Wednesday, August 23rd, 2017
Amanda Morgan is Of Counsel to Gentry Locke’s Lynchburg office, where she focuses on municipal, civil, and business litigation.
Companies formed in states other than Virginia (known as non-Virginia or “foreign companies”) must register with the Virginia State Corporation Commission (“SCC”) before transacting business in Virginia. Registration involves completing an annual form and paying a nominal fee (which varies depending on the type of company) to the SCC along with appointing a registered agent in Virginia to accept service of any lawsuit papers or other legal notices.
Companies that merely own real estate or other assets in Virginia generally are not considered to be transacting business in Virginia. Similarly, merely attempting to collect a debt in Virginia is not considered the transaction of business. However, when a foreign company does transact business in Virginia (either directly or through a subsidiary or agent) and attempts to collect a debt or obtain a judgment in a Virginia court without first registering with the SCC, it risks incurring legal expenses with nothing to show for it.
Virginia law requires that foreign companies register with the SCC before maintaining a lawsuit in any Virginia state court. Virginia courts have generally said that these laws do not prevent a non-registered foreign company from filing a lawsuit; instead, the foreign company must simply be registered before a judgment or final order is entered. This means that as long as a non-Virginia company doing business in Virginia registers with the SCC sometime between the beginning and the end of a lawsuit, it can get a judgment in its favor.
Failing to take this simple, inexpensive step recently cost a foreign company $2.35 million dollars.
In World Telecom Exchange Communications, LLC, et al., v. Sidya, the Supreme Court of Virginia took away from a foreign company the verdict it obtained at trial because it transacted business in Virginia and did not register with the SCC before the judgment was entered.
Additionally, the members, managers, officers, directors and/or employees of a foreign company who conduct business in Virginia could be liable for a penalty of up to $5,000 if they know that the company should be, but has not yet, registered.
Non-Virginia companies doing business in Virginia can easily avoid these risks by completing the simple registration process. If there is any doubt whether the company’s acts constitute the transaction of business, the company should consult with a Virginia attorney.
Friday, July 7th, 2017
Travis Graham is a partner at Gentry Locke, where he practices estate, commercial, and personal injury litigation.
It is usually possible to avoid most legal difficulties following a loved one’s death through open discussions with family members, sound advice, and prior planning. But not always. And when legal problems do arise, the emotional and financial toll can be devastating. Legal battles following the death of a family member can destroy families and futures, and prevent closure for months or years. Unfortunately, certain aspects of estate planning and administration almost seem to invite controversy.
Estates operate largely on the honor system, while human beings often behave badly during times of stress or when tempted. Conflicts concerning money and property can bring out the worst in people.
But, these situations are not hopeless. The law provides a system of remedies designed to combat unfairness, overreaching, fraud, and outright theft during the final years of a person’s life and the administration of his or her estate. The key to seeking these remedies and resolving conflict is a timely consultation with an attorney who practices in the area of estate litigation. In fact, if suspicious circumstances appear or if it seems that conflict is inevitable, it is wise to consult an attorney even before a problem develops.
While will contests are probably the most common form of dispute, disagreements can take many forms. Suspicious transfers before an ailing loved one passes away, unexplained or self-serving actions on the part of a caretaker, unexpected changes to wills and trusts, wills that appear just before a person passes away, changes to life insurance policies, bank accounts, or retirement plans, and the sale or disappearance of property are a few of the more common reasons to seek legal advice. Sometimes just hiring a lawyer is enough, and the problems evaporate in the face of a thorough investigation–either because it turns out that no one was misbehaving, or because the misbehaving party thinks better of it.
Because estate disputes are usually between family members, it is sometimes the case that no one wants to be the first to hire a lawyer. When a family member does hire a lawyer, it is almost certain that the party on the other side will claim to be “disappointed” that a “family matter” had to “turn into a legal dispute.” Sometimes, of course, this is because the “disappointed” party has taken large amounts of money, and doesn’t want to get caught. Under no circumstances should anyone be dissuaded from seeking legal counsel for fear of “disappointing” others. It is far more disappointing to find that a loved one’s estate has been mishandled or his or her property stolen. The key to solving a legal dispute is, always, obtaining professional legal advice.
Wednesday, June 7th, 2017
Bankruptcies are at times an unfortunate necessity. Our clients often find themselves financially overwhelmed, especially when they are the victims of medical malpractice, a defective product or car, and trucking crashes. At times, the financial burdens become so great that clients are left with no choice but to seek the protection of bankruptcy. When clients do so, they must notify their attorneys of this. Failure to do so can lead to drastic consequences.
The strange case of Ricketts v. Strange
The recent case of Ricketts v. Strange, (February 16, 2017), highlights what can happen when lawyers and clients don’t communicate with each other about bankruptcy. In that case, the plaintiff suffered injuries in a car crash. Shortly before the statute of limitations expired, the plaintiff filed suit for injuries sustained in the crash and attempted to press forward to trial. The defendant, however, moved to dismiss the case asserting that the plaintiff lacked standing to bring the case at all. How could that be since the plaintiff was injured and filed a complaint before the statute of limitations expired? Everything had to be copacetic. The defendant must have filed a motion merely to bill the file, right?
Wrong.
It turns out that the defendant was correct. Just months after the crash, the plaintiff filed a bankruptcy petition. In that petition, the plaintiff failed to properly describe her personal injury claim and exempt it from the bankruptcy estate. The Supreme Court referred to the attempt to list the claim as “boilerplate” and “overly general.” As a result, the plaintiff’s personal injury case belonged to the trustee of the bankruptcy case and could not be asserted by the plaintiff. Unfortunately, by the time the circuit court ruled on the defendant’s motion, the time for the bankruptcy trustee to pursue the case had expired. The plaintiff’s lawsuit did not toll the statute of limitations because it was filed by someone without standing to assert it. The Complaint was therefore a legal nullity. The bankruptcy trustee also could not be substituted in for the plaintiff because the law precludes such a substitution. A party with standing cannot be substituted for one without standing. The Supreme Court affirmed the circuit court’s dismissal of the case. The defendant walked away without having to pay for the injuries the plaintiff suffered.
