How to File a Stop Payment Notice

Background

A stop payment notice (commonly referred to as a “stop notice”) is a claimant’s written demand to the party holding construction funds (usually the owner or construction lender) to withhold a specified amount from the moneys otherwise due to the general contractor on a construction project. The stop notice remedy is a statutory remedy defined in California’s Civil Code and can be used in both private works and public works construction projects.

The stop payment notice remedy generally is considered part of California’s mechanics’ lien laws, now primarily found within Division 4, Part 6 of the Civil Code. Specifically, the stop payment notice remedy is defined in Civil Code section 8044, and the statutes governing the remedy in the context of private works are found at Civil Code sections 8500 through 8560, and at Civil Code sections 9350 through 9310 for public works.

The stop payment notice remedy serves important purposes. Primarily, the remedy protects subcontractors and other claimants who furnish labor and/or materials for a project. Thus, the remedy protects such claimants against a general contractor who fails to pay. The stop notice remedy also permits claimants to bring an action directly against an owner, contractor or lender to recover amounts due. In the private works context, the stop payment notice remedy provides an important and separate remedy protecting claimants who might otherwise not have viable mechanics’ lien security where, for example, there are senior lienholders with priority over mechanics’ lien claimants. Because the stop payment notice attaches unexpended construction loan funds, it is not wiped out by a foreclosure of the property by a lender. Finally, the stop payment notice remedy also can protect a general contractor who remains unpaid by an owner in that the contractor may enforce a stop payment notice against a construction lender in certain circumstances.

The various remedies provided under the mechanics’ lien laws are cumulative, meaning a claimant may concurrently assert any available remedy under the circumstances. In a private works context, therefore, a claimant may be able to simultaneously assert a mechanics’ lien, a stop payment notice, and a payment bond claim (assuming such a bond was issued). Similarly, on a public works project, a claimant may be able to simultaneously assert a stop payment notice and a payment bond claim.2 While a claimant will not be permitted to recover more than the amount it is due, the ability to pursue multiple remedies certainly gives a claimant better odds of recovering amounts due in that each remedy differs in application.

Unlike a mechanics’ lien that creates a lien against an owner’s real property and must be foreclosed upon before a claimant can recover, a stop payment notice attaches to the owner’s funds or to the lender’s construction loan proceeds. Upon service, the stop payment notice requires the holder of the funds to withhold the sums claimed from any sums due the direct contractor, effectively acting as a garnishment of the funds otherwise due to the direct contractor. Thus, the stop payment notice creates a priority claim to money and, for that reason, can be a very effective remedy.

What is a stop payment notice?

A stop payment notice creates a lien on undisbursed construction funds held by an owner or construction lender. If a stop payment notice claimant has not been paid, the claimant can serve a stop payment notice on an owner which requires the owner to withhold funds from a direct contractor or, on lender financed projects, serve a stop payment notice on a construction lender which requires the construction lender to withhold funds from an owner.

On what types of projects can a stop payment notice be served?

Both public and private projects.

Who can serve a stop payment notice?

It depends on who you are.  Direct contractors can serve stop payment notices on construction lenders only. Subcontractors, material suppliers, laborers and trust funds can serve stop payment notices on both owners and construction lenders.

Do I need to serve a preliminary notice in order to serve a stop payment notice?

It depends on whether it is a private work of improvement or public work of improvement:

Private Work of Improvement: On private works projects, subcontractors and material suppliers of all tiers are required to serve a preliminary notice in order to serve a stop payment notice.  And, on private works projects that are lender financed, direct contractors are required to serve a preliminary notice in order to serve a stop payment notice.

Public Work of Improvement: On public works projects, only second-tier and lower subcontractors and material suppliers are required to serve a preliminary notice in order to serve a stop payment notice.

Is there a deadline to serve a stop payment notice?

Yes, but it depends on whether you are a direct contractor, subcontractor or material supplier.

- Direct Contractors: No later than the earlier of:

(1) 90 days after completion of the project; or

(2) 60 days after the owner records a notice of completion or cessation.

- Subcontractors and Material Suppliers: No later than the earlier of:

(1) 90 days after completion of the project; or

(2) 30 days after the owner records a notice of completion or cessation.

How early can I serve a stop payment notice?

Unlike a mechanics lien, a direct contractor, subcontractor or supplier can serve a stop payment notice at any time after it has performed all or a portion of its work.

What information is required to be included in a stop payment notice?

1. The name of the owner or reputed owner;

2. The name and address of the direct contractor;

3. The name and address of the construction lender, if any;

4. A general description of the work furnished by the stop payment notice claimant;

5. The location of the project;

6. The name of the person or entity who contracted for the work furnished by the stop payment notice claimant;

7. An estimate of the total price of the work furnished by the stop payment notice claimant;

8. The amount demanded by the stop payment notice claimant through the date of the stop payment notice after deducting all just credits and offsets.

Are there restriction on the amount I can demand in a stop payment notice?

Yes, the amount demanded in a stop payment notice is limited to the amount due for work provided through the date of the stop payment notice.  Although the law is not particularly clear, this arguably includes retention.

How and to whom do you serve a stop payment notice?

Method of Service: A stop payment notice must be served by registered, certified, or express mail; by overnight delivery; or by personal delivery.

