What Contractors Need to Know About E-Verify and IRCA

Because proper compliance with immigration law is complex, this article should not be construed as legal advice. Those seeking counsel about proper compliance with IRCA, E-Verify requirements, the Fair Labor Standards Act, or wage and hour laws should contact an employment attorney practicing in their state. For general questions, feel free to contact the author at ctrautman@andersonandjones.com.

Mention the word “immigration” in today’s political climate and be prepared for the conversation to take any number of turns. What starts as a friendly conversation could segue into a political debate about President Obama or Donald Trump, livening up or ruining a perfectly good Easter dinner.

But regardless of opinion or political identity, immigration law—and compliance therewith—is something about which most construction professionals should be talking. It is a necessary component of any employer’s operations and it is of particular concern to construction business owners. “Am I supposed to be E-Verifying my employees now?” and “How long do I have to store I-9 Forms?” are crucial questions for contractors.

At a minimum, it is essential for construction professionals to understand the basics of the Immigration Reform and Control Act (IRCA) of 1986 and E-Verify. By now, most business owners in the construction industry are familiar with E-Verify, as well as federal I-9 forms, which must be completed pursuant to IRCA. But with immigration reform becoming a hotly debated issue in the U.S., contractors should not only be prepared to comply with existing laws, they should also pay attention to what changes the future could hold.

IRCA

IRCA, a federal statute, makes it unlawful to hire “unauthorized aliens”, which the law defines as individuals who are not “lawfully admitted for permanent residence” or not otherwise authorized by the attorney general to be employed in the U.S. [8 U.S.C § 1324a(h) (2012)]. IRCA is the statute that requires all employees and employers to complete I-9 Forms; the employer must then retain the original forms during the employment of each active employee (and for three years after employees become inactive or are terminated). The statute’s intention is to require every employer, regardless of the number of individuals it employs, to verify all employees hired after Nov. 6, 1986, are authorized to work in the U.S.

As a practical matter, compliance with IRCA likely won’t ensure all employees are authorized to work in the U.S. However, correctly filling out the I-9 Form is crucial to avoid fines and other penalties from Immigration and Customs Enforcement (ICE), Washington, D.C. Employees and employers have obligations regarding the I-9 Form, so cooperation between both sides of an employment trans- action is key. Under IRCA, ICE has the authority to inspect I-9 Forms and conduct audits to ensure employers are complying.

Common, but often innocent, mistakes are made. For example, employers often fail to check the “status” box on the I-9 form or fail to have the employee sign the form. Also, inaccurate classification of employees as “active” or “inactive” can lead to trouble for employers who have stopped maintaining I-9 forms for employees who no longer work for the employer but who are still classified as “active”. Instituting company policies on what constitutes an “active” and “inactive” employee, as well as ensuring proper completion of I-9 forms, can help prevent ICE audits and the fines that could result.

E-VERIFY

Unlike IRCA, E-Verify is not a statute but an Internet-based system that allows businesses to determine the eligibility of their employees to work in the U.S. In many cases, E-Verify will more accurately determine an employee’s eligibility to work than the I-9 Form system under IRCA. E-Verify is available to all U.S. employers free of charge by the Washington-based U.S. Department of Homeland Security (DHS) but it gene- rally is not mandatory for employers.

Although E-Verify is technically voluntary, numerous states have enacted provisions requiring most employers to use E-Verify. These states include Alabama, Arizona, Colorado, Georgia, Idaho, Indiana, Florida, Louisiana, Minnesota, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Utah and Virginia. Additionally, pursuant to a presidential Executive Order and a subsequent Federal Acquisition Regulation rule, federal contractors—or those contractors doing business with the federal government—must use E-Verify.

Again, except in certain circumstances, enrollment in E-Verify is voluntary. Once enrolled, however, employers are required to post English and Spanish notices indicating the company’s participation in the program, as well as the Right to Work issued by the Office of Special Counsel for Immigration- Related Unfair Employment Practices, a division of the U.S. Department of Justice, Washington. These posters must be visible to prospective employees. To enroll, an employer simply needs to visit the E-Verify website and begin the process. Next, the employer enters into a written Memorandum of Understanding (MOU) with DHS and the U.S. Social Security Administration (SSA), Washington. This MOU provides the responsibilities of each party— employer/federal contractor, SSA and DHS.