So, how could this situation be prevented? It turns out that had the plaintiff merely listed “Auto Accident” in her bankruptcy schedules that would have been sufficient to exempt the claim from the bankruptcy estate.
Had the plaintiff’s petition merely included two additional words, the plaintiff would have been able to pursue the case and could have been fully and fairly compensated. Instead, the plaintiff’s case got dismissed.
What is the lesson from this case? It is simple – clients and attorneys must communicate about bankruptcy claims. This is something that should be part of an intake checklist for all lawyers. Attorneys should always ask clients if they have filed or are considering filing for bankruptcy. If so, attorneys must learn of the identity of a client’s bankruptcy attorney and provide that attorney with sufficient information to exempt the claim. Clients must also communicate with their attorneys before filing for bankruptcy. If attorneys and clients don’t talk about bankruptcy, then, just like the plaintiff in Ricketts, the plaintiff may end up being kicked out of court. That is a situation that no plaintiff’s attorney and no plaintiff wants.
Wednesday, May 10th, 2017
In case you haven’t heard, Virginia is for lovers — of craft beer, spirits and wine!
In recent years, many craft breweries, wineries, and distilleries have chosen to call Virginia home. To facilitate the growth and expansion of this industry in Virginia, during its 2017 session, the Virginia General Assembly brewed up a number of bills governing the sale and marketing of alcoholic beverages in the Commonwealth. Let’s take a moment to distill some of the new Virginia laws that will go into effect on July 1, 2017.
Showcasing Virginia Craft Spirits
To support the burgeoning craft spirits industry, the General Assembly passed House Bill 2029, which permits distillers to sell bottles of their spirits to consumers at events conducted for the purpose of educating the consuming public about spirits made here in the Commonwealth. Previously, craft distillers were required to direct members of the consuming public interested in purchasing bottles of their spirits to ABC stands or stores. Under this new law, distillers will be able to sell bottles to consumers directly at events such as the Virginia Craft Spirits Showcase, which is scheduled to be held at the Roanoke City Market Building on September 16, 2017.
Craft Brewery and Winery Events and Charitable Events
Similarly, to support Virginia craft brewers and wineries in their efforts to educate the consuming public about their products, the General Assembly passed House Bill 2418, which increases the number of special event banquet licenses that a brewery or winery can obtain in a given year from four to eight. Further, House Bill 1694 allows nonprofit organizations that obtain banquet licenses to sell bottles of wine for off-premises consumption at annual fundraising events.
Online Ordering of Bottles To-Go
Ordering bottles of Virginia wine and craft beer will be easier than ever before, as of July 1, 2017, when House Bill 1801 goes into effect. Just order online and pull up at the store. You won’t even have to get out of your car. To facilitate the rapidly growing market for online grocery orders, this law authorizes licensed wine and beer retailers to fill online orders by delivering bottles of wine and beer in closed containers to a customer’s car for off-premises consumption.
Historic Movie Theaters
Also as of July 1, 2017, the consuming public will be able to enjoy a glass of Virginia wine or a pint of Virginia craft beer while watching a film at Virginia’s many historic movie theaters. House Bill 1743 permits “historic cinema houses” built before 1970 to acquire licenses to sell wine and beer for on-premises consumption. As many as one hundred movie theaters located throughout the Commonwealth could qualify as “historic cinema houses.” So, be sure to check the menu at the concession stand when you find yourself taking in a matinée on a hot summer afternoon.
Walking Tours and Pedestrian-Friendly Centers
Senate Bill 1108 creates a new permit that makes it easier for tour companies to host culinary walking tours to establishments that provide on-premises consumption of alcohol. The law enables the tour companies to collect as one fee from the participants (1) the licensee’s fee for the food and alcoholic beverages served as part of the tour and (2) the fee for the culinary walking tour service. The tour company must return any fee collected for the food and alcoholic beverages served as part of the tour to the participating establishments.
Further, House Bill 1987 creates a new license for a “commercial life center” to allow consumers to enjoy beverages outside while perusing restaurants, bars, and entertainment areas. To qualify as a “commercial life center,” a property must contain at least 25 acres of land and at least 100,000 square feet of retail space featuring national specialty chain stores and a combination of dining, entertainment, office, residential, or hotel establishments located in a physically integrated outdoor setting that is pedestrian-friendly and that is governed by a commercial owners’ association.
Regulation of Wine, Spirits and Bartenders
The General Assembly also passed a several bills focused on the regulation of wine, spirits, and bartenders in Virginia. For example, House Bill 2433 clarifies that cider should be treated as “wine” for alcoholic beverage control purposes. Also, to bring Virginia law in line with the law in other states, the General Assembly passed House Bill 1842, which increases from 101 to 151 maximum proof of liquor that can be sold in Virginia.
Finally, to improve patron safety, the General Assembly passed Senate Bill 1150, which requires all bartenders in Virginia to receive training to help them (1) recognize situations that may lead to sexual assault and (2) develop intervention strategies to prevent situations from resulting in sexual assault.
Cheers to the Future!
Lovers of Virginia craft beer, craft spirits, wine and cider have a lot to be excited about. So, let’s raise a glass to the future of these industries in Virginia! May the Commonwealth continue to be a great place for the artisans that drive these businesses to call home!
Learn the ways Gentry Locke attorneys help breweries, wineries, and distilleries on our Breweries industry page.
Sunday, February 19th, 2017
On January 4, 2017, the Office of Federal Contract Compliance Programs (OFCCP) filed a lawsuit against the tech mega-giant Google for its refusal to submit compensation data for its employees as part of a compliance review. The complaint alleges that Google repeatedly refused to provide specific compensation data about its employees.