Private Works of Improvement –

(1) If Seeking that Owner Withhold Funds: If you are seeking to have the owner withhold funds, a stop payment notice must be served on either the owner or the owner’s architect.

(2) If Seeking that Construction Lender Withhold Funds: If you are seeking to have a construction lender withhold funds, a stop payment notice must be served on the manager or other responsible officer or person at the office or branch of the lender administering or holding the construction funds.

Public Works of Improvement –

(1) State Public Works Projects: If you are seeking to have a state entity withhold funds, a stop payment notice must be served on the director of the department awarding the contract.

(2) All Other Public Works Projects (Except Federal): If you are seeking to have a local or regional entity withhold funds, a stop payment notice must be served on either: (1) the office of the controller, auditor, or other public disbursing officer whose duty it is to make payment pursuant to the contract; or (2) on governing body (i.e., commissioners, managers, trustees, officers, board of supervisors, board of trustees, common council, or other body) which awarded the contract.

Note: We suggest serving a stop payment notice on all parties identified in the stop payment notice – the owner, direct contractor, construction lender (if any), and the party who contracted for the work furnished by the stop payment notice claimant.

What happens after you serve a stop payment notice?

It depends on whether the stop payment notice is bonded or not.

A “bonded” stop payment notice is stop payment notice accompanied by a bond issued by a surety in an amount equal to 125% of the amount of the claimed in the stop payment notice.

Public and Private Owners: Public and private owners must withhold an amount sufficient to satisfy the amount claimed in a stop payment notice whether the stop payment notice is bonded or not.

Construction Lenders: However, construction lenders are only required to withhold an amount sufficient to satisfy the amount claimed in a stop payment notice if it receives a bonded stop payment notice.  Moreover, even if a construction lender receives a bonded stop payment notice, it may  object to the sufficiency of the surety (if the surety is not an admitted surety insurer in California) by giving notice to the stop payment notice claimant within 20 days after receiving the bonded stop payment notice. If the stop payment notice claimant receives such a notice from a construction lender, the stop payment notice claimant must provide a substitute bond from an admitted surety insurer in California within 10 days after receiving the notice. Obviously, the best practice is to ensure that if you serve a bonded stop payment notice, that it be bonded by an admitted surety insurer in California to begin with.

Do you need to do anything after you serve a stop payment notice?

Yes. If the stop payment notice does not result in your getting paid you must file a lawsuit to enforce the stop payment notice. The deadline for filing suit depend on whether you are a direct contractor or subcontractor or material supplier.

Direct Contractors: No earlier than 10 days after service of the stop payment notice but no later than the earlier of:

(1) 180 days after completion of the project; or

(2) 150 days after the owner records a notice of completion or cessation.

Subcontractors and Material Suppliers: No earlier than 10 days after service of the stop payment notice but no later than the earlier of:

(1) 180 days after completion of the project; or

(2) 120 days after the owner records a notice of completion or cessation.

In addition, within 5 days after filing suit, you must serve a notice of commencement of action to all persons to whom you served the stop payment notice. And, finally, a lawsuit to enforce a stop payment notice must be brought to trial within 2 years after the suit is filed.

If you are a property owner or construction lender is there anything you can do if a stop payment notice is served?

Yes. On private works projects, if an owner records a payment bond before a stop payment notice is served, the owner may require that the stop payment notice claimant proceed against the payment bond only. If an owner requires a stop payment notice claimant to proceed against a recorded payment bond, the owner must give notice to the stop payment notice claimant that: (1) a payment bond has been recorded; and (2) provide the stop payment notice claimant with a copy of bond, within 30 days after receiving the stop payment notice.

Similarly, on private works project that are lender financed, if a payment bond was recorded before a stop payment notice is served, a construction lender may require that the stop payment notice claimant (other than a direct contractor) proceed against the payment bond only.  A construction lender may require that a stop payment notice claimant proceed against a recorded payment bond even if the stop payment notice claimant served the construction lender with a bonded stop payment notice.

Public owners do not have these options.

If you are a direct contractor or property owner is there anything you can do if a stop payment notice is served?

Yes.

Public and Private Works of Improvement – Stop Notice Release Bonds: On public and private works projects, a direct contractor can release funds withheld pursuant to a stop payment notice, by giving the person withholding the funds a stop notice release bond equal to 125% of the amount claimed in stop payment notice. Similarly, on private works projects, an owner can release funds withheld by a construction lender pursuant to a stop payment notice, by giving the construction lender a stop notice release bond equal to 125% of the amount claimed in stop payment notice.

Public Works of Improvement – Challenging Validity of Stop Payment Notice: On public works projects, a direct contractor may also challenge the validity of a stop payment notice.  A direct contractor may challenge the validity of a stop payment notice by serving the public entity withholding funds with an affidavit which includes the following information: (1) an allegation of the grounds for release of the funds and a statement of the facts supporting the allegation; (2) a demand for release of all or a portion of the funds that are alleged to be withheld improperly or in an excessive amount; and (3) a statement of the address of the direct contractor within the state for purpose of permitting service of any notice or document.

Upon receipt of the affidavit, the public entity is required to serve on the stop payment notice claimant, a copy of the affidavit, together with a notice stating that the funds will be released in whole or in part unless a counteraffidavit is served within 10 to 20 days after service of the notice. A stop payment notice claimant may then serve a counteraffidavit which alleges the details of the claim and describes the specific basis in which the claimant contests or rebuts the allegations of the direct contractor’s affidavit.