BROADER ACTIONS

In recent years, President Obama and state governments have implemented changes to immigration law and policy that are impacting the construction industry. President Obama, in response to Congress not passing an immigration reform bill, announced a number of executive actions in November 2014. One such measure would allow certain undocumented immigrants to temporarily remain and work in the U.S. without fear of deportation. Because of pending litigation, this measure has not yet taken effect.

Although President Obama has attempted to prolong some immigrants’ ability to legally work in the U.S., several states have enacted legislation that could do the opposite. While the 19 states previously listed had made E-Verify mandatory for certain employers, some states have broadened the scope of situations requiring employers to use it. North Carolina, for example, had required all employers with 25 or more employees to use E-Verify as of 2013. But in October 2015, Gov. Pat McCrory signed into law a bill that requires all contractors and subcontractors on state construction projects to use E-Verify (N.C.G.S. § 143-133.3). The statute appears to require this without regard to a contractor’s number of employees, bringing North Carolina a step closer to South Carolina’s zero-tolerance policy for employment of undocumented immigrants.

In South Carolina, private employers who fail to E-Verify new hires could lose their licenses to do business in that state [S.C. Code Ann. § 41-8-10, et seq. (2012)]. The South Carolina law, and similar laws, easily could affect contractors from other states with more lenient policies; however, the South Carolina statute defines “private employer” to include any company transacting business in South Carolina, required to have a license issued by any state agency (including a business or construction license) and employing at least one person in South Carolina. Therefore, companies outside South Carolina that have a South Carolina office—or just one employee in South Carolina—likely will have to use E-Verify, which is becoming required in an increasing number of locations.

EMPLOYEE MISCLASSIFICATION

Importantly, E-Verify does not apply to independent contractors; companies that are required to use E-Verify need only verify the status of employees, not of independent contractors that contract with the company for work. This is noteworthy in light of another trending issue in the construction industry: employee misclassification. Employee misclassification occurs when a business wrongly classifies an employee as an independent contractor or vice versa. This is a violation of the federal Fair Labor Standards Act.

According to the U.S. Department of Labor’s (DOL’s) website, the DOL’s Wage and Hour Division is engaging in “strategic enforcement” to identify instances where companies are identifying workers as independent contractors even though they function like employees. Whether companies could be penalized for failing to E-Verify independent contractors who should have been classified as employees is unclear. However, it appears that eventually many employers will have to reclassify workers who are currently classified as “independent contractors” to “employees” to comply with federal contracts, state contracts or state laws that require use of E-Verify. It appears that this will inevitably result in employers being required to use E-Verify on an increasing number of workers.

A Roofer’s Guide to Safely Navigating the OSHA Employee Interview Process

The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

OSHA is asking questions. Are your employees ready to answer? When OSHA visits your next job site they will undoubtedly engage in what is known as the “Employee Interview” stage of the inspection. This is the part of the OSHA inspection where the compliance officer has the right to take your employees aside and interview them regarding company safety and health policies. The inspector will attempt to question your employees on everything from fall-protection equipment, company-training practices and site-specific hazards. If your employees are prepared for these interviews and remember they have certain fundamental rights the OSHA inspector may not violate, your company has a much better chance of avoiding costly OSHA citations.

What Will OSHA Ask My Employees?

The OSHA inspector will without hesitation ask your employee if they have been trained on fall protection. The inspector will ask very specific questions regarding how the employee was trained, who performed the training and how often this training occurred. Employees need to be prepared to answer these questions, and company training policies should allow the employees to tell the inspector they are frequently trained by the company’s safety director or a third-party safety consultant. The employee should also be able to tell the inspector that he or she was trained once upon hire and retraining occurs at least once a year. Additionally, the employee will need to advise the inspector about any videos or lectures they are required to attend to complete the company’s training program. It will further support your defense if the employee notifies the inspector about any weekly toolbox talks or routine safety meetings they are made to attend at specific jobs.