The request, which was issued by the OFCCP under Executive Order 11246, asks Google to provide job and salary history for employees which includes a variety of employee-specific data, including “starting salary, starting position, starting ‘compara-ratio,’ starting job code, starting job family, starting job level, starting organization” and any changes to these figures that the employees had experienced from Sept. 1 2014 and Sept. 2015. It also requests that Google be ordered to turn over names and contact information for these employees. The lawsuit alleges that Google refused to voluntarily provide this information on several occasions and now the OFCCP seeks an order compelling Google to turn over the compensation data.
This lawsuit is a significant indicator of the OFCCP’s increased interest and enforcement efforts in examining federal contractors’ compensation practices. The OFCCP authority to compel Google and other covered federal contractors to provide compensation data for its employees emanates from Executive Order 11246, an executive order which prohibits pay discrimination by federal contractors.
The lawsuit isn’t the OFCCP’s first crack at the tech industry, as recently the DOL has been engaged in enforcement efforts over several technology companies in Silicon Valley and around the country. In October 2016, the OFCCP filed a lawsuit against a Massachusetts technology manufacturer, Analogic, alleging that its compensation policies resulted in systemic discrimination against women in certain positions. Just one month prior, the agency filed a lawsuit against Palantir Technologies in Silicon Valley accusing the company of systematically discriminating against Asian job applicants.
Even in the waning days of the Obama Administration, rooting out compensation discrimination continues to be an important area of focus. In 2016, the Obama Administration unveiled several new initiatives in this regard. For example, the Equal Employment Opportunity Commission (EEOC) announced that the EEO-1 report will be revised to include expanded information on pay data and hours worked beginning with the 2017 report, which will be due on March 31, 2018.
It remains to be seen whether the Trump administration will continue to press forward with this compensation initiative. The most recent OFCCP Director in the Obama Administration, Pat Shiu, left the office in the days following the election. Tom Dowd is currently serving as the “Interim Acting Director.” The Trump Administration, including the new Department of Labor Secretary, will have the power to shake up the agency and the direction it takes with enforcement. It is likely that pay equity will remain a priority under the Trump Administration.
As the Trump Administration takes hold in the new year, Gentry Locke will continue to track developments in the policy of the OFCCP and DOL as they unfold. If you have any questions about government contract issues or any other employment issues, please contact one of the members of Gentry Locke’s Employment Law Team.
Thursday, February 9th, 2017
This article by Gentry Locke attorneys Lindsey Coley and Brad Tobias was published by Law360 on February 8, 2017. You may read the formatted article here.
In the waning days of President Obama’s administration, before President Trump was inaugurated on January 20, 2017, the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) forged several new lawsuits against technology and financial companies in a continuing effort to crack down on compensation discrimination. The OFCCP, which is expected to take a more employer-friendly approach under the Trump Administration, still has yet to have a new director appointed. But for now, the OFCCP, headed by interim acting director Tom Dowd, has several high-profile lawsuits against large corporations for their practices involving compensation.
Google Sued for Refusal to Submit Compensation Data
In its first signal of strength in the new year, on January 4, 2017, the OFCCP filed a lawsuit against the tech mega-giant Google for its refusal to submit compensation data for its employees as part of a compliance review. The OFCCP alleges that Google repeatedly refused to provide specific compensation data about its employees.
The request for compensation data, which was issued by the OFCCP under Executive Order 11246, asks Google to provide job and salary history for employees which includes a variety of employee-specific data, including “starting salary, starting position, starting ‘compara-ratio,’ starting job code, starting job family, starting job level, starting organization” and any changes to these figures that the employees had experienced in 2014 and 2015. It also requests that Google be ordered to turn over names and contact information for these employees. The OFCCP’s lawsuit alleges that Google refused to voluntarily provide this information on several occasions and now the agency seeks an order compelling Google to turn over the compensation data.
The OFCCP authority to compel Google and other covered federal contractors to provide compensation data for its employees emanates from Executive Order 11246, an executive order which prohibits pay discrimination by federal contractors. The OFCCP alleged that it had at least one contract with the federal government covered under the Executive Order, specifically noting that since June, 2014, Google had received on one contract in excess of $600,000 from the federal government.
OFCCP Sues Oracle Alleging Gender and National Origin Discrimination
Less than two weeks after its suit against Google, on January 17, 2016 the OFCCP filed a lawsuit against computer technology giant Oracle, alleging that the company had engaged in a systematic practice of compensation discrimination. The OFCCP claims that Oracle had a practice of paying white male workers more than their counterparts, which included female, African-American, and Asian employees. Furthermore, the OFCCP alleges that Oracle systematically favored Asian workers in its recruiting and hiring practices for product development and other technical roles, which resulted in hiring discrimination against non-Asian applicants.
The allegations in the complaint stem from the OFCCP’s investigation of Oracle, which began in 2014. Like Google, the OFCCP alleges that Oracle had repeatedly refused to comply with the agency’s request for compensation data, which included “prior-year compensation data for all employees, complete hiring data for certain business lines, and employee complaints of discrimination.”
It should be noted that these lawsuits aren’t the OFCCP’s first crack at the tech industry, as recently the DOL has been engaged in enforcement efforts over several technology companies in Silicon Valley and around the country. In October 2016, the OFCCP filed a lawsuit against a Massachusetts technology manufacturer, Analogic, alleging that its compensation policies resulted in systemic discrimination against women in certain positions. Just one month prior, the agency filed a lawsuit against Palantir Technologies in Silicon Valley accusing the company of systematically discriminating against Asian job applicants.
OFCCP Sues Largest Bank in the United States for Wage Discrimination Based on Gender
One day after filing suit against Oracle, the OFCCP took on JPMorgan Chase & Co., the largest bank in the United States, for its compensation practices. The OFCCP alleges that JPMorgan is not in compliance with its affirmative action obligations and is falling short of its obligations as to compensation equality between the sexes.
