About Lindsey E. Powell

Lindsey E. Powell is an associate attorney with Anderson Jones PLLC, Raleigh, N.C., practicing business litigation with a focus on construction.

How to Prepare Your Company for an Immigration and Customs Enforcement Audit

Although President Trump’s attempts to pass sweeping immigration reform have been largely unsuccessful, since his inauguration there has been a sharp increase in enforcement of current immigration policies in the workplace. One such policy is that employers verify that all employees are authorized to work in the United States. Since 1986, the Immigration Reform and Control Act (IRCA) requires employers to verify work authorization by reviewing each employee’s identification documents and completing (and retaining) Employment Eligibility Verification Forms (Forms I-9).

Enforcement of IRCA is largely accomplished through the initiation of I-9 audits conducted by Immigration and Customs Enforcement (ICE), an agency within the Department of Homeland Security (DHS). According to the National Law Review, in 2018, the number of audits conducted increased by more than 400 percent, from 1,360 in 2017 to 5,981 in 2018.

What Is an ICE Audit?

During an ICE audit, ICE officials are legally permitted to examine Forms I-9 for compliance and determination of fines or other criminal penalties for violations. ICE audits may be initiated based on tips from various sources, but companies are also subject to being randomly selected from a national database of employers.

In most circumstances, an ICE audit begins when an ICE agent arrives at the workplace and delivers a Notice of Inspection (NOI). Upon receipt of a NOI, the company is provided with three days to respond. In some circumstances, with good reason, an extension to respond may be granted. After the three-day period, or any extension, the employer is required to produce for inspection Forms I-9 for all active employees and any employees terminated within the retention period. (Forms I-9 must be retained for certain periods even after an employee is terminated or leaves a position.) ICE officials may arrive on site to conduct an inspection or investigation. While on site, ICE officials cannot enter non-public areas of a building or speak with employees on the premises unless the officers have a warrant or the employer’s consent, unless certain circumstances exist to permit further investigation without a warrant, subpoena, or the employer’s consent.

Preparing for an Audit

The key to preparing for a potential ICE audit is to be proactive. One of the most effective ways for an employer to prepare for an ICE audit is to conduct an independent self-audit to ensure they are in order and in compliance with all requirements. An employer may choose to perform the internal audit or hire counsel to do so. Hiring independent counsel that specializes in this area of the law to perform the audit provides the employer with several benefits. Counsel can walk the employer through the audit process, determine any deficiencies that exist, and prevent the possibility of any deficiencies being covered up by staff members or other employees. Performing self-audits not only gives employers an opportunity to identify errors, omissions, or other deficiencies, but is also evidence of a good faith effort on the part of the employer to make all reasonable efforts to comply with the requirements.

Employers should prepare to take immediate action to correct any deficiencies a self-audit reveals. Forms I-9 should never be backdated, as that evidences an attempt to willfully and intentionally deceive government officials. Deficiencies should be corrected in a conspicuous manner. Use a different color ink to indicate a correction and have the person making the correction initial it. In addition, the internal audit process should be adequately documented. For example, attach a memorandum to the deficient Form I-9 identifying the deficiency discovered and the steps taken by the employer to correct it.

In addition to performing an internal self-audit, employers should always review or establish sound policies and procedures for completing Forms I-9 and maintaining adequate records. Employers should always exercise due diligence when making employment decisions to ensure that each employee is compliant.

Here are a few quick methods to avoid or reduce exposure:

  • Ensure that there is a Form I-9 on file for every active employee.
  • Ensure all reverifications are completed where an employee’s work authorization has expired and form a schedule for ensuring that reverification is completed timely.
  • Maintain copies of identity and work eligibility documents.

In any event, hiring independent legal counsel will prepare employers for any potential ICE audits and provide employers with an additional layer of protection should the employer receive a NOI. Introducing a systematic approach to records maintenance will make it simpler for internal audits and shield employers from the significant penalties IRCA imposes. Technical violations, those which are inadvertent or procedural, can carry fines between $230 to $2,292 for first-time violators. Fines for knowingly hiring, employing, or continuing to employ unauthorized workers are between $573 to $6,878 for first-time violators and can reach up to $20,130 for the third (or later) violation. In addition to civil penalties imposed for failing to comply with the provisions of IRCA, employers should be aware of potential criminal liability if ICE determines that the employer engaged in a pattern of hiring or recruiting undocumented workers.

Impact on the Construction Industry

In the midst of a nationwide shortage of skilled workers, many contractors are struggling to adhere to federal hiring requirements, exposing many employers to civil fines and criminal charges which would ultimately challenge their ability to survive.