All roofers should also be able to recite OSHA’s fall-protection standard. This has become a major source of citations in recent months and is easily preventable if employees are prepared for the OSHA interview. The employees must report to the OSHA inspector they are fully aware of OSHA’s regulation requiring the use of fall protection at heights of 6 feet or more above a lower level. It is not necessary for employees to identify the exact provision within the Code of Federal Regulations, but they must be able to tell the inspector they are trained to recall that regulations exist that require all employees working on a surface with unprotected sides and edges at 6 feet or more above a lower level be protected from falling by the use of a fall-protection system. The magic words required to support your company’s defense against this type of citation are 6 feet. The employee must tell the inspector they always wear fall protection when working at a height of 6 feet or more.

Another favorite interview tactic of the OSHA inspector is to question an employee on the dangers of a fall. Often times this question is so alarmingly simple roofers have trouble giving OSHA the correct answer. If OSHA asks employees if they are aware of what happens if someone falls from a roof, the best possible answer will always be to inform the inspector they have been trained to recognize death or serious injury can occur from a fall. If an employee makes the mistake of reporting to the inspector that falls are not always dangerous or that roofers can some-times survive a fall, there is a strong chance the company will be cited for an inability to properly train employee on the hazards associated with a fall.

OSHA inspectors also prefer to ask employees if all falls are preventable. Most roofers would immediately reply that falls are preventable but construction is a dangerous and high-risk profession. This is not the answer your employees should provide to OSHA. The administration wants to know your employees are trained to recognize the fact that all falls are preventable. An employee should never tell OSHA that injuries are an unpreventable reality on a construction site. If OSHA inspectors ask your employees if falls are preventable, the answer should always be to inform the inspector that all falls are 100 percent preventable.

Must My Employees Speak to the Inspector?

OSHA has what is referred to as administrative probable cause. This gives OSHA the legal right to enter your job site and begin an inspection. OSHA’s powers essentially allow the administration to conduct inspections at almost any active place of employment. However, these powers do not give OSHA inspectors the right to detain or hold anyone for questioning against their will. The employees’ participation in the OSHA inspection process is completely voluntary. An employee may, under their own free will, choose to speak to the inspector, or the employee may choose not to speak to the inspector. It is very important to remember that an employer must never instruct, order or command an employee not to speak with OSHA inspectors when they arrive onsite. However, the employer has the right to educate his or her employees that no one is required to speak with OSHA if they elect not to.

How Long Can the Inspector Speak to My Employees?

If your employees voluntarily choose to speak to the inspector, the interviews must be completed within a reasonable amount of time. The Occupational Safety and Health Act states the interviews are to be completed in a reasonable manner. Additionally, OSHA’s Field Operations Manual conditions that interviews are to be as brief as possible. With such open time limitations, there have been varying arguments by OSHA and employers as to exactly how long an OSHA inspector may speak with an employee. It is traditionally accepted OSHA may take no longer than five to 10 minutes for field interviews with company employees. This amount of time can be less or more, depending on the type of investigation, knowledge of the employee, or if the inspection involves any injuries or fatalities. It is highly recommended the employees know their rights before speaking with the inspector. These rights include the employee’s ability to stop the interview at any time if he or she feels uncomfortable or believes the interview has gone on too long.

Can Our Company Attorney Be Present?

In almost all investigations, non-supervisory employees must speak to the inspector without the assistance of counsel. Supervisors, crew leaders and foremen are all entitled to an attorney during their interview because of the supervisory nature of their position. Administrative case law has held that any employee who has been granted authority over other employees is considered a supervisor. This authority has been defined as any time an employee is granted the ability to control the method and manner in which he or she performs assigned tasks. Employees who are not given supervisory responsibility and who do not have the ability to control the method and manner of the assigned work may speak to the inspector in private. However, always recall the interview process is entirely voluntary and the employee may request a company representative attend the interview with them. This is very important and is often overlooked by companies during OSHA inspections. If the employee specifically and voluntarily requests the interview take place with a supervisor or attorney present, the OSHA inspector must submit to the employee’s wishes.

How Should an Employee Handle Questions Regarding Training?

Company safety policies and training programs should be comprehensive and effective at all times. These training sessions, retraining classes and field safety exercises should result in a roofing crew that can recognize all hazards relating to our industry. The employees should be trained on each and every safety protocol to prevent against these hazards. If company training programs address all these issues, the employee will have no problem informing OSHA he or she has been trained on all relevant safety regulations. An employer is almost guaranteed an automatic citation if an employee simply concedes to an inspector that he or she has never received training in an area of roofing safety.