With respect to compensation discrimination, the OFCCP alleges that JPMorgan had, since May of 2012, discriminated against female employees in the bank’s unit identified as its “Investment Bank, Technology & Market Strategies.” The lawsuit claims that the bank discriminated against at least 93 females in this unit, who had been paid less than comparable males even after adjusting for differences in legitimate compensation-determining factors.
The OFCCP also alleges that JPMorgan had not been meeting its obligations in maintaining an Affirmative Action Plan pursuant to Section 202 of Executive Order 11246. Specifically, the OFCCP claims that JPMorgan failed to perform in-depth analyses of its total employment processes to determine whether and where impediments to equal opportunity exist, and that the bank had failed to develop and implement an auditing system to periodically measure the effectiveness of its total affirmative action program. The lawsuit against the megabank seeks an injunction to prevent it from further discriminating against female employees in compensation, as well as requiring it to identify and provide complete relief to the affected 93 employees, including lost wages, interest, salary adjustments, fringe benefits, and all other lost benefits of employment.
LexisNexis Risk Solutions to Pay Over $1.2M Resulting from OFCCP Determination of Pay Discrimination
LexisNexis Risk Solutions, the computer-assisted legal research service, will pay over $1.2 million to resolve systemic pay discrimination against women. After conducting two separate compliance investigations of the company’s locations in Georgia and Florida, the OFCCP concluded that over 200 female employees were adversely impacted as a result of the company’s pay practices. Although LexisNexis did not admit liability, it entered into a settlement agreement with the OFCCP in January 2017 under which it agreed to pay $1.2 million in back pay and interest and $45,000 in salary adjustments, as well as to monitor compensation practices that could impact women.
***
In the waning months of the Obama Administration, it was clear that rooting out compensation discrimination continued to be an important area of focus. In 2016, the Obama Administration unveiled several new initiatives in this regard. For example, the Equal Employment Opportunity Commission (EEOC) announced that the EEO-1 report will be revised to include expanded information on pay data and hours worked beginning with the 2017 report, which will be due on March 31, 2018.
It remains to be seen whether the Trump Administration will continue to press forward with this compensation initiative. The most recent OFCCP Director in the Obama Administration, Pat Shiu, left the office in the days following the election. These new actions against these large technology and financial companies have been brought under the helm of Interim Acting Director Tom Dowd, who is still serving in this capacity. The Trump Administration, including the new Department of Labor Secretary, will have the power to shake up the agency and the direction it takes with enforcement. It is likely that pay equity will remain a priority under the Trump Administration.
As the Trump Administration takes hold in the new year, Gentry Locke will continue to track developments in the policies of the OFCCP and DOL as they unfold. If you have any questions about government contract issues or any other employment issues, please contact one of the members of Gentry Locke’s Employment Law Team.
Thursday, February 2nd, 2017
The Department of Justice has indicated an increased focus on healthcare fraud by devoting additional resources to these investigations and highlighting recent prosecutions in this area. Of note was the June 2016 sweep led by the Medicare Fraud Strike Force, which resulted in criminal and civil charges of 301 individuals and alleged approximately $900 million in false billing.[1] Among those charged were doctors, pharmacists, physical therapists, home health care providers, and other medical providers. This nationwide sweep involved 23 state Medicaid Fraud Control Units and took place in 36 federal districts. This coordinated takedown has been described as the largest in history, both in terms of number of defendants charged and loss amount.
Historically, many of these types of cases were resolved through civil settlements and sanctions or the corporate entity alone was deemed responsible. These new charges indicate a continued shift to the more aggressive pursuit of criminal charges and greater focus on holding individuals accountable.
With the Department of Justice vowing to maintain this focus on healthcare fraud, it is important for healthcare providers to be mindful of the potential to become the subject of a federal investigation. Corporations need to be aware of the potential for the corporate entity as well as responsible individuals to be held criminally liable for healthcare fraud. Training in compliance with applicable laws and regulations is one essential component. Healthcare providers must be more vigilant and responsive to any observed potential violations of legal or regulatory requirements. Providers’ plans for responding to instances of alleged violations of legal requirements should presume a real risk of a criminal investigation, possibly resulting in criminal prosecution.
So what can you do if you identify a problem at your facility?
You have discovered a potential issue at your company. What you do in response to that discovery can prove to be the difference between facing civil or criminal charges (or both) and resolving the problem without further issue. Depending on the circumstances, one of the best options may be to conduct an internal investigation. An internal investigation can aid you in identifying the extent and severity of any corporate issues. This is a decision that would likely be made by board members or compliance officers, in conjunction with in-house counsel, if applicable.
Many corporations assume that an internal investigation should be conducted by in-house counsel. This may be a viable starting point but there are a number of reasons why utilizing outside counsel to conduct an internal investigation may be the better option. Outside counsel inherently has separation from the company and whatever conduct has taken place or is taking place that is giving rise to the need for the internal investigation. This separation lends credibility to the internal investigation and its conclusions, which will be conducted and formulated by a neutral voice rather than an employee of the corporation.
Outside counsel has the benefit of being able to conduct an internal investigation without any preconceived notions about personnel and company business practices. This allows them to be more objective while making assessments and drafting recommendations.
The involvement of outside counsel is also likely to lessen concerns about unintentional waiver of attorney-client privilege that can be a concern when investigations are conducted by in-house counsel.
Utilizing outside attorneys experienced with internal investigations may allow your company to avoid some of the more subtle issues that may arise during the course of the investigation. This experience can provide critical direction that can maintain the effectiveness and ultimate credibility of the internal investigation. Outside counsel may help avoid unfounded accusations of obstruction of justice and interference with potential witnesses. Government investigators are likely to be looking for interactions with employees by management that appear to be attempting to exert influence over the employee.
