving the construction defect in question.

These types of damages may only be sought however against a “builder”. For the purposes of these damages, “builder” means a builder, developer, or original seller. But here is the kicker: they only apply to new residential units sold on and after January 1, 2003.

In summary, Stearman Fees only apply to those contractors who have constructed new homes which were sold after January 1, 2003. But they typically don’t apply if you are involved with a home improvement project of an existing home. The threat of Stearman Fees may come up, but they usually do not apply to remodelers.

So now you know.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors. Questions? His website is www.bryantbyrnes.com. Feel free to contact Bryant by email at bhbatty@pacbell.net.

Enforceability of Oral Home Improvement Contracts – Legal Advice Column

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Construction LawBy: Bryant Byrnes, Esq.

We all know that California law requires that a contract for home improvement between an owner and a contractor must be in writing and contain specific provisions (see Business & Professions Code section 7159). Although I am sure that every contractor reading this article would never enter into an oral contract for home improvement, it has been known to occur.

Oral agreements for home improvements are generally unenforceable because they are contrary to California’s well established public policy of protecting unsophisticated consumers. In addition, the writing requirement acts as a procedural safeguard protecting all parties against the possibility of fraudulent claims. However, the following California case is an example of when a contractor may enforce an oral contract for payment – but only when certain factors are present.

The Case.
Hinerfeld-Ward, Inc v. Lipian, decided in 2010, involved a high end home improvement project. Although mandated by law, the homeowners did not have a written contract with the contractor. The owners (the Lipians) retained Hinerfeld as their contractor and work proceeded for the next two years, generating 19 invoices. The Lipians then disputed certain charges on the 20th invoice. (That darn 20th invoice.) At that time, the Lipians owed their contractor over $200,000.

The Lipians terminated Hinerfeld. Hinerfeld, in turn, sued for payment. The Lipians claimed they owed nothing because the oral contract with Hinerfeld was void and thus unenforceable. They contended that California’s statutory requirement that all “home improvement” contracts must be in writing prevented the court’s enforcement of the “void” oral home improvement contract. The trial court disagreed and awarded the contractor Hinerfeld damages and attorneys’ fees.

The Factors.
On appeal, the court set forth factors to establish when it would be unjust to declare an oral contract void and thus unenforceable. The factors included: i) the homeowners Lipians were sophisticated individuals and not within the class of unsophisticated consumers intended to be protected by the statute; ii) the contract in question, for a unique, long-term, ever evolving construction project, was not the type that California’s public policy would declare void; iii) the owners’ relationship with their architect as their representative was long-term and well-established, and served to protect the owners’ interests; and iv) the owners had accepted the benefit of the agreement. In summary, the court said that “…this is a compelling case warranting enforcement of the oral home improvement contract…” All the factors combined to support enforcement in favor of the contractor.

And there is even an odd twist. California law restricts the ability of a homeowner to hold back progress payments by limiting any amount withheld to 150% of the value of the disputed item. Rather than paying the amount that was undisputed, the Lipians withheld the entire amount of the billing, thus violating the statute. This aggressive tactic of withholding the entire amount seriously back-fired. The court strictly applied the statute against the Lipians. Their violation cost them the additional statutory penalties and attorneys’ fees.

The Moral.
The lesson here is that in any business relationship it is important to “get it in writing” to avoid this kind of thing. But this case demonstrates that even if a statute requires a written contract, exceptions may exist – especially when a strict reading would work an injustice.

This case also offers a number of lessons on how to manage and document a successful home construction project – some of them strategic, some of them psychological, and some of them legal. So look it up on Google.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors. Questions? His website is www.bryantbyrnes.com. Feel free to contact Bryant by email at bhbatty@pacbell.net.

Limited Liability Companies – LLCs – Part 2 – Legal Advice

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Construction Law

Bryant H. Byrnes, Esq.

By: Bryant Byrnes, Esq.