If a counteraffidavit is served, either the direct contractor or the stop payment notice claimant may file a lawsuit seeking a declaration of their rights, followed by a motion seeking a determination of their rights under the affidavit and counteraffidavit. The court is required to hear the motion within 15 days after the motion is filed unless the court continues the hearing for good cause.

Need help with your Stop Payment Notice?

For almost 35 years, our team of experienced construction lawyers at Andrade & Associates has represented contractors, suppliers, owners, and sureties on public and private projects throughout Southern California (Los Angeles, Orange County, San Diego, Riverside, San Bernardino, and more), building a reputation for creative and aggressive advocacy, personalized service, and efficient case management. Our practice focuses exclusively on construction litigation, including mechanic’s lien and stop notice litigation, breach of contract claims, change order and differing site condition claims, prevailing wage claims, labor law and general business litigation. Our clients value our ability to efficiently manage both complex and smaller construction litigation cases, giving all cases the same committed service without the high fees charged by many large firms. In addition to highly qualified attorneys, Andrade & Associates’ staff includes licensed contractors and engineers that are intimately familiar with construction litigation with a long track record of success—and awards—to show for it.

 If Andrade & Associates can provide any legal services to you or your business, please contact us at the link below to arrange a free consultation.

https://www.andradelaw.com/contact

How to File Mechanics Lien

Background

A mechanics’ lien is a remedy for general contractors and subcontractors to obtain payment for materials and services provided on construction projects when owners refuse to pay. If a contractor records a mechanics lien against the real estate being improved, the owner cannot easily sell or refinance the property without first paying off the debt secured by the lien. A mechanics lien motivates the owner to make sure the contractors get paid and is a prerequisite to filing a foreclosure action on the property. It should be noted that mechanic’s liens generally do not apply to public works, as public entities are typically immune from such actions.

Who can file mechanic’s liens?

Anyone who provides authorized work of improvement, including, but not limited to, the following persons, has the right to file and enforce a mechanic’s lien:

(a) General contractor.

(b) Subcontractor.

(c) Material supplier.

(d) Equipment lessor.

(e) Laborer.

(f) Design professional. California Civil Code § 8400

How much can claimants recover through mechanic’s liens?

A mechanics lien is a direct lien for either the reasonable value of the work provided by the claimant, or the price agreed on by the claimant and the person with whom the claimant contracted, whichever is less (Civ. Code § 8430(a)). The lien is not limited by the contract price unless the property owner records the contract and the direct contractor’s payment bond (Civ. Code § 8430(b); see Civ. Code § 8600; see also § 31.22(3)). The claimant may include in a claim of lien work performed based on a written contract modification, or as a result of rescission, abandonment, or breach of the contract. If the contract is rescinded, abandoned, or breached, the amount of the lien may not exceed the reasonable value of the work provided by the claimant (Civ. Code § 8430(c)). The amount that a direct contractor or subcontractor is entitled to recover on a claim of lien is net of all claims of other claimants for work provided and embraced within the contract of the direct contractor or subcontractor (Civ. Code § 8434).

A lien does not extend to work, whether or not authorized by a direct contractor or subcontractor, if the work is not included in a direct contract or a modification of that contract, and the claimant had actual knowledge or constructive notice of the provisions of that contract or modification before providing the work. Recording a contract or contract modification with the county recorder before work is commenced on a work of improvement is constructive notice of the provisions of the contract or modification to a person providing work on that work of improvement (Civ. Code § 8432).

What property is subject to mechanic’s liens?

A mechanics lien attaches to the work of improvement and to the real property on which it is situated, including as much space about the work of improvement as is required for the convenient use and occupation of the work or improvement (Civ. Code § 8440; see Pacific Coast Refrigeration, Inc. v. Badger (1975) 52 Cal. App. 3d 233, 244, 124 Cal. Rptr. 786 (in order for lien to attach to adjacent property, purpose for which the building or improvement in question was erected must be so intimately and directly connected with the operations carried on in the adjacent buildings as to constitute it an essential part and parcel of the improvement); Forsgren Associates Inc. v. Pacific Golf Community Development LLC (2010) 182 Cal. App. 4th 135, 154, 105 Cal. Rptr. 3d 654 (mechanics lien attached to golf course and portion of adjacent property that was required for convenient use and occupation of the golf course)).

The process for filing a Mechanic’s Lien is as follows:

1)      Serve Preliminary Notice if Required

2)      Prepare Mechanic’s Lien Form

3)      Serve Mechanic’s Lien Form on Owner

4)      Record Mechanic’s Lien at County Recorder Office

5)      Enforce the Mechanic’s Lien by Filing Lawsuit

Step 1 - Serve Preliminary Notice

For most claimants who furnish labor, service, equipment, or material to a private work of improvement, service of a 20-day preliminary notice is required in order to enforce a mechanic’s lien. Cal Civ Code. § 8410. Preliminary Notices must be served to the owner, general contractor, and construction lender if there is one. However, laborers and some other claimants need not give prior notice. Under § 8200 (e), any claimant with a direct contractual relationship with the owner (general contractors, design professionals, etc.) is only required to give preliminary notice to the construction lender if there is one.

When Must Preliminary Notice Be Served?