An internal investigation can not only address the specific issue your company is dealing with but also will allow counsel to draft recommended changes to training, oversight, and compliance plans. The bottom line is that being proactive in the face of a potential issue is a crucial component of minimizing the potential fallout and being able to make changes that may prevent similar issues from threatening the corporation in the future.
[1] Department of Justice – Office of Public Affairs, National Health Care Fraud Takedown Results In Charges Against 301 Individuals For Approximately $900 Million In False Billing. 2016. Web. 30 Nov. 2016.
Tuesday, January 10th, 2017
Because the legal matter in this article was handled by attorneys at Gentry Locke, we are required to inform readers that THE RESULTS OF CLIENT MATTERS DEPEND ON A VARIETY OF FACTORS UNIQUE TO EACH MATTER. PAST SUCCESSES DO NOT PREDICT OR GUARANTEE FUTURE SUCCESSES.
Virginia Tech’s athletes are not the only ones engaged in high-level Hokie contests.
Miles removed from the “Battle at Bristol,” Lane Stadium, and Cassell Coliseum, a legal battle involving the installation of “Hokie Stone” was recently waged. In November 2016, the Supreme Court of Virginia issued an opinion in the case, which could have consequences for contractors involved in public construction projects across the Commonwealth.
In 1997, Virginia Tech contracted with a construction company to build McComas Hall, a facility to house student health, fitness, and recreational services. Consistent with the campus aesthetic, McComas Hall’s exterior featured Hokie Stone, a unique variety of limestone that is quarried on property owned by Virginia Tech and used exclusively on buildings that are a part of its system. As a part of the construction, which concluded by 2000, the general contractor employed the services of many subcontractors, some of which also posted surety bonds as a condition of their subcontracts.
In 2006, Virginia Tech contacted the general contractor about water intrusion into McComas Hall and resulting damages. At that time, the general contractor did not become involved in addressing the alleged problems, and did not provide any information to any of its subcontractors about the issue. Virginia Tech proceeded with evaluating the problem, and moved forward with a remediation plan to the tune of $6 million.
When the remediation work was about completed in 2012, Virginia Tech approached the design professional and the general contractor seeking reimbursement for the amount expended on the fix. Virginia Tech claimed that the general contractor had deviated from the plans and specifications for the project, leading to the water intrusion and other problems. At that point, the logical question would have been – what about the statute of limitations? Doesn’t that protect the contractor from claims 12 years after the project was completed?
Presumably because Va. Code Section 8.01-231 eliminates any statute of limitations against the Commonwealth of Virginia, the general contractor entered into settlement negotiations with Virginia Tech, and paid the school $3 million to settle the claim in 2014. The subcontractors were not involved in that settlement. The design professional separately settled with Virginia Tech.
After settling with Virginia Tech, the general contractor filed suit in 2014 against several of the subcontractors in the Montgomery County (Va.) Circuit Court, seeking to recover the $3 million apportioned among the defendant subcontractors, and performance bond sureties for several of them. The suit included claims for breach of contract and common law indemnity.
The subcontractors challenged the suit on the grounds that, as between them and the general contractor, the statute of limitations had begun running at the conclusion of the project and had expired five years later (around 2005) – long before the filing of the suit. They also contended that the common law indemnity claim was precluded by an express indemnification provision in the subcontracts. Presumably, the general contractor did not assert an express indemnification claim because the provision violated Virginia’s anti-indemnity statute (Va. Code § 11-4.1) under the Supreme Court of Virginia’s opinion Uniwest v. Amtech Elevator Services, Inc., 280 Va. 428, 442 (2010). The subcontractors’ sureties took the same position, and also made additional arguments about timing and notice requirements within the bonds themselves.
In response, the general contractor pointed to flow-down provisions of the subcontracts, arguing that all rights and limitations between it and Virginia Tech became part of the subcontracts, including the immunity from the statute of limitations. Importantly, the prime contract did not expressly waive the statute of limitations. Rather, it is a Virginia law (Va. Code § 8.01-231) that declares no limitations period runs against the Commonwealth and its agency, Virginia Tech. The general contractor also argued that its claim was essentially for common law indemnity, and that the three-year statute of limitations on such a claim did not start running until it made payment to Virginia Tech in 2014.
The circuit court agreed with the subcontractors and their sureties, and dismissed the lawsuit. In a written opinion, the court ruled that the general contractor had no claims for indemnification, but only for breach of contract against the subcontractors. It found that the statute of limitations began to run at the latest in 2000, when all subcontractors were fully paid and released from their obligations on the job – and that a suit fourteen years later was clearly outside the five-year statute of limitations for any breach of contract action. The general contractor appealed.
The Supreme Court of Virginia granted review of the circuit court’s ruling, except as to the dismissal of the common law indemnity claim. After extensive briefing and oral argument, on November 3, 2016 the Court unanimously affirmed and dismissed all claims against the subcontractors and their sureties.
The Court analyzed (1) whether the subcontracts waived the statute of limitations through the flow-down provisions, and (2) if not waived, whether the limitations period had not begun running until the contractor’s settlement with Virginia Tech.
The Court found no error with the decision below that the action was time-barred. First, it concluded that the subcontractors had not waived the statute of limitations. To be effective, the waiver must be expressly made in writing by the subcontractor (presumably as a provision of the subcontract). The flow-down provisions were not sufficient to constitute a knowing and intentional waiver, as required by Virginia law. This was especially true since, as noted above, the prime contract itself did not expressly waive the statute of limitations.
Second, the Court affirmed that the limitations period expired long before suit was filed in 2014. The Court adhered to a line of cases holding that a contract action accrues – and the limitations period begins running – when the injury or damage is first sustained, no matter how slight. The Court rejected the general contractor’s argument that it had no cause of action upon the subcontractors’ breach of performance, as it sustained no damages until settling with the Virginia Tech in 2014. In this case, the Court concluded that the action accrued upon breach of the performance provisions of the contract “at some point between the commencement of construction in 1997 and completion of the project in 1998, or the repair work in the year 2000.” Accordingly, the statute of limitations had long run before the filing of suit in 2014.