As covered in my previous article, beginning January 1st, 2012 the Contractors State License Board will begin processing applications for issuance of limited liability company contractor licenses. Until now contractors could be sole proprietors, partnerships, or corporations, but not limited liability companies.

Giant, Death Penalty Faux Pas. In my last article, I repeatedly referred to “an” LLC. My fourth grade teacher promptly contacted me and correctly pointed out it was properly “a” LLC. I stand corrected and red faced.

Previous Article. In Part One, I covered what a limited liability company is and some of its advantages and disadvantages in comparison with corporations. Here is brief summary to jog the memory:

Limited liability companies (LLCs) are a flexible form of business entity that blends elements of partnership and corporate structures. It is a legal form of company that provides liability protection to its owners.

Often incorrectly called a “limited liability corporation” (instead of company), a LLC is a hybrid business critter. The primary characteristic it shares with a corporation is limited liability. The primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is considered more flexible than a corporation and it is well suited for companies with a single owner.

It is important to understand that “limited” liability protection does not mean that the LLC owners are always absolutely protected from personal liability. Similar to “piercing the veil” attacks on corporations, courts can and sometimes do “pierce the veil” of a LLC when some type of fraud or misrepresentation is involved.

California Senate Bill 392. Starting January 1, 2012, this bill amends the California Business & Professions Code Sections 7071.65 and 7071.19 to allow contractor’s licenses to be issued to LLCs. This law brings California in line with the majority of states that permit a contractor to be formed as a LLC.

Advantages (and differences from corporations). The advantages of a LLC – and mitigating for a change – are several.

Costs. As discussed in Part One, start up costs are a bit less expensive than for corporate formation.

Good for Certain Large Contractors. LLCs perhaps would be a good fit for contractors who are involved in real estate development joint ventures. They would also provide planning opportunities for developers who desire to create special purpose general contractors. For instance, affordable housing developers frequently desire to act also as a general contractor in the development of affordable housing due to differing guidelines many state housing agencies have with respect to fees that can be charged for development activities, as opposed to general contracting activities. Expanding contractor licensing to LLCs creates greater flexibility than a corporation for these developers in structuring such arrangements.

Disadvantages. There are also disadvantages to being a LLC – thus mitigating switching from a present corporation to a LLC.

Additional Surety Bond Requirements. Addressing concerns about leaving construction employees without recourse for non-payment of wages, additional bond requirements were enacted. For a LLC to hold a contractor’s license, in addition to the $12,500 contractors’ bond required it must file and maintain an additional surety bond in the amount of $100,000 for the benefit of employees to ensure payment of wages, interest, and fringe benefits.

Increase in Required Insurance. LLCs will also be required to maintain an errors and omission insurance policy in an amount not less than $1,000,000, and up to $5,000,000, depending on the number of persons listed on the personnel record of the LLC.

Business Taxation. Both corporations and LLCs must pay California business entity income tax. Because the LLC entity income tax is based on sales, all other things being equal a LLC would appear to be required to pay more.

So, Switch? If you are presently a corporation, should you switch to a LLC? If you are a large player, or plan to be one, and want more flexibility in structuring your entity, consider it. But run the numbers first, and for heaven sakes, also talk with your CPA.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors. Questions? His website is www.bryantbyrnes.com. Feel free to contact Bryant by email at bhbatty@pacbell.net.

Limited Liability Companies – LLCs – Part 1 – Legal Advice Column

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Construction Law

Bryant H. Byrnes, Esq.

By: Bryant Byrnes, Esq.

Beginning January 1st, 2012, the Contractors State License Board will begin processing applications for issuance of limited liability company contractor licenses. Until now, contractors could be sole proprietors, partnerships, or corporations, but not limited liability companies.

So what is a limited liability company? For those that may be considering a change in their entity status, below is a brief discussion of what a limited liability company is – including its advantages and disadvantages.