For those claimants that are required to serve preliminary notice, it must be served no later than 20 days after the claimant performed work on the project. § 8204. This means that any work performed more than 20 days prior to service of the preliminary notice is not recoverable by means of a mechanic’s lien. As a result, it is a good practice to serve the preliminary notice with the project contract documents before you begin work on the project.

Step 2 - Prepare Mechanic’s Lien Form

The next step is to prepare the actual mechanic's lien document. The form is titled the "Claim of Lien" and it must be signed and verified by the claimant and contain the following:

1)      A statement of the claimant’s demand after deducting all just credits and offsets.

2)      The name of the owner or reputed owner, if known.

3)      A general statement of the kind of work furnished by the claimant.

4)      The name of the person by whom the claimant was employed or to whom the claimant furnished work.

5)      A description of the site sufficient for identification.

6)      The claimant’s address.

7)      A proof of service affidavit completed and signed by the person serving a copy of the claim of mechanics lien.

8)      The following statement, printed in at least 10-point boldface type. The letters of the last sentence shall be printed in uppercase type, excepting the Internet Web site address of the Contractors’ State License Board, which shall be printed in lowercase type:

“NOTICE OF MECHANICS LIEN

ATTENTION!

Upon the recording of the enclosed MECHANICS LIEN with the county recorder’s office of the county where the property is located, your property is subject to the filing of a legal action seeking a court-ordered foreclosure sale of the real property on which the lien has been recorded. That legal action must be filed with the court no later than 90 days after the date the mechanics lien is recorded.

The party identified in the enclosed mechanics lien may have provided labor or materials for improvements to your property and may not have been paid for these items. You are receiving this notice because it is a required step in filing a mechanics lien foreclosure action against your property. The foreclosure action will seek a sale of your property in order to pay for unpaid labor, materials, or improvements provided to your property. This may affect your ability to borrow against, refinance, or sell the property until the mechanics lien is released.

BECAUSE THE LIEN AFFECTS YOUR PROPERTY, YOU MAY WISH TO SPEAK WITH YOUR CONTRACTOR IMMEDIATELY, OR CONTACT AN ATTORNEY, OR FOR MORE INFORMATION ON MECHANICS LIENS GO TO THE CONTRACTORS’ STATE LICENSE BOARD WEB SITE AT www.cslb.ca.gov.” Cal Civ Code § 8416

Step 3 - Serve Mechanic’s Lien

Once the lien is prepared, you need to make a copy, sign and verify it, and mail it to the property owner. Your copy of the lien must be sent to the property owner via certified mail. Be sure to keep a record of the mailing and to draft and sign an affidavit attesting that you delivered a copy of the lien to the owner by certified mail, as this will need to be attached to and filed with your lien.

Service of the claim of mechanics lien must be completed before the lien claim is recorded. §8416 (a)(7) requires the recorded original claim for mechanics lien to contain a signed affidavit of proof of service.

Step 4 - Record the Mechanic’s Lien

The original copy of your lien, together with the affidavit of delivery upon the property owner, must then be filed with the Recorder's Office for the county where the project was located. The filing fee to record your lien will be between $95 - $125. The law regarding the timing of filing and recording your mechanic’s lien is very specific:

For direct contractors, you must file the mechanic’s lien after you complete the contract but before either of these two situations:

1)      If the owner filed a Notice of Completion or Notice of Cessation, you must file the lien within 60 days; or

2)      If no notice was filed, you must record the mechanics lien within 90 days of work completion or the last day of work. Cal Civ Code § 8412.

For other claimants, you must file the mechanic’s lien under the following circumstances:

1)      After you cease to provide work

2)      Before the earlier of the following times:

a.       90 days after completion of the work; or

b.      30 days after the owner records a Notice of Completion or a Notice of Cessation. Cal Civ Code § 8414

The last day of work does not need to be the day that the project is completed and a certificate of occupancy is issued. The contract is considered complete for purposes of commencing the recordation period when all work under the contract has been performed, excused, or otherwise discharged. This can occur when either party to the contract informs the other party that there is a breach of contract and the claimant ends work on the project, either voluntarily or involuntarily. (Howard S. Wright Construction Co. v. BBIC Investors, LLC (Cal. App. 1st Dist. Jan. 31, 2006), 136 Cal. App. 4th 228, 38 Cal. Rptr. 3d 769, 2006 Cal. App. LEXIS 122.)

Step 5 - Enforce Mechanic’s Lien

Once the lien is filed, you can contact the owner to attempt collection of the unpaid debt before filing a lawsuit to enforce the lien. If the owner agrees to pay the debt, you will file a release of lien with the county recording office and the lien will be removed. If the owner still refuses to pay the unpaid debt, you must commence a lawsuit to enforce a lien within 90 days after the lien is recorded. If an action is not filed within the 90-day period, the lien will expire and will be unenforceable (Civ. Code § 8460(a)).

The time for filing suit to enforce a lien may be extended for a period of up to one year if the owner and the claimant agree to an extension of credit within the 90-day period and notice of the extension is recorded at the county recorder’s office. The lien will then continue in force until 90 days after the credit expires, but not longer than one year from the completion of the work of improvement.