It is important to note that both general contractors and subcontractors bear the same responsibilities when it comes to maintaining Forms I-9 documentation. General contractors should be further aware that they could be held responsible if a subcontractor fails to meet all requirements. Ultimately, liability depends on knowledge. If a general contractor or even a large subcontractor is aware that a lower-tier subcontractor is employing undocumented workers, they can be held liable as well. To prevent any issues regarding knowledge, contractors should always make proper inquiries into hiring and employment practices of subcontractors.

As previously discussed, it is critical that each employer implement and enforce sound employment and employee documentation policies to ensure compliance with all federal requirements. Hiring independent legal counsel can assist with identifying and rectifying any deficiencies which an employer is not even aware exist. Getting out in front of deficiencies is critical to avoid civil or criminal liability should an ICE official come knocking on the door.

About the author: Lindsey E. Powell is an attorney with Anderson Jones, PLLC practicing in North Carolina and Georgia. Questions about this article can be directed to her at lpowell@andersonandjones.com. Author credit is also given to Keith A. Boyette, attorney with Anderson Jones, PLLC who may be reached at kboyette@andersonandjones.com.

Author’s note: This article is intended only for informational purposes and should not be construed as legal advice.

Mediation, Litigation, and Arbitration … Oh My!

It’s a rare situation in this day and age that a construction contract or subcontract does not contain a dispute resolution clause, particularly the industry form contracts (such as the AIA, ConsensusDocs, and EJCDC). A contract may prescribe mediation, arbitration, or a combination of mediation and litigation or mediation and arbitration. Because parties are free to draft their own contracts, such provisions are generally enforceable. But what does all of it mean?

Mediation

First, mediation, though understood as a form of alternate dispute resolution, does not provide an ultimate decision maker. Rather, mediation is a settlement conference wherein the parties engage a neutral third party, the mediator, and meet (often in person) to present their respective cases. The mediator typically hears presentations regarding the facts of the case and assists the parties in understanding each side’s position and respective strengths and weaknesses to facilitate settlement. The mediator’s fee, generally calculated on an hourly basis, is split evenly between the parties (absent an agreement to the contrary). Importantly, the mediator has no authority to decide the case or compel a settlement or any particular outcome. In that sense, mediation only resolves the dispute if everyone voluntarily agrees to a settlement. That is why dispute resolution provisions sometimes use a combination of mediation and either arbitration or litigation to achieve a final resolution. If a voluntary settlement is not reached at mediation, an impasse results, and the parties should proceed as required by the contract.

Litigation

Litigation is initiated by the filing of a complaint in the appropriate jurisdiction and venue (which may be governed by the dispute resolution provision or other provisions in the contract). The parties are usually entitled to bring in additional parties who may be needed for a complete resolution of the issues. The litigation will proceed through a process of discovery, wherein parties exchange information and documentation related to the dispute, following strict rules of civil procedure and evidence. Eventually, a lawsuit will be tried either to a judge or jury who will render a verdict, which is reduced to an order or judgment. Any party that is unhappy with a verdict typically has the right of appeal.

Be advised that engaging in litigation doesn’t always mean that you won’t encounter alternative dispute resolution. For instance, North Carolina statutorily requires that all Civil Superior Court cases (typically involving actions for damages exceeding $25,000) be ordered to mediation before trial. Also, most Federal District Courts require parties to consider mediation or refer, and sometimes order, cases to mediation.

Arbitration

Arbitration is similar to a lawsuit but does not involve the court. Most dispute resolution provisions will designate a third-party association — often the American Arbitration Association (AAA) or JAMS — to act as the administrator of the arbitration. Arbitration is generally initiated with a demand by one party, after which an administrator is assigned to facilitate the process. Parties typically choose the arbitrator (or a panel of arbitrators) from a list provided by the administrator based on the subject matter of the dispute. Construction arbitrators are typically construction lawyers or other professionals with extensive experience in construction. The rules of evidence and procedure are relaxed in arbitration allowing the parties, with the assistance of the arbitrator and the administrator, to create their own scheduling, deadlines, procedures and rules for discovery and motions. Eventually, the dispute will be heard by the arbitrator(s), and there is no right to a jury. The arbitrator(s) will render an award which is only appealable in limited, and extraordinary, circumstances such as fraud or bias.

Arbitration is intended to be more efficient and inexpensive than litigation, but that’s not always the case. First, using a third-party administrator (AAA or JAMS) typically involves significantly higher filing fees than courts. Arbitration filing fees are determined on a sliding scale depending on the amount sought in the demand for arbitration. Also, unlike litigation, the parties must compensate the arbitrator(s) for the time spent in arbitration on an hourly basis. Because construction arbitrators are highly experienced construction professionals, their hourly rates are commensurate with those of construction attorneys.