Limited liability companies (LLCs) have become a most popular choice for small to medium-sized businesses when compared to corporations or partnerships. Often described as the combination of a partnership and a corporation, the LLC combines a corporation’s liability protection with a partnership’s tax flexibility.

Advantages (and differences from corporations). The advantages of an LLC are several.

Less paperwork. Aside from filing the Articles of Organization, LLCs have very few paperwork requirements. Unlike corporations, LLCs are not required to keep meeting records regarding company decisions and business issues. Nor are annual meetings and minutes required.

Flexible management. An LLC can take whatever management structure the members deem fit to operate the business. Only one member is required. Unlike corporations, LLCs are not required to have a Board of Directors or Officers. LLCs instead use titles such as: member, manager, managing director, and chief executive officer.

Liability Protection. Unlike a partnership or a sole proprietorship, the personal assets of an LLC member are not at risk by operating as an LLC. Similar to a shareholder in a corporation, an LLC member is only liable for business loss judgments, and lawsuits up to their ownership interest in the company.

Taxation. LLCs are treated as a “pass-through” entity by the IRS. This allows members to report their share of profits or losses on their individual tax returns. The IRS does not assess taxes on the company itself. This avoids the “double taxation” that corporations experience.

Profit Distribution. Profits are distributed to members in any fashion deemed suitable. The ownership interest of an LLC member may not be an indicator of the amount of profits received or losses claimed.

Disadvantages. There are also disadvantages to being an LLC.

Entity Structure. All California LLCs are required under state law to have a Limited Liability Company Operating Agreement. Being there is no requirement for Officers and/or a Board of Directors; this agreement must address the rights and duties of the members, contributions, distributions of profits, etc. It is up to the members to prepare this.Annual Franchise Tax. Unlike corporations, at present LLCs are required to pay the annual minimum franchise tax of $800.00 during the first calendar year.

Annual Franchise Tax. Unlike corporations, at present LLCs are required to pay the annual minimum franchise tax of $800.00 during the first calendar year.

Double Taxation. In some instances, double taxation occurs – the company’s profits are taxed by the IRS at the business level.

Various Perhaps Confusing Titles. The principals of LLCs use many titles — member, manager, managing member, chief executive officer — which can be difficult for others to determine whom actually has the authority to act on bhelaf of the LLC. (As stated above, LLCs are not required to have a Board of Directors.)

Part Two. Stay tuned for next month’s article discussing further the comparison of LLCs to corporations, and whether it makes sense to switch to an LLC if you are already doing b usiness as a corporation.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors. Questions? Feel free to contact Bryant by email at bhbatty@pacbell.net.

Small Claims: The Trial (Part 2) – Legal Advice Column

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Bryant H. Byrnes, Esq.

Bryant H. Byrnes, Esq.

By: Bryant Byrnes, Esq.

In last month’s article I discussed the small claims court process and procedures – preparing the complaint, filing it, service, etc. (If you missed the article, please visit SFBA NARI’s website and click on the link “In the News/Newsletter” under “For the Trade.”) What follows is a discussion of the small claims hearing itself.

The Small Claims Trial In General. It takes place in a regular superior courtroom, but the differences from a regular trial are several. First, no attorneys are allowed to represent parties (unless one is a party herself or himself). Second – and more important to you – most of the judges are not regular superior court judges. They are older, experienced volunteer attorneys who get a thrill from wearing a judge’s gown and pounding the gavel. (“Order! I will not tolerate any more untowards behavior!”) They may be probate specialists, criminal defense attorneys, or in personal injury. As a result, your particular judge may not know a lot about breach of contract and/or construction. That is why I think the “small claims brief” discussed below is an important tool for your success.
The Hearing Itself. What if the other party does not show up? Easy; you win as a matter of course if your paperwork is in order.
It is when the defendant does show up that you have some work to do. And this is when a brief is recommended.

The Brief. A brief is a written statement setting out the legal position of a party. Here it should be short, about two or three pages.