The Court also rejected the general contractor’s indemnification theory as a way to postpone the running of the statute of limitations until the 2014 settlement. It ruled that the express indemnification clause failed under Uniwest (discussed above), and that various other provisions regarding the subcontractors’ financial responsibility did not operate as indemnification provisions.
The Court held that the circuit court reached the correct conclusion. Thus, the general contractor’s effort to recover the $3 million ended.
A full copy of the Court’s opinion is available here: Hensel Phelps Constr. Co. v. Thompson Masonry Contractor, Inc., et al., No. 151780, 2016 Va. LEXIS 166 (Nov. 3, 2016).
With the Commonwealth of Virginia (including its agencies and other public bodies) engaged in so many construction projects, this Supreme Court opinion raises questions – and offers some answers – for design professionals, contractors, construction managers, subcontractors, and the myriad of other businesses who perform work on these public jobs. Following are some of the basic – but not nearly all – issues that are raised by the issues in this dispute, and the outcome of the case.
What should General Contractors working for the Commonwealth consider in light of this statute and the opinion?
- At a basic level, a general contractor, construction manager, or anyone thinking about doing business directly with the Commonwealth must be aware of this risk and decide whether the benefits of doing the work offset this risk. Based on conversations we have had recently, general contractors are weighing this issue carefully.
- If a general contractor or construction manager decides to pursue work with the Commonwealth, then it should enhance its project documentation. While companies normally keep daily logs, photographs, and electronic communications from projects, defending against a claim years down the road can be enhanced by having as much documentation as possible. How much is enough is impossible to know, but basic documentation and beyond – and maintenance of those records – is a must.
- The idea of passing along future liability to subcontractors responsible for the portions of the work should be considered now as well. At the threshold, a concern is whether subcontractors will still be in business ten or more years after the completion of a project. So enhanced subcontracts may – or may not – help if the subcontractor entity is not even around then. Requiring performance bonds of certain subcontractor entities may help with this, but – in the opinion of this author – that is very unlikely given the passage of time and the narrow windows for recovery on performance bonds.
- In terms of passing along liability to subcontractors, a couple of potential modifications to the subcontract are worth considering. The first one tracks a point raised by the Supreme Court of Virginia in the Hensel Phelps opinion. The Court concluded that a normal flow-down provision (making the subcontractor responsible to the general contractor/construction manager to the same extent the general contractor/construction manager is responsible to the owner) is not enough to constitute a knowing and intentional waiver of the statute of limitations. Instead, the subcontract must contain a provision whereby the subcontractor agrees that there is not any statute of limitations applicable. Including a reference to Va. Code § 8.01-231 would help as well.
- Further, the general contractor’s inability to pass along liability to the subcontractors on the Virginia Tech project also resulted from it not having a valid indemnification provision under Virginia law. Its subcontract contained a provision labeled “Indemnification.” But the general contractor did not sue the subcontractors on that provision, apparently because it violated Virginia’s anti-indemnity statute. Had there been a valid indemnification provision that was also broad enough to cover claims for defective work performed by the subcontractors, then a claim for indemnification may have arisen when the general contractor paid Virginia Tech the $3 million, as the statute of limitations for indemnification starts when the underlying payment (for which the party will later seek repayment) occurs.
- Take heed if the Commonwealth-owner raises issues. Help control the process and the cost by being involved and getting subcontractors involved.
What should subcontractors on Commonwealth-owned projects consider?
- Subcontractors, and anyone working on a Commonwealth project for that matter, need to be aware of this issue. The result in the Hensel Phelps case is a positive for subcontractors (and their sureties), but the decision is not an automatic and complete bar to liability being passed along to them.
- For any claims that may arise related to Commonwealth projects that have already been completed, then the Hensel Phelps decision is a roadmap for challenging any claims by general contractors/construction managers.
- For any future projects, subcontractors will need to be vigilant of the language in the subcontracts. For each provision discussed above by which general contractors/construction managers may want to increase the chances of being able to pass along liability, subcontractors are going to want to remove, limit, and/or narrow those provisions. It may be that taking on some of these projects will not be worth the risk. In particular, subcontractors will not want to agree to an unlimited statute of limitations period, and should resist broad form indemnification provisions that cover workmanship issues (as opposed to just personal injury and property damage).
What should design professionals working for the Commonwealth consider?
- It is worth noting that Virginia Tech did assert a claim against the design professional on the McComas Hall project. That claim was settled as well.
- Thus, design professionals need to give the same considerations as discussed for the general contractors, above. While design professionals may have fewer contractual options for passing claims along to others, one thing is for certain: they cannot assume that the Commonwealth’s immunity from the statute of limitations will keep their own related legal actions alive..
- There is likely a greater chance that insurance would cover claims against design professionals, so keeping sufficient professional liability insurance intact, including tail coverage for persons or companies going out of business, is advised.
What should bonding companies for general contractors and/or subcontractors on Commonwealth-owned projects consider?
- The performance bond sureties on Commonwealth-owned projects should be aware that claims are being made against these bonds at the general contractor and subcontractor levels.
- Sureties for general contractors will need to defend based upon language in the bonds and the statutory language that applies to and affects such claims.
- Sureties for subcontractors will want to defend based upon the underlying statute of limitations and internal time limitations in the bonds themselves.
Does Section 8.01-231 apply to agreements with cities or counties?
- A strict reading of the statute does not indicate application to cities or counties, and there are not any cases applying it in those situations.
Does Section 8.01-231 apply to VDOT projects?
- As an agency of the Commonwealth, this section is likely to apply to VDOT projects.
Are there other points for consideration?