Because arbitration is the product of an agreement to submit disputes to arbitration, only parties who are subject to an agreement to arbitrate (either the dispute resolution provision in a contract or a separate agreement) may be compelled to arbitrate. This can sometimes make arbitration inefficient. For instance, where a general contractor initiates arbitration against a roofing contractor, the roofing contractor may attribute the actual cause of the dispute to a lower-tier subcontractor or supplier. However, if that lower-tier subcontractor or supplier is not subject to an agreement to arbitrate, there is no mechanism whereby it can be compelled to join in the arbitration proceeding, whereas in litigation, it could usually be joined as a party. In that case, the roofing contractor may be forced to defend against the general contractor in arbitration and simultaneously prosecute a separate action against the lower-tier subcontractor or supplier, resulting in both increased costs and duplicated efforts.

Weighing the Advantages

Each method of dispute resolution has its advantages and disadvantages. Acknowledging the differences in the methods of alternative dispute resolution allows the parties to craft a procedure that’s right for them. Even if the contract is silent as to dispute resolution, the parties (with unanimous agreement) can submit their disputes to mediation or arbitration.

Other contract provisions that are particularly relevant to dispute resolution include choice of law and forum selection clauses. Choice of law clauses provide that a particular state’s laws will control dispute resolution, regardless of where the project is located or the proceedings will be held. Forum selection clauses prescribe the location of the dispute resolution proceeding.

Understanding the dispute resolution provision(s) in your contract and the law and procedures which will apply is critical. Engage legal counsel during contract drafting or review and negotiation to ensure the dispute resolution clause is appropriate and effective. Remember, an ounce of prevention is worth a pound of cure.

About the author: Lindsey E. Powell is an attorney with Anderson Jones, PLLC practicing in North Carolina and Georgia. Questions about this article can be directed to her at lpowell@andersonandjones.com.

Author’s note: This article is intended only for informational purposes and should not be construed as legal advice.

Speaking of Education…It May Be Back to Class for Contractors

It’s no surprise that almost all states require general contractors and some subcontractors to register with regulatory boards and pass a qualifying exam in advance of bidding, contracting, and certainly physically undertaking construction work. That’s not new. However, there is an emerging trend towards requiring general contractors, and even some subcontractors, to participate in continuing education. Depending on the jurisdiction, some contractors and subcontractors are now statutorily obligated to complete a certain amount of continuing education — similar to what has been historically required only of doctors, lawyers, and accountants — to maintain licensure.

For instance, this summer, North Carolina became the most recent state to impose continuing education requirements for general contractors. Effective January 1, 2020, general contractors will be required to complete 8 hours of continuing education per year. Because roofing contractors in North Carolina performing work in excess of $30,000 are required to be licensed as general contractors, they will now be subject to the new continuing education requirements.

This recent legislation and its impact on the roofing industry raises questions about what is required for roofing contractors nationwide. Does roofing require special licensure and registration or continuing education? The answer is entirely dependent on the jurisdiction where the work is to be performed.

The following states currently require licensure for roofing: Alabama, Alaska, Arizona, California, Florida, Hawaii, Illinois, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, New Mexico, North Carolina, Rhode Island, South Carolina, Utah, and Virginia.

Other states don’t require licensure per se but do require roofing contractors to register. For instance, Oklahoma requires roofing contractors to register with the Construction Industries Board. Failure to register is a misdemeanor, and registration and endorsement as a commercial roofing contractor requires 4 hours of continuing education every 36 months. Similarly, Idaho does not require a state license, but requires roofing contractors to register with the Idaho Contractors Board.

As seen in Figure 1, even among the states which require continuing education, the requirements vary greatly both in the amount and type of education required. For instance, Florida law requires contractors holding a roofing license to take 1 hour of wind mitigation methodologies as part of the 14 annually required continuing education hours. In Massachusetts, construction supervisors within the roofing industry are required to take 2 hours of continuing education in code review and four one-hour courses in topics of workplace safety, business practices, energy, and lead safe practices.

Figure 1. Licensing and continuing education requirements by state.

Finally, in those states which don’t require licensure or continuing education, some industry groups have developed self-regulation. These industry groups are aimed at consumer protection and seek to secure public confidence in the roofing industry. In Georgia, which does not require a state roofing license, the Roofing and Sheet Metal Contractors Association of Georgia (RSMCA) provides a voluntary licensing program. Similarly, Kentucky has no license requirements for roofing contractors. However, the Kentucky Roofing Contractor Association (KRCA) is a nonprofit and professional organization which certifies roofing contractors. To obtain and maintain KRCA certification, roofing contractors must complete 10 hours of continuing education per year.