Your small claims brief should have a brief recital of the facts, a brief statement of relevant law, and the attachments of documents to your case. Theses attachments typically are the contract, change orders, and invoices – and any collection letters. Keep in mind that as the plaintiff you have the “burden of proof.” This means you have to prove to the judge that it is more likely than not that your version of the facts – that you did the work, the work was fine, but you were not paid – is correct.

Because the judge frequently may not know much about construction or contract law, the brief gives the basic law and facts that he or she needs to render a decision. Always bring three copies of the brief and its attachments – one for the judge, one for the defendant, and one for yourself.

While a good idea regardless, it is when the other party shows up that the brief is crucial. It can be used as your script to explain to the judge what has happened. It is also a way to get your key documents (which are attached) to the judge.

Since you are the plaintiff, you get to go first. (“OK, Mr. Flutterblast, tell me what happened.”). What usually works is to hand the judge a copy of the brief and say you would like to briefly recite the facts. The judge may or may not want you to; sometimes he or she simply reads it and says “OK” – and then lets the defendant talk.
Another reason the brief is important is judges rarely rule immediately from the bench when it is contested. When he or she sits down later to review the papers and decide the case, the brief with its facts and documents makes it much simpler to render an award for you.

The Winner? Now what. Once you win, what do you do? You should take your judgment and turn it into an Abstract of Judgment. An Abstract of Judgment is a fill-in-the-blank court form which summarizes the court judgment and when filed with the appropriate County Recorder’s office becomes a lien on the debtor’s property. And should the defendant debtor refinance or sell the property, the judgment (with rare exception) must be paid.

In the meanwhile, the interest on the judgment is 10 percent per year. Judgments are good for 10 years and may be renewed prior to that for another 10 years.

Previous Articles. You’ll find previous articles on this blog under Legal Advice Column.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the NARI Board of Directors. Questions? Please feel free to contact him by email at bhbatty@pacbell.net.

Small Claims: The Hows and Whys (Part 1 of 2)

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Bryant H. Byrnes, Esq.

Bryant H. Byrnes, Esq.

By: Bryant Byrnes, Esq.

For the typical contractor, attempting to collect a fee from a client in small claims court can be a dreaded prospect. The mere thought of spending time pursuing such a claim leads many to thoughts of lost work time, snarky judges who hate contractors, and unsatisfactory results.

I beg to differ. Small claims court can be a splendid vehicle by which you can recover on a claim against a deadbeat client. What follows is a brief roadmap to dispel some of the mysteries and myths of small claims procedure and how to handle a contested small claims lawsuit.

Jurisdiction. In small claims court, the monetary limits for claims are $5,000 for businesses (it is $7,500 for individuals). But even if one has a claim for more than $5,000, if it is not a lot more consider the option of small claims – it’s usually not worth pursuing a big boy lawsuit in superior court. I believe the better practice in such a case would be to state the full amount – for example, $8,000 owed – but then ask for the maximum of $5,000. This may incline the small claims judge to slop it over a bit and award you the $5,000 maximum in damages rather than the $4,763.23 they sometimes come up with.

Parenthetically, how large should the debt be before considering a regular court action or binding arbitration (if the latter is in your contract)? While it is always your call, I highly recommend that it be for more that $10,000 – a lot more. Discuss this with your attorney.

Venue. You are familiar with this word. But as a technical legal term, it means the proper specific courthouse in which to bring your claim. Every large county probably has four or five different possible courts for small claims located in different places.

As you will see in the court paperwork when starting the action – which should be online – the “proper” venue can be one of several places. In a breach of contract claim it can be where the work was done, or where the defendant has his residence. One must be careful to get this right.

Complaint. This is the document which procedurally starts the lawsuit by stating what the claimant (the “plaintiff”) wants. For small claims, it is essentially a fill-in-the-line/check-the-box form. Complaint forms can differ from county to county. If you find yourself with a tricky dispute, it is always best to have it briefly reviewed by your attorney to ensure that a small error does not jeopardize your claim.