- Keep in mind that Section 8.01-231 pertains to whether there is a statute of limitations applicable to a breach of contract claim. As the Supreme Court mentioned, whether there is a claim for indemnification between the general contractor and subcontractor is a separate issue. As discussed above, the exact language of any indemnification provision will be scrutinized to determine if it comports with Virginia law and is broad enough to cover the claims being made. If it does, then the statute of limitations for filing claims for indemnity are likely to begin running much later than when the work was performed – i.e., when the general contractor makes payment to the owner for the defective work.
- Keep in mind that the Statute of Repose (Va. Code § 8.01-250) is not affected at all by any of the points in this discussion. Section 8.01-231 applies to breach of contract claims. The statute of repose applies only to claims against contractors and design professionals for personal injury or property damage claims caused by alleged defective workmanship and/or design.
Wednesday, December 28th, 2016
This is the fourth installment of a series of year-end alerts to employers.
Part 1: OSHA Reporting Rules Effective December 1, 2016
Part 2: Paycheck Transparency Rules Effective January 1, 2017
Part 3: Paid Sick Leave for Federal Contractors Effective January 1, 2017
One area of intense interest to the Obama Administration has been to challenge the use of confidentiality provisions in employee handbooks as well as in employment agreements of all kinds.
For a number of years, the NLRB has found confidentiality policies that prohibit employees from discussing wage information or other terms and conditions of employment to be unlawful. These attacks have included challenges to policies designed to limit comments made on social media websites, as well as policies that prohibit employees from sharing salary and pay information. The basis for these attacks has been under Section 7 of the National Labor Relations Act, which allows for collective and concerted action by employees, even when there is no union in a workplace.
In a stark departure, on October 20, 2016, the U.S. Department of Justice and the Federal Trade Commission issued new antitrust Guidance specifically targeted at the HR community and others involved in hiring decisions. The DOJ/FTC Guidance expressly threatens criminal prosecution against companies as well as individuals where wage information is shared in a way that could adversely influence competitive wages, or if “no-poaching” agreements are made among competitors.
The thrust of this Guidance is that the Department of Justice does not believe that employers should share specific wage information in industry settings because it might allow for collusion among competitors to limit or hold down compensation in that industry. The Guidance specifically targets HR professionals but also applies to any employee who shares sensitive wage information in a public forum. In effect, this new DOJ/FTC Guidance warns companies against sharing hiring information such as wages and benefits, particularly if that information is going to be communicated to other companies that may be competing to hire similar employees.
The desire to maintain a competitive advantage is what led many employers to develop the confidentiality policies found in many employee handbooks. However, the NLRB and the OFCCP have ruled these gag rules are unlawful. It is unclear how the new Trump Administration will deal with this issue, but for now it presents an issue that must be taken seriously.
One solution may be to have different policies regarding protecting compensation information: one for supervisors and another for non-supervisors. The NLRA does not apply to “supervisors,” and most hiring managers and HR professionals should be found to be “supervisors.”. Supervisors can be lawfully prohibited from sharing wage information, particularly if the information could wind up in the hands of competitors.[1] Adopting this kind of rule can certainly help address the issues being raised by this new DOJ/FTC Guidance. This approach will not completely insulate a company from potential liability. If a lower-level HR employee (not a supervisor) with access to compensation information shares that information with a competitor or publicly, it might allow for price fixing to occur. For these individuals who are non-supervisors, having a clear policy that prohibits the disclosure of wage and benefit information sharing where there is a potential for a competitive employer to gain access to the information may be enough to provide a measure of protection and still avoid liability under the NLRA.
Beyond the provisions regarding the sharing of wage information, this new DOJ/FTC Guidance also focuses specifically on prohibiting “no-poaching agreements” between competitors where they agree not to hire employees of the other company. This new Guidance is consistent with the legal actions that DOJ has been pursuing against Apple and others in the Silicon Valley in recent years, as well as private lawsuits filed.[2]
The Guidance is very clear that “DOJ will criminally investigate allegations that employers have agreed among themselves or not to solicit or hire each other’s employees. Further, if that investigation uncovers a “no poaching agreement,” DOJ will have the discretion to bring felony criminal charges against both the individuals and the companies involved. Even in the absence of a no-poaching agreement, if DOJ develops “evidence of periodic exchange of current wage information in the industry with two employers [this] could establish an antitrust violation because, for example, the data exchange has decreased or is likely to decrease compensation.”
The Guidance does recognize that there can be legitimate no-hire agreements with business partners or with potential merger partners or even with employees as part of a severance agreement so long as they are reasonably necessary. No-poaching agreements that are the targets of antitrust enforcement are not typically made when a business is pursuing legitimate business interests. As a result, no-hire agreements generally should be incorporated into broader agreements so that the legitimate business purpose and need for the provision is clear. Likewise, like any other restrictive covenant, they need to be targeted and tailored.
In the Q&A section of the Guidance, there is a question as to whether an HR organization interested in determining industry trends can distribute a survey asking companies within that industry for current and future wages. The DOJ’s response indicates that soliciting or responding to such a survey could be unlawful and cautions members to avoid “discussing specific compensation policies or particular compensation levels” with members who work for competitors. It is not uncommon for HR professionals to regularly share information regarding salaries and other recruitment and retention strategies as part of a local, regional network. This is one of the main benefits of belonging to that type of networking situation, and this Guidance now puts that type of information sharing in question.
In a Fact Sheet that has since been removed from the website, the Obama Administration called on the Congress and State Legislatures to take up action to limit the legality of non-compete agreements. It recommended that non-competes be prohibited with employees who earn salaries below a certain wage level and that they be banned from occupations that promote public health and safety or from workers who are “unlikely to possess trade secrets” as well as from workers who are laid off or terminated without cause. It is unclear whether the Trump Administration will have this same approach, but for now, employers must weigh the situation carefully and evaluate their agreements and practices.
Businesses that have questions regarding these new rules or other employment obligations of federal contractors or employers in general should contact a member of Gentry Locke’s Employment Law team.