Owners can release the lien through a Mechanic’s Lien Release Bond

An owner of real property or an owner of an interest in real property that is subject to a recorded claim of lien, or a direct contractor or subcontractor that is affected by the claim of lien, that disputes the correctness or validity of the claim may obtain a release of the property from the claim of lien by recording a release bond. The principal on the bond may be the property owner, the direct contractor, or the subcontractor (Civ. Code § 8424(a)).

The bond may be recorded either before or after commencement of a lawsuit to enforce the lien. On recording, the real property will be released from the claim of lien and from any action to enforce the lien (Civ. Code § 8424(c)). Once recorded, the person who obtained the bond must give notice to the claimant. The notice must conform to the general requirements for all notices related to works of improvement and must include a copy of the bond (Civ. Code § 8424(d); see Civ. Code § 8100 et seq. (notice requirements)). The principal on the bond has six months to file an action to enforce the bond, in which the principal would have to show that the lien lacks merit.

If you or your company needs help navigating the filing, enforcing, or responding to a mechanic’s lien, please leave your contact information below and we will provide a free consultation on your case.

Employer Guide: Coronavirus Outbreak

The Coronavirus, or COVID-19, outbreak is causing unprecedented changes to the workplace and society at large across the globe. This guide is meant to help educate employers on what steps to take to both protect their workers and their business, specifically in California as of March 20th, 2020. For further information or clarification, please contact our office. 

Can I keep operating my business? 

Most businesses can continue operating, but with caveats. California Governor Gavin Newsom issued a statewide order (available at https://covid19.ca.gov/img/Executive-Order-N- 33-20.pdf) on March 19, 2020 that all California residents are to remain at home except to continue the operation of essential functions. In short, if your business is considered essential, it can continue operating from the regular place of business. If your business is not considered essential, it must be operated from home. Individuals can only leave their homes to get food, care for a relative or friend, get necessary health care, or go to an essential job as defined above. 

As of writing, businesses that qualify as essential functions include the 16 federal critical infrastructure sectors, critical government services, schools, childcare, and construction, including housing construction. The 16 federal critical infrastructure sectors include: 

• Chemical Sector 

• Commercial Facilities Sector 

• Communications Sector 

• Critical Manufacturing Sector 

• Dams Sector 

• Defense Industrial Base Sector 

• Emergency Services Sector 

• Energy Sector 

• Financial Services Sector 

• Food and Agriculture Sector 

• Government Facilities Sector 

• Healthcare and Public Health Sector 

• Information Technology Sector 

• Nuclear Reactors, Materials, and Waste Sector 

• Transportation Systems Sector 

• Water and Wastewater Systems Sector More information on these sectors can be found at: https://www.cisa.gov/identifying-critical- infrastructure-during-covid-19. 

The only businesses that are specifically mandated to close are: dine-in restaurants, bars and nightclub, entertainment venues, gyms and fitness studios, public events and gatherings, and convention centers. 

Though the Governor has issued this statewide order, other public health orders enacted by local municipalities also remain in effect. It may be confusing to try and figure out which rules apply, but as a rule of thumb, if either order prohibits an activity, it should not be performed. Local orders can be more restrictive than state orders, but they cannot be more permissive. In essence, the state provides a range of acceptable activities, and the local governments can only narrow that range, not broaden it. For now, the biggest difference between state and local orders is that most localities also require that certain “social distancing” measures are met. These measures vary by municipality, so it is recommended to read the public health order that applies to your area. 

Businesses and individuals alike should also note that violations of these state or local orders are punishable by misdemeanor fines of up to $1000 and imprisonment up to 90 days under California law. 

What do I need to do differently?

For those businesses that are allowed to continue operating at their place of business, the California Division of Occupational Safety and Health Administration (Cal/OSHA) has issued guidance on the requirements to protect workers from COVID-19. (Available at https://www.dir.ca.gov/dosh/coronavirus/Health-Care-General-Industry.html). This guidance essentially divides employers into two categories: 1) those where employees are susceptible to transmission of airborne diseases (specifically Aerosol Transmissible Diseases or ATD), and 2) those where employees are not. 

Cal/OSHA primarily defines the first category of employers with increased risks of transmission as those involved in health care, correctional facilities, homeless shelters, and drug treatment programs. These employers are required to provide respiratory protection (such as N95 face masks), implement screening procedures for patients, and provide specific ATD training for employees. A fact sheet with more information for employers in the first category can be found here:

https://www.dir.ca.gov/dosh/dosh_publications/Aerosol-Diseases-fs.pdf.

Cal/OSHA defines the second category of as all other employers. However, Cal/OSHA still has guidelines for these employers. These guidelines include prevention measures such as: 

• Actively encouraging sick employees to stay home 

• Sending employees with acute respiratory illness symptoms home immediately 

• Providing information and training to employees on: 

o Cough and sneeze etiquette o Hand hygiene o Avoiding close contact with sick persons o Avoiding touching eyes, nose, and mouth with unwashed hands o Avoiding sharing personal items with co-workers (i.e. dishes, cups, utensils, towels)

o Providing tissues, no-touch disposal trash cans and hand sanitizer for use by employees 

• Performing routine environmental cleaning of shared workplace equipment and furniture (disinfection beyond routine cleaning is not recommended) 

• Advising employees to check CDC’s Traveler’s Health Notices prior to travel Can I fire or dock the pay of my employees who don’t show up? 