Filing the Complaint. I always think it is best to be filed at the proper court by hand rather than mail. Not only will the filing process go much more quickly, but you usually also have some say as to court dates (even though one usually wants the earliest possible one).

Service. Service means being sure the other party properly receives the notice of the case. If they are not properly served, they don’t have to show up. It is always my recommendation that you use a professional process server who knows the tricks of the trade.

What you will get back from this process person upon successful service is a “proof of service” document, stating that the person was served. It must be filed with the court at least five days before the proceeding. These procedural matters are important stuff and probably where most claims get screwed up.

Plaintiff Ready to Proceed, Your Honor! Part 2 will discuss the process of the small claims hearing itself.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the NARI Board of Directors. Questions? Please feel free to contact him by email at bhbatty@pacbell.net.

Commercial General Liability Insurance (Part 2 of 2)

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Bryant H. Byrnes, Esq.

Bryant H. Byrnes, Esq.

By: Bryant Byrnes, Esq.

In last month’s article I discussed some of the aspects of commercial general liability insurance. It is also important to know the obligations of your insurance carrier and how to make a claim to your carrier.

Obligations of the Insurer

Your insurer has two basic obligations; to defend claims within the policy and pay damages. “Defending a claim” in real world terms almost certainly means providing legal counsel. This is the broader duty of the two – and perhaps the more important. Most claims settle before actually going to trial and legal fees are often the greatest single cost item. If the insurer provides counsel it’s a huge savings to you.

You will have to use the attorney that the insurance company chooses, but generally they are pretty good. Since the insurance company is footing the bill, the insurer is pretty much in charge. For example, the insurer can choose to settle the suit, even though you think you are in the right – and then cancel your policy because they had to pay a claim.

The insurer is obliged to pay damages up to the limit of the policy. If you are insured for $1,000,000 and the judgment is for $1,500,000, the insurer pays $1,000,000 and you pay $500,000. So always be sure you have sufficient policy limits for the kinds of job you are doing.

The Importance of Proper and Effective Tender

“Tender” means conveying a claim to the insurer. And it should be done as early as possible. The typical policy requires the contractor to promptly notify the carrier about potential claims as well as actual claims. Although I have never seen it, I imagine any insurer could deny coverage for lack of prompt tender.

How does one properly convey a claim to the insurer? Tenders are best made in writing – creating the all important paper trail. They can be brief; let your insurance carrier follow up.

This is Complicated – Talk to Your Own Attorney

Insurance law, especially coverage issues, is both complicated and murky. Like something out of Charles Dickens, there is endless and complex litigation over such things as placement of a comma.

Although coverage counsel is provided by your carrier, it is always a good idea to talk to your own attorney. Indeed, such a discussion can be critically important at the front end of the process, when making the tender. It has been the experience of some claimants that their carrier is slow and/or reluctant to accept a tender. (Shocking news to most, I am sure.) A friendly, bracing letter from your counsel often works wonders in getting the matter properly and promptly handled.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the NARI Board of Directors. Questions? Please feel free to contact him by email at bhbatty@pacbell.net.

Commercial General Liability Insurance (Part 1 of 2) – Legal Advice Column

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Bryant H. Byrnes, Esq.

Bryant H. Byrnes, Esq.

By: Bryant Byrnes, Esq.

If you are a contractor and you have assets – a home, retirement savings, or the like – you need to protect them by purchasing or maintaining a commercial general liability policy (CGL).

A CGL policy is in the category of really important stuff. In addition to providing coverage for injuries on the jobsite (those not workers’ compensation claims), it covers “consequential damages” resulting from defective work. The most common example of a consequential damage in residential work is water intrusion.

Consequential Damages

Consequential damages are defined as those losses that do not flow directly and immediately from the injurious act, but result indirectly from the act. Translated into plain English, that means it’s not the original foul up that’s covered; it’s the thing that happens as the result of the foul up.