Inspectors will ask employees very complicated and confusing questions on a job site. This has been a major factor in recent citations and has resulted in significant penalties against roofers across the nation. For example, inspectors will often use technical or scientific language in an attempt to confuse a roofing employee to the point where the roofer acknowledges he or she has never heard of such terms. This sort of behavior from OSHA inspectors should not be tolerated if your employees are properly educated and prepared for OSHA interviews. An employee should not be coerced into telling an inspector they have not been trained or do not recognize a specific safety hazard. Instead, the employee should inform the inspector the company’s training program includes all hazards a roofer could face on a job, and if the employee is ever unsure of how to handle a specific safety issue, he or she need only refer to the company safety manual, which is always on the job site in every company vehicle.

When OSHA arrives at your next project, remember the roofing contractor who has properly prepared his or her employees for OSHA interviews will prevail. Today’s contractors must consistently defend their companies against OSHA and the federal government’s increasing involvement in the construction industry. However, a well-educated crew who has been informed of their rights with regard to the OSHA interview process can make all the difference when defending your company against an OSHA citation.

Fewer Contracts and More Coordination Point to Design-Build Becoming Even More Popular

When contractors and owners elect a certain project delivery method for their project, it can affect all aspects of the construction, including costs, time to complete the project and amount of exposure to liabilities for each involved party. Owners and designers have long viewed the “Project Delivery Method” as the comprehensive process including planning, design and construction required to execute and complete a building facility or other type of project. Choosing the right project delivery method is integral to a successful project. Currently, there are at least four types of common project delivery methods: construction management at risk (CMR), design-bid-build (DBB), design-build and multi-prime (MP). There is a growing trend showing the more traditional design-bid-build product delivery method is losing its appeal and other options, like the design-build delivery method, are taking its place.

To understand why the design-build process is growing in popularity, it is helpful to discuss three areas where the four processes are different: number of phases and essential parties, number of essential contracts and the liability exposure under the contracts within each method.

NUMBER OF PHASES AND ESSENTIAL ‘PRIME’ PARTIES

Traditional design-bid-build is the familiar, drawn-out process where the owner of the property contacts a designer to create plans and specifications. Once complete, the owner takes the plans and specifications and begins the bidding process. After a bid is accepted, only then can construction begin. The CMR and MP methods use similar processes, though the owners may contract to different parties instead of contracting with the general contractor (we’ll discuss this more later). Under design-bid-build, CMR and MP methods, a minimum of three players is necessary in every project: the owner, designer and the contractors in their various forms.

The design-build method uses an “integrated” process, whereby the designers and contractors are one-and-the-same entity. The process of designing and constructing occurs simultaneously and thus eliminates the lag time between an owner’s receipt of a design and the acceptance of a bid. Also, because there is only one entity performing the design and construction, the only two necessary “prime” parties are the owner of the project and the design-build entity.

NUMBER OF ESSENTIAL CONTRACTS

Another closely related factor to the number of phases and essential parties is the number of contracts created during the project. The traditional design-bid-build project first requires the owner to form a contract with a designer that will design the building or project in isolation and without any input from the construction team. CMR operates similarly again; however, it allows for input from the construction team as to what materials would be the most cost-effective and merchantable for the desired purpose. In these two processes, two contracts exist: one between the owner and designer and one between the owner and construction-management constructor.

MP requires the owner to contract directly with each contractor and subcontractor instead of with one general contractor. Under this process, a minimum of two contracts exists between the owner and the designers and contractors, likely increasing as the size of the project increases.

Conversely, the design-build process merges the designer and builder into one entity. Because the one entity handles both jobs, the contracting process is streamlined and results in only one contract between the owner and design-build entity.

LIABILITY EXPOSURE UNDER THE CONTRACTS

As the volume of contracts involved in the project increases, the more fragmented the liability exposure becomes. In the design bid-build, MP and CMR methods, the owner first secures the designs from the designing entity. When the owner hires the constructing entity, he or she warrants to the constructing entity that the designs and specifications are sufficient for its hired purpose. The designer and the contractors are independently responsible for their work product, but the owner is still held responsible for any representations made to either entity. Although the CMR method attempts to foster the communication between the designer and contractors, no contract exists between the two and, therefore, liability remains on the owner for all
representations made. Further, any change orders, which frequently arise, and any other “gaps” are solely the responsibility of the owner.