It depends. Generally, employment in California "having no specified term" is "at will," meaning that it may be terminated at the will of either party for any or no reason at all. Though, there are several restrictions when it comes to discrimination, employees in unions, and employees taking leave. We will focus more on employees taking leave, since that is the most likely scenario in light of current events. 

First off, you should not terminate or reduce pay for employees who have a reasonable, good faith belief that they will be exposed to the COVID-19 in the performance of their duties. Federal law prohibits employers from taking such actions against employees who “refuse in good faith to expose himself to the dangerous condition.” The condition must be one that a “reasonable person, under the circumstances then confronting the employee, would conclude that there is a real danger of death or serious injury and that there is insufficient time, due to the urgency of the situation, to eliminate the danger through regular statutory enforcement channels.” Due to the ongoing uncertainties relating to the severity and spread of COVID-19, it is wise to avoid negative employment actions if there is a reasonable threat to your employees. 

Secondly, employees are permitted to take paid sick leave under California law. Paid sick leave is more expansive than most people think- it can be used for absences due to illness, the diagnosis, care or treatment of an existing health condition or preventative care for the employee or the employee’s family member. Preventative care may include self-quarantine as a result of potential exposure to COVID-19 if quarantine is recommended by civil authorities. Additionally, both Federal and California law have specific leave provisions for when employees’ family members are faced with a “serious health condition.” 

Many employees may be affected by the numerous school closures occurring throughout California. This means employees may face a situation where they are required to stay home and supervise their children. California law requires employers with 25 or more employees to provide 40 hours of leave per year for school-related emergencies. 

Employers of less than 500 employees should also be aware that both sick leave and leave for family members have been expanded under the Family First Coronavirus Response Act which was signed into law on March 18, 2020. Under this new law, employers must provide two weeks of paid sick leave if employees are subject to quarantine or isolation, experiencing symptoms of COVID–19, caring for someone who is in quarantine or isolation, or have children in schools that have closed. Twelve (12) weeks of leave for family members is available to employees who have children that they must supervise as a result of school or child-care closures due to the COVID-19 outbreak. This new law now provides that employers must pay employees at least two-thirds of the employee’s regular pay capped at $200 per day. These new expansions of sick and family leave are in addition to other paid sick leave already in place, so employers must give employees this leave even if they have exhausted their previous sick leave or paid time-off. Employers are able to receive tax-credits for payments issued under this leave and employers of 50 or less can request an exemption from making these payments if significant hardship would result to their business as a result. 

What if my business is suffering? 

There are various things an employer can do to keep their business viable due to slowdowns associated with the COVID-19 outbreak. California has various programs to help, including the Unemployment Insurance Work Sharing Program, the Rapid Response Program, the Economic Injury Disaster Loan Program, and the delaying of tax payments. 

Unemployment Insurance Work Sharing Program 

This program aims to help employers who experience slowdowns by allowing employers to reduce their hours for their employees. The program then pays the difference to the employees with reduced work hours. More information on this program can be found here:

https://www.edd.ca.gov/Unemployment/Work_Sharing_Program.htm 

Rapid Response Program 

This program aims to help employers who are nearly ready to layoff employees due to slowdowns. The program provides training and guidance for both employees and employers to help their skillset and business remain competitive. More information on this program can be found here: https://www.edd.ca.gov/pdf_pub_ctr/de8714rrb.pdf 

Economic Injury Disaster Loan Program 

The U.S. Small Business Administration has expanded the Economic Injury Disaster Loan Program to help provide low-interest loans to small businesses that have been severely impacted by COVID-19. These loans can help cover payments towards fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses. More information can be found here: https://www.sba.gov/funding-programs/disaster-assistance 

Delaying of Taxes 

For Federal taxes, the Internal Revenue Service has extended the payment deadline for 2019 income taxes from April 15 to July 15. While the payment deadline has been extended, the filing deadline remains April 15. If you cannot make the filing deadline, you can request a filing extension with a Form 4868. More information can be found at https://www.irs.gov/newsroom/payment-deadline-extended-to-july-15-2020. 

For California State taxes, employers experiencing a hardship as a result of COVID-19 may request up to a 60-day extension of time from the EDD to file their state payroll reports and/or deposit state payroll taxes without penalty or interest. A written request for extension must be received within 60 days from the original delinquent date of the payment or return. More information can be found by calling the EDD Taxpayer Assistance Center at 1-888-745-3886. 

Out of options? 

If your business is simply out of options and is forced to proceed with layoffs or suspension of pay, it is recommended that you reach out to our office as each situation differs drastically and can result in serious legal consequences if done improperly. Please note that the information contained in this article is meant to be used for educational purposes only and does not constitute legal advice. 

Sincerely, 

Andrade & Associates

California Air Resource Board (CARB) issues new draft regulation for the Periodic Smoke Inspection Program (PSIP)

Below is an important message from the Construction Industry Air Quality Coalition (CIAQC). Emailing comments protesting proposed reporting requirements for diesel trucks by Friday, February 2nd could be critical in preventing the proposal from moving forward in its current form. 

NEW DEISEL TRUCK SMOKE TESTING RULES PROPOSED!

Attention Contractors and Diesel Truck Owners! Urgent Action Needed Now!

The California Air Resources Board (CARB) has issued a new draft regulation for the Periodic Smoke Inspection Program (PSIP) which will be costly and burdensome to the Construction Industry. The deadline for early comments prior to preparation of the Board package is this Friday, February 2nd. Once the Board package is released changes are less likely.