Again, the example of water intrusion well illustrates this point. If a window leaks because it was installed incorrectly and the leak ruins a hardwood floor, the CGL policy will pay to replace the flooring – but not to reinstall the window. The leaking window is defective work, which per se is usually not covered; the damage to the flooring is a consequential damage and thus covered.

What’s Not Covered?

To the chagrin of some contractors contemplating and/or making their first claim, the range of things covered is frequently less than one would think.

Every insurance policy has exclusions; CGL policies seem to have more than most. Two that most often come up – although sometimes under different labels – are the “pre-existing disputes” exclusion and the “craftsmen” exclusion. A pre-existing dispute exclusion is exactly what it sounds like – if you had a claim/dispute before you purchased the insurance policy, the policy generally won’t cover it. (And such claim/dispute must be disclosed when you initially sign up for the policy.)

The “craftsmen” exclusion applies to “mere” defective work, but there is no resulting consequential damage. For example, if the contractor installs the wrong windows – but they don’t leak – the typical commercial general liability insurance policy won’t cover their replacement.

What Happens If No Coverage?

If a contractor unhappily finds himself in a dispute and does not have coverage under his or her CGL policy (or no policy), win or lose the contractor generally has to pay attorney’s fees and related costs. These can be huge. And if he is found at fault, he will also have to pay damages.

If the business is a sole proprietorship or a partnership, the contractor is personally liable. If the business is a corporation, personal assets are protected but corporate assets are not. If the damages exceed the value of the corporate assets, the company may have to go through a bankruptcy.

When Do You Use It?

Some contractors will always make a claim (i.e. “tender” a claim) regardless of the nature or size of the dispute. Other contractors will go to almost any lengths not to make a claim; one of my contractor clients was prepared to pay up to $50,000 out of pocket before he would even notify his insurance carrier of a dispute. This contractor was willing to pay out of pocket because he felt any claim would sully his record with his carrier and make his rates go up. And he was waiting for the Big One.

I think one makes a claim sooner than later. After all, that is what insurance is for. Besides, all policies require that you report even potential claims.

Moral of The Story

You need commercial general liability coverage. And you need to understand it. Read your policy and talk with your broker.

Part 2
Part 2 will discuss how to make a claim under your commercial general liability policy and the obligations of your insurer to you.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the NARI Board of Directors. Questions? Please feel free to contact him by email at bhbatty@pacbell.net.

Employee Taxes/Insurance – An Easy Solution? Legal Advice Column

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Bryant H. Byrnes, Esq.

Bryant H. Byrnes, Esq.

By: Bryant Byrnes, Esq.

I recently had a client say to me, “I am getting killed by all the taxes and insurance that I pay for my employees. Is there anything I can do about it? Can I make them independent contractors? Or salaried employees? Anything?” This plaintive cry is common amongst business owners, including the battered contractor.

Is there in fact a way to reduce this cost by “converting” existing employees to independent contractors? What if one pays them on a per diem basis, and they pay their own taxes? If this is not possible, can the employer make them management – at least put them on salary to avoid overtime expenses? What qualifies an employee to have this designation?

I am not an employment attorney, but I did pose these questions to several attorneys who are.

Unhappily, there was a consensus that there is no truly bullet proofway not to get killed by taxes and insurance. (What follows is the briefest discussion of a complicated area of the law.)

Independent Contractor. What about making someone who is an employee an independent contractor? This is tough to do. The various tests by governmental agencies, including our pals at the IRS, are stringent. To be an independent contractor, the person must be truly independent in what he or she does. This includes having their own clients! He or she must, among other things, control projects, scope of activity, and time of work.

Salary. Salary per se does not do it. Counterintuitive as it sounds, most salaried employees still get – or should get – overtime after 40 hours a week unless they are in the “exempt” category.

