Important New Reporting Requirement for Some Construction Defect Settlements

In response to a tragic balcony collapse incident where the public later learned the contractor had paid millions to settlement defect cases in the preceding years, the California legislature passed, the state contractor’s license board is now implementing, a public disclosure requirement for certain construction defect claims. The disclosure requirement is triggered by a judgment (which is not a new requirement), an arbitration award, or a settlement of certain construction defect claims. These requirements are codified at California Business & Professions Code sections 7071.20-22.

What types of Projects: This requirement applies only if all of the following apply:

A) Residential
B) Multi-Family; and
C) Rental property

Limitations on Claims – The reporting requirement only applies if all of the following are true:

A) The claim is against a CSLB licensee (not a design professional) acting in the capacity of a contractor;
B) The claim is for a structural defect;
C) The total claim is valued at $1 million (not including investigation costs);
D) SB800 does not apply;
E) The action was filed after January 1, 2019; and
F) If a lawsuit, the case was designated complex by the courts (which may not apply if only contractor is sued).

Who has to report: Any licensee (general or sub-contractor) and any insurer for a licensee is required to report the settlement, in writing. If any particular licensee is found to owe $15,000 or less, they are not required to individually report.

When to report: Within 90 days of judgment or arbitration award or within 30 days of payment of a settlement.

Consequences of Reporting: The CSLB will automatically open an investigation into the licensee’s license utilizing their existing complaint process. The license board may take further action but it also has the option of determining that the civil case resolution was sufficient to protect the public and take no further action.

Consequences of Not Reporting: The licensee is in violation of their license requirements and is subject to licensure discipline.

Unanswered Questions:

If the gross settlement for a licensee exceeds $1 million but no individual insurer’s share exceeds $1 million, are the insurers still obligated to report? Section 7071.21 can be read to require that an insurer is obligated to report if they pay any portion of a reportable settlement. [Notably the licensee has to report the settlement either way.]

The CSLB is still developing its implementation protocols. Exactly how to report is not clear but at this time, it would appear that a minimum requirement would be written notice to the CSLB’s complaint intake processing office.

Labor Law Compliance – an Essential Issue for the Contractor’s HR Team and Counsel to Consider

Many of my clients come to me with indemnity provisions and construction contracts to review; or mid-construction disputes for delays and extras or post-construction claims for defects. These are typical issues for a “construction lawyer.” What I am seeing more, and have for the last several years are employment and labor-based issues. Recent and upcoming changes in labor laws will make these claims more complicated, and potentially more risky.

Federal and state laws intersect, overlap and occasionally contradict each other in the areas of who qualifies as an “exempt” employee. This is an essential question as it determines whether someone is entitled to overtime pay, or not. For decades, the federal tests (found in Fair Labor Standards Act) for whether an employee is “exempt” were static. Earlier this year, a dramatic change was announced that becomes effective next month.

There are two parts of the test for whether an employee is exempt. The first is a straightforward compensation test – but this is where the dramatic shift occurred. The minimum annual compensation to qualify for “exempt” status has more than doubled. Under the new federal standards, an employee cannot qualify as exempt if their cash compensation (i.e. not including benefits or allowances) exceeds $47,476. There is a second arm is a “duties” test that must be met in addition to the compensation arm.

For contractors, whether your supervisors, office staff, and any other “white collar” workers are exempt and therefore not entitled to overtime compensation must be re-evaluated as of December 1, 2016. Failure to do so may lead you to spending more than you want to budget for legal fees. Overtime compensation, minimum wages, rest and meal breaks and discrimination are other areas of labor and HR law compliance that are frequent pitfalls for all employers.

Gordon & Rees’s construction attorneys work side by side with our labor and employment teams and would be happy to help you make this evaluation or address any other employment or labor legal issues you may have.