Attached are a draft copy of the proposed regulation and a CIAQC summary of the most onerous requirements. Please review them for their impact on your diesel truck fleet.

In short this proposal extends the reporting requirements to thousands trucks and fleets that have not previously been required to report. In addition it creates conflicts with CARB and DMV data that could create administrative violations due to inconsistent reporting.

It is important that contractors contact CARB to protest this approach to the smoke testing program.

Review the impact on your fleet and submit comments on the costs and administrative burdens to CARB at jason.hillfalkenthal@arb.ca.gov

Click here for the CIAQC Summary of Proposed Regulation

Click here for the Proposed Regulation from the California Air Resources Board 

Article courtesy of the Southern California Contractors Association

Reminder – OSHA 300A Summary Sheets

A friendly reminder about your OSHA 300A Summery Sheets. See the information below. 

The following is from www.oshatoday.com. Here is the link to the page with the message.

OSHA to employers: Injury, illness summary must be posted by February 1.

Washington — Employers required to keep and maintain an OSHA 300 injury and illness log must publicly post their 300A summary sheet from Feb. 1 to April 30.

Form 300A summarizes work-related injuries and illnesses recorded in 2017. OSHA states that the summary must be posted in work areas where employee notices are customarily placed.

The agency notes that employers with 10 or fewer employees or who work in certain low-hazard industries are not required to post the summary.

California Court of Appeal holds that "additional insured" endorsement for "ongoing operations" covers claims of buyers who purchased completed homes.

In a recent opinion, a California Appellate Court held that an "additional Insured" endorsement was sufficient to provide insurance protection to the owner of a residential construction project, against claims being made by claimants who purchased the homes after they were completed.

McMillin Management Services, L.P. and Imperial Valley Residential Valley Residential Builders, L.P. (collectively "McMillin") filed suit against numerous insurance companies, including respondents Lexington Insurance Company (Lexington) and Financial Pacific Insurance Company (Financial Pacific). McMillin alleged that it had acted as a developer and general contractor of a residential development project in Brawley and hired various subcontractors to help construct the Project. As relevant here, McMillin alleged that Lexington and Financial Pacific breached their respective duties to defend McMillin in a construction defect action (underlying action) brought by homeowners within the Project. McMillin alleged that Lexington and Financial Pacific each owed a duty to defend McMillin in the underlying action pursuant to various comprehensive general liability (CGL) insurance policies issued to the subcontractors that named McMillin as an additional insured. The trial court granted Lexington's motion for summary judgment, reasoning, that there was no possibility for coverage for McMillin as an additional insured under the policies "[b]ecause there were no homeowners in existence until after the subcontractors' work was complete[ ] . . . ." On appeal, McMillin contended that the fact that the homeowners did not own homes in the Project at the time the subcontractors completed their work did not establish that its liability did not arise out of the subcontractors' ongoing operations. The trial court granted Financial Pacific's motion for summary judgment, finding McMillin did not establish homeowners in the underlying action had sought potentially covered damages arising out of the subcontractors' drywall installation. The Court of Appeal reversed as to Lexington, and affirmed as to Financial Pacific.

“On appeal, McMillin contends that the fact that the homeowners’ did not own homes in the Project at the time the subcontractors completed their work does not establish that its liability did not arise out of the subcontractors’ ongoing operations. In support of this contention, McMillan argues that the endorsements “make no reference to when liability must arise.”  In contrast Lexington argues that “since the homeowners’ cause of action accrued after operations were completed, McMillin could have no liability to the homeowners during the [subcontractors] ongoing operations”. McMillin’s argument is supported by the text of the endorsements , while Lexington’s argument is not. The endorsements do not provide coverage solely for “liability…during the [subcontractors] ongoing operations”, but rather broadly provide for coverage for liability “arising out of” such operations. Thus the fact that there were no homeowners in existence at the time the subcontractors’ completed their ongoing operation does not establish that McMillin could not have potential liability to the homeowners “arising out of” the subcontractors’ ongoing operations.”

Accordingly, the summary judgment granted by the trial court was reversed.

Private Development That Relies On Public Construction Is Subject To The Prevailing Wage Law