Design-build removes the wall that is frequently erected when construction projects go wrong. Frequently during litigation involving the design-bid-build process, designers will attempt to avoid liability by pointing the finger at the contractors and vice-versa. Design-build, by creating a merged entity including the designer and the contractor, places the responsibility of designing and constructing with that one entity, which facilitates problem resolution instead of gearing up for an adversarial proceeding. Therefore, the design-builder is responsible not only for designing the project so that it will satisfy the desired standards, but it must also complete the project required by the owner in the contract.

As for “gaps” with the design-build process, they are essentially eliminated. The entity is performing both roles. Should the owner provide the design-builder with prescriptive designs and specifications, however, the design-build contractor is the party
responsible for discovering any inconsistencies with the performance standards by which they are bound. Any consistencies found will be the financial responsibility of the owner.

FEWER BUMPS

It is easy to see why the design-build process is growing in popularity. Costs are decreased by streamlining the process in many ways: an overlapping process of concurrent designing and constructing, fewer required contracts, and the ability of the contracting entity to adapt to the changes in design and construction. Although liability exposure is more concentrated in the design-build entity than in the other methods, the benefits of coordination between the designer and contractor will surely outweigh its detriments.

In addition to making the project delivery process easier, fewer bumps along the way will surely decrease the time and costs associated with the completion of a project. As we follow the trend toward a more design-build-focused construction industry, we will likely experience a positive effect on the litigation process, where claims will arise only between two parties as opposed to the requisite three parties in a traditional design-bid-build-based action.

A Case Involving Uber Has States Revisiting Employee versus Independent Contractor Status

When it comes to employment misclassification, no industry is safe. Employee misclassification occurs when an employer improperly classifies a worker as an independent contractor rather than as an employee. Misclassification can be intentional and unintentional and it generally results in avoidance of employment taxes and other potential liabilities.

While misclassification is prevalent in the construction industry, the issue recently resurfaced in a case involving San Francisco-based Uber Technologies Inc., the increasingly popular transportation network company wherein drivers use their own personal vehicles to transport customers to and from their destinations. Uber drivers and customers use a mobile-phone application that allows drivers to indicate whether they are accepting rides and allows customers to locate drivers and pay their respective fares. Uber has always classified its drivers as independent contractors.

In a recent hearing, the California Labor Commission challenged Uber’s classification of its drivers and reviewed whether Uber drivers were actually employees. Uber looked to the drivers’ exclusive control over their schedules and which ride requests to accept to support their contention the drivers were independent contractors. To Uber’s dismay, the commission ruled Uber drivers were, in fact, employees, entitling them to various benefits, including health insurance, unemployment benefits and workers’ compensation. As a result, Uber also was forced to cover certain business expenses, including toll reimbursements and mileage. Of the labor commissions addressing the Uber issue, the California Labor Commission’s decision directly conflicts with rulings in five other states: Colorado, Georgia, Illinois, Pennsylvania and Texas. All of these states’ commissions held that Uber drivers were independent contractors.

As employee misclassification gains more visibility, more states are reevaluating how to properly classify workers. The North Carolina General Assembly, for example, is attempting to pass a law that would expressly define the factors that would determine whether a worker is an employee or independent contractor. A few of the factors being considered by the North Carolina Legislature in House Bill 482 include:

  • Whether the individual is engaged in an independent business, calling or occupation.
  • Whether the individual is paid a fixed price, a lump sum or upon a quantitative basis for the work performed.
  • Whether the individual is not subject to discharge because he or she adopts one method of doing the work rather than another.
  • Whether the individual is free to hire assistants as he or she may think necessary and whether the individual has full control over such assistants.
  • Whether the individual selects his or her own time.

In addition to the much-needed clarification, the bill also proposes a penalty provision, where repeated intentional misclassifications by employers of their employees as independent contractors will trigger a $1,000 per employee liability. The bill would also create a five-member investigatory team and an amnesty period that would provide an opportunity for employers to self-report their current misclassifications. The “temporary amnesty program” will provide misclassifying employers with
immunity from civil penalty and enable to re-classify their workers to their correct designation.