Exempt. To be actually exempt from overtime requirements (and almost certainly salaried), the employee has to do actual management of other employees (at least two) at least 50 percent of the time. In the alternative, the person must do actual business related administrative work the majority of the time – this includes such things as banking, marketing, scheduling, etc.

In short, our system wants the employer to have wage employees and pay the employer taxes and workers’ compensation insurance.

What To Do? So it is a good question – but there is simply no easy resolution and/or magic bullet (from the employer’s point of view). So what can you do? You should consider keeping the employees to a 40 hour work week. For those predictable surges of work, get extra employees and keep those guys within the 40 hour work week.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the NARI Board of Directors. Questions? Please feel free to contact him by email at bhbatty@pacbell.net.

New Laws for 2011 – Legal Advice Column

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Bryant H. Byrnes, Esq.

Bryant H. Byrnes, Esq.

By: Bryant H. Byrnes, Esq.

With the start of a new year, contractors and fellow travels must be mindful of the new and revised laws affecting the construction industry. Admittedly this is pretty dry stuff, but I would recommend everyone take a minute to review this information. And sorry to say, but absolutely nothing got easier for you.

Workers’ Compensation Enforcement Law – Tough Love!

Effective January 1, 2011, the Contractors State License Board will be allowed to issue “stop work” orders to any contractor who fails to provide workers’ compensation insurance coverage for his or her employees. (Oddly, this law includes unlicensed contractors as well.) Failure to comply with the stop work order is considered a misdemeanor, and punishable by up to 60 days in jail and/or fines up to $10,000. Employees affected by the work stoppage would also be entitled to up to 10 days’ pay for lost time.

Stop work orders take effect immediately, but may be contested by submitting a written hearing request within 20 days of issuance of the stop work order.

So heads up on your workers’ compensation coverage. It is a understatement to say that being shut down will be catastrophic – particularly when most lapses in coverage are bonehead failures to take care of routine paperwork.

Mechanics’ Lien Changes.

Civil Code Sections 3084 and 3146 – I addressed this in a previous article but it bears repeating. The changes stipulate the definitions of “claim of lien” and “mechanics’ lien” are the same. It also requires that a Notice of Mechanics’ Lien be served on the owner and/or person believed to be the owner of the property or on the construction lender or original contractor, and that a “proof of service affidavit” to the above individual(s) be completed and signed by the person serving the Notice of Mechanics’ Lien.

Failure to serve the mechanics’ lien and confirm a proof of service affidavit will cause the mechanics’ lien to be void and unenforceable.

Practice pointer: Mechanics’ liens just became much more complicated. While you don’t necessarily need to talk to your attorney (although we would be delighted to hear from you), read the new requirements before you record your lien.

Jobsite Safety – More Tough Love!

AB 2774 – Starting now, if an employer has an injury in its workplace or even allegations of a serious hazard, the Division of Occupational Safety and Health (DOSH) have clearer rules to make its case. The purported core principle of the new law is that a hazard posing a risk of serious physical harm that is unacceptable by modern standards should be treated as a serious violation and penalized accordingly. Major fines, such as $25,000, imposed on employers are more likely to stick, and without reductions.

In a nutshell, it has just become easier for them to ding you – and for more money! Be proactive, preemptive, and keep those jobsites safe.

License Fees to Increase.
Effective July 1, 2011, a new license fee structure will apply to those renewing their licenses as well as new applicants. For a listing of the rate increases please the Board’s website www.cslb.ca.gov.

I won’t bore you with the Board’s blurb – that it is entirely funded from application, licensing, and renewal fees combined with fines and penalties…and on and on. Simply get out your checkbooks.

Where Is This Stuff?
These changes in the law are further explained in the 2011 edition of Contractors State License Board’s California Contractor’s License Law and Reference Book and also can be found on the Board’s website.

Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the NARI Board of Directors. Questions? Please feel free to contact him by email at bhbatty@pacbell.net.