In 2004, the City of Hesperia (“City”) began acquiring vacant property in its downtown to facilitate development of a Civic Plaza, which was to include a city hall, public library, other government buildings and complementary retail, restaurant, and entertainment establishments. In 2010, the City met with theater operator Cinema West, LLC (“Cinema West”) to discuss the construction of a state-of-the-art movie theater in the City. At the meeting, Cinema West articulated a plan to develop a new, twelvescreen digital cinema immediately west of the Civic Plaza. At the end of 2010, the City and Cinema West entered into a series of agreements for the development and operation of the theater. Under the agreements, Cinema West agreed (1) to purchase the theater site from the City at fair market value; (2) to develop the site with a 12-screen, 36,000 square foot movie theater; (3) to obtain financing for, and bear the costs of, construction of the theater and related facilities other than the parking lot; (4) to maintain the property; and (5) to operate the site as a theater for at least ten years. In exchange, the City agreed, among other things, (1) to develop a parking lot adjacent to the site for use by Cinema West and patrons of the movie theater; (2) to provide Cinema West reciprocal access and an easement for the parking lot; and (3) upon issuance of a certification of completion for the theater, to provide Cinema West an interest-bearing loan in the amount of $1.5 million forgivable over ten years and a one-time payment of $102,529 as consideration for operation of the theater. In 2012, as development of the theater was nearing completion, the International Brotherhood of Electrical Workers Local 477 (the “Union”) requested a public works coverage determination for the theater project from the Director of Industrial Relations (“DIR”). The Union asserted the theater was a public work subject to the Prevailing Wage Law. The Prevailing Wage Law provides that, with certain exceptions, the prevailing wage “shall be paid to all workers employed on public works.” (Lab. Code, § 1771.) A “public work” is defined as “[c]onstruction, alteration, demolition, installation, or repair work done under contract and paid for in whole or in part out of public funds.” (Id., § 1720, subd. (a).) Cinema West objected to a public works determination and argued the theater was a private development on the property for which Cinema West had paid fair market value. In 2013, the DIR found the construction of the theater and related facilities was a public work subject to prevailing wage requirements. In reaching this conclusion, the DIR first determined that the scope of the construction project included both the theater and the adjacent parking lot. “Given the very specific terms of the . . . agreements of the parties to construct all these improvements in tandem to serve the theatre complex there is no doubt the ‘Project’ . . . [is] to create a single complete and integrated theatre complex.” The DIR then identified three separate sources of public funds utilized on the project: the City’s one-time payment of $102,529 to Cinema West upon the filing of a notice of completion for the theater; the forgivable loan made by the City to Cinema West; and the construction of the adjacent parking lot and a water retention system for the theater and parking lot. Based on these “public subsidies,” the DIR concluded the theater development was a public work subject to the requirements of the Prevailing Wage Law. Cinema West challenged the DIR’s decision in the Superior Court. The trial court upheld the DIR’s decision. Cinema West appealed. On appeal, Cinema West argued that the construction of the parking lot did not transform the private theater into a public work. The Court of Appeal rejected Cinema West’s arguments and upheld the DIR’s decision. The Court first agreed with the DIR that the parking lot was necessary to the theater and that the theater, parking lot, and related amenities were part of a “complete integrated object.” The Court also agreed that the theater project was paid for, in part, with public funds. As the Court explained: “Cinema West indisputably received the benefit of a newly constructed, publicly funded parking lot adjacent to the theater, which, though owned by the City, is Cinema West’s and its successors’ to use for as long as they operate the movie theater. . . . [T]he parking lot was necessary to the development of the theater . . . . [and] the publicly funded parking lot was one of the ‘deal points’ in Cinema West’s proposal. The parking lot cost the City $1.5 million to construct, and even though Cinema West’s right to use it is non-exclusive the parking lot cannot be considered a de minimis contribution of public resources.” Cinema West, LLC v. Baker (2017) 13 Cal.App.5th 194.

The last time the Court's reached this sort of decision, it involved the construction of a fire station by a General Contractor for a public entity. The public entity apparently used its own funds and therefore did not require the contractor to pay prevailing wages. When challenged, the Court held that the Fire Station was a public works despite the public entity's use of its own funds and required the General Contractor to pay to the DIR the unpaid portion of the required prevailing wages. The Court left open the question if the general contractor could assert a claim against the ;public entity for additional compensation to cover the additional wages it had to pay.

In this situation, it remains unclear if the Cinema West can seek reimbursement for the additional wages it had to pay given the way the various contracts were set up. Cinema West purchased the land from the City ostensibly making the construction of the theater and adjoining facilities a private work of construction. It does not appear that Cinema West can look to the City for additional compensation given the manner in which the agreements were structured.

The morale of the story is that if you are a General Contractor constructing a project for a private owner which involves the participation of any public agency in any manner, you need to ensure that you have a clause in your contract to cover you if ultimately the Department of Industrial Relations deems the project to be a public work of construction and you are forced to pay prevailing wages despite what the actual contract states.

SUBCONTRACTOR'S GET ADDITIONAL HELP FROM LEGISLATURE

The decade's long battle between general contractors and their subcontractors over timely payment took a new turn this year with the passage of AB 1223, sponsored by the American Subcontractors Association and supported by twenty other groups.

   The bill was signed into law by Governor Brown October 8th and will go into effect January 1st. The new law requires, within 10 days of making a construction contract payment, a state or local agency to post the following information on its website:

• The project for which the payment was made.
• The name of the construction contractor or company paid.
• The date the payment was made or the date the state agency transmitted instructions to the Controller or other payer to make the payment.
• The payment application number or other identifying information.
• The amount of the payment.

   The new law exempts from these provisions construction contracts valued less than $25,000 and specified progress payments published in the California State Contracts Register under existing law (Section 10262.3).

   This law will enable subcontractors to verify that public project owners have paid their general contractors and will allow subcontractors to enforce their right to be paid timely. The existing law generally requires a general contractor to pay any subcontractor within seven days of receipt of a progress payment. Therefore, it will also help subcontractors ascertain when general contractors have been paid and provide public notice that they can refer to when requesting payment within seven days as required under the existing law.

    This bill will enable construction subcontractors to verify that public project owners have paid their general contractors for work performed by the subcontractors. This will streamline the payments to subcontractors who, under existing law, are entitled to receive their payment within seven days of the general contractors receiving their pay.