But just because a state legislature or professional association has not enacted regulations necessitating continuing education does not mean contractors are free from such requirements. While not mandated by the state itself, many cities have imposed their own directives. States such as Kansas, Kentucky, Illinois, Indiana, Maine, Missouri, New York, Oklahoma, Wyoming, and Pennsylvania each contain at least one municipality that compels contractors to take board-accredited continuing education courses. For example, Idaho Falls, Idaho, requires 8 hours of continuing education.

Regardless of where you are engaged in the practice of roofing contracting, it is imperative that all contractors exercise due diligence and review and comply with all state and local regulations before undertaking any project.

Contractors and trades are seeing a rise in regulation through the government by way of mandated continuing education courses. Do you think contractors should be required to take continuing education classes? Is this a necessary void that needs to be filled by the government intervention or is this just another example of unnecessary government regulation? Tell us what you think.

About the author: Lindsey E. Powell is an attorney with Anderson Jones, PLLC practicing in North Carolina and Georgia. Questions about this article can be directed to her at lpowell@andersonandjones.com. Special research credit is given to Kyle Putnam, Juris Doctor candidate and summer law clerk with Anderson Jones, PLLC.

Author’s note: This article is intended only for informational purposes and should not be construed as legal advice.

Contractual Risk Shifting, Workers’ Compensation and You

During the process of negotiating construction contracts, contractors often use certain clauses to shift the risk of loss onto subcontractors who may have less bargaining power. How do they do this? Most commonly through the use of indemnity and waiver of subrogation clauses. While these clauses apply in a variety of situations, they are particularly concerning with regard to workers’ compensation insurance.

All states have mandatory workers’ compensation statutes. These statutes make employers strictly liable for employee injuries on the job. Strict liability means liability without fault. Therefore, an injured employee of a subcontractor can recover damages from the subcontractor’s workers’ compensation carrier even if a third party is 100 percent at fault for the injury.

What Is Subrogation?

Subrogation arises when an innocent party incurs damages attributable to the fault of another. This most commonly applies when an insurance carrier pays an insured loss and subrogates to the rights—or “stands in the shoes”—of the injured party in recovering against the responsible party. This doctrine is based on equitable principles, primarily to prevent the at-fault party from escaping liability. Makes sense, right? Then how does a subcontractor waive subrogation?

Here’s a sample waiver of subrogation provision:
Subcontractor hereby waives all right of recovery against the Contractor, the Owner and their respective officers, directors, employees, agents and representatives with respect to claims covered by insurance obtained pursuant to insurance requirements under this Subcontract. The Subcontractor agrees to cause its Workers’ Compensation, General Liability and Automobile Insurance carrier to waive their rights of subrogation against the Contractor, Owner and their respective officers, directors, employees, agents and representatives.

Here’s an example:
A subcontractor’s employee is injured by the sole negligence of the contractor. The subcontractor’s workers’ compensation carrier pays out statutory damages to the injured employee. Pursuant to the waiver of subrogation clause, the subcontractor and its carrier have no right to recover the losses from the contractor.

What is the practical effect? The subcontractor suffers the consequences of the contractor’s sole negligence. How? The subcontractor’s experience modification rate (EMR) goes up. What else goes up with the EMR? Premiums!

What Is Indemnification?

Indemnification requires one party to pay damages to another, sometimes without regard to who was actually at fault. These types of clauses often include language requiring the subcontractor to “defend and hold harmless” the contractor, which puts the additional burden on the subcontractor of incurring fees and expenses for the contractor’s legal defense. There are generally three types of indemnity clauses: broad, intermediate and limited.

A broad indemnity clause requires the subcontractor to pay loss or damage regardless of who is at fault, even if the damage is caused by the sole negligence of the contractor. This is the most onerous type of indemnity clause because it shifts the entire risk to the subcontractor.

Here’s a sample broad indemnity provision:
Subcontractor shall indemnify, defend and hold harmless the Contractor, Architect and Owner against all liability claims, judgment or demands for damages and expenses, including, but not limited to, reasonable attorneys’ fees, arising from accidents to persons or property arising out of or resulting from the performance of the work.

An intermediate indemnity clause requires the subcontractor to pay loss or damage for its own sole or partial negligence. Some intermediate indemnity provisions require the subcontractor to pay the entire loss or damage while others only require the subcontractor to pay its pro rata share of the loss or damage.

Finally, a limited indemnity clause only requires the subcontractor to pay loss or damage that is the sole responsibility of the subcontractor.

How do indemnity and subrogation interplay? When the subcontract has abroad indemnity clause and a waiver of subrogation clause.

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