[1] This approach will not work for government contractors. As of April 8, 2014, President Obama signed Executive Order 13655 which specifically protects employees of federal contractors from retaliation and discrimination if the employee discusses or discloses his/her compensation or the compensation paid to others. This new rule, which took effect January 11, 2016, applies to supervisors, but contains limits on those who work in HR functions.
[2] There is a class action antitrust lawsuit pending against Duke and the University of North Carolina which alleges the schools and others agreed not to hire medical school faculty in an effort to suppress wages. Sieman v. Duke University, C. No. 1:15-cv-462 (N.D.N.C. June 2015).
Wednesday, December 21st, 2016
This is the third installment of a series of year-end alerts to employers. This alert is of particular interest to federal government contractors.
Part 1: OSHA Reporting Rules Effective December 1, 2016
Part 2: Paycheck Transparency Rules Effective January 1, 2017
Part 4: Confidentiality Rules Under Fire – Be Warned!
The Department of Labor (DOL) on September 30, 2016 issued new final rules spelling out the requirement for covered federal contractors to provide employees with up to seven days (56 hours) of paid sick leave per year.[1]
This new Rule applies to new covered contracts entered into on or after January 2017 and applies to existing covered contracts that are renewed, extended or amended after January 1, 2017. It is unclear whether the Trump Administration will rescind these rules.
Employees who are covered under this new Rule are “any person[s]” engaged in performing work “on” or “in connection with” a contract covered by the Executive Order and whose wages are governed by the Davis-Bacon Act, the McNamara-O’Hara Services Contract Act or the Fair Labor Standards Act. This paid sick leave requirement applies to employees who are “exempt” even if in a bona fide executive, administrator or professional capacity.[2]
The final Rule provides that the employer must allow for an employee to accrue not less than one hour of paid sick leave for every 30 hours worked on or in connection with the covered contract. Where an employee performs work “in connection with” the covered contract but also works elsewhere, the employer may make a reasonable estimate of the portion of that individual’s working hours spent “in connection with” the contract as long as it is based on some verified information.”
The Rule requires the contractor to calculate the employee’s paid sick leave accrual no less frequently than at the conclusion of each pay period or each month, whichever is shorter. The contractor is not required to allow accrual of paid sick leave in increments smaller than one hour. All paid sick leave will carry over from one accrual year to the next. If the employer uses an accrual method, it may limit the amount of paid sick leave an employee is permitted to accrue to 56 hours in each accrual year, but sick leave carried over from the previous year shall not count towards that annual cap. The Rules also allow a contractor to put in place two caps: an annual accrual cap of 56 hours and a maximum sick leave bank of 56 hours. In doing so, the contractor can effectively limit an employee’s carryover by setting a sick leave bank limit as permitted by the Rule so that the employee never carries over more than 56 hours in a year.
Not surprisingly, this rule also provides for written notifications regarding the amount of paid leave accrued but not used in three situations: (i) at least once each pay period or each month, whichever is shorter; (ii) upon separation from employment; and (iii) upon reinstatement of paid sick leave on rehire.
Under this new Rule, a contractor cannot limit the amount of paid sick leave an employee may use in a particular year. However, accrued but unused sick leave does not have to be paid out upon termination of employment. On the other hand, it has to be reinstated if the employee is later rehired within 12 months after a job separation.
Sick leave provided for under this Rule can be used in a number of ways. It is intentionally broader than FMLA leave. For example, it can be used in the following circumstances:
- the employee’s own physical or mental illness or injury;
- when an employee needs treatment, preventative care or diagnosis;
- to care for a child, parent, spouse, domestic partner or other related individual who has an illness, injury or who needs treatment, diagnosis or preventative car; and
- those affected by domestic violence, assault or stalking where there is either an illness or injury or the need to obtain counseling, to seek relocation or other assistance from a victim services organization.
To obtain sick leave, the employee does not need to specifically reference the Executive Order or use the words “paid sick leave,” nor can an employer require extensive and detailed information about the need to be absent. Instead, paid sick leave must be provided upon an employee’s oral or written request so long as information provided is sufficient to inform the employer that the employee is seeking paid sick leave. On the other hand, where the need for the leave is foreseeable, an employee must make a request at least seven calendar days in advance; otherwise, notice is to be given as soon as practicable.
The Rule does provide that employers may require a certification issued by a health care provider, but only if the sick leave lasts three or more consecutive full work days and only if the employee has notified of that requirement before the employee returns from leave. Employees must be given 30 days from the first day of the absence to obtain this certification, and the documentation need only contain facts that are the “minimum necessary to establish the need for the employee to be absent from work.” Notice of the requirement can be provided through a general policy that addresses sick leave, but simply including a generic explanation of this requirement in a handbook is not enough.
Notably this mandated paid sick leave requirement is in addition to the contractor’s other compensation obligations under the Davis-Bacon or the Services Contract Act. Therefore, a contractor may not receive or take credit towards prevailing wage or the benefit obligations by providing paid sick leave to satisfy this Executive Order. Paid sick leave, however, shall run concurrently with unpaid FMLA leave under the same conditions as other paid time off.
Finally, the new Rule contains a prohibition against interfering with a worker’s accrual or use of paid sick leave or discriminating against an individual for taking or attempting to take paid sick leave or otherwise asserting any rights under this Executive Order. DOL’s Wage and Hour Division is charged with investigating potential violations of payday compliance with the Executive Order.
Businesses that have questions regarding these new rules or other employment obligations of federal contractors or employers in general should contact a member of Gentry Locke’s Employment Law team.
[1] Executive Order 13706. DOL Final Rules, 81.Fed. Reg. 67598, et. seq. (Sept. 29, 2016). The U.S. Department of Labor estimates the final Rule will provide paid sick leave to about 1.15 million workers.
[2] The final Rule provides a temporary but limited exclusion for employees whose covered work is governed by a collective bargaining agreement.