Other states, like Texas, who have already enacted a similar law, are successfully discovering and reclassifying misclassified employees. In 2013, the Texas Labor Commission conducted 6,158 audits—752 of which were in the construction industry. Of the 752 businesses, 37.6 percent were found to have at least one misclassified employee. A total of 3,638 employees—an average of about 16 per business—were misclassified as independent contractors. The construction industry had one of the highest percentages of misclassified employees among all industries.

An investigative series, “Contract to Cheat”, published in a number of Sacramento, Calif.-based The McClatchy Co.’s newspapers in 2014, revealed just how prevalent the misclassification issue is in the construction industry in high-development areas, such as North Carolina and Texas. The series resulted from a year-long investigation into U.S. Housing and Urban Development, Washington, D.C., and other government projects that were completed during the government stimulus era of 2009-13. Payroll records of 64 HUD projects with budgets of more than $1 million were released to the McClatchy investigators and revealed employee misclassification was rampant throughout the construction industry.

The series revealed, among other findings, that employers in North Carolina and Texas with government contracts, which general contractors accepted on the condition they would adhere to all government laws and ensure all their subcontractors would do the same, were misclassifying employees 35.2 and 37.7 percent of the time, respectively. Additionally, Florida, where, like North Carolina and Texas, the construction workforce includes a higher-than-average concentration of immigrant workers, also experienced misclassification of 15.5 percent of workers.

The McClatchy investigation estimated misclassification resulted in $467 million per year to North Carolina and $1.2 billion per year in Texas of lost tax revenue from employers and workers failing to pay employment-related taxes. Not only did employers fail to withhold mandated taxes, such as social security and unemployment taxes, but North Carolina independent contractors who attempted to comply with tax law underreported their income by 56 percent to the state and federal governments. In addition to abusing the tax system, the practice has made it more difficult for smaller, law-abiding employers to compete with employers who are strategically undercutting the competition, placing lower bids made possible by the illegal tax benefit of misclassifying employees.

Though not currently being considered by state legislatures, the opportunity to create a third classification may present itself in the future. Canada has employed the use of a third, intermediate category: the dependent contractor, which is technically a subset of the independent contractor classification. The dependent contractor is a hybrid classification that includes benefits of the independent contractor and employee classifications. Dependent contractors enjoy some of the protections provided to an employee, such as health insurance, severance protections, unemployment benefits, and workers’ compensation, but they still enjoy the flexibility of schedule and control otherwise held by independent contractors.

In Canada, the classification hinges upon the number of clients the contractor has. A dependent contractor—like many contract construction workers—has only one client and depends on that client for income and sustenance of their business. A contractor with more than one client is an independent contractor because they are not exclusively dependent upon any one client. Were a state to create a dependent contractor classification, legislators would then be tasked with determining which select employee benefits employers would be required to provide dependent contractors versus full-time employees.

Although Uber is appealing the California Labor Commission’s decision, the commission’s ruling is important because it has sparked a renewed discussion of employee misclassification across not only the transportation services field, but also in the construction industry, where, as discussed above, it has long been an important issue.

As more states review employee misclassification, it is imperative employers, employees, and contractors alike be aware of any changes to state and federal employment laws. While employers are frequent targets of employee misclassification enforcement efforts, “independent contractors” may also be held liable, especially when they willfully comply with intentional misclassification. An employer should never assume that paying a worker by the hour, or any one of the other factors set forth above, guarantees the worker should be classified as one classification or another. If you are concerned about your business’s employment practices, consult an employment law attorney in your area who can best advise you on your state’s employment laws.

Preferential Payments and Their Impact on Your Business

For a roofing contractor, there is perhaps no better feeling than receiving that last payment draw or retainage check at the end of a long project. Issues with the general contractor, concerns over change orders and pesky building inspections seem to disappear along with the check as it slides into the ATM. You breathe another sigh of relief when the check clears and the funds hit your account. You quickly pay your crew and suppliers and cross your fingers that you turned a profit. Just as quickly, you close your file and move onto the next job.

Months or years later, you receive an ominous letter in the mail bearing a green certified sticker. Peeling open the envelope, you find a letter, advising you that the contractor or developer you worked for 10 jobs back has filed bankruptcy. Not your problem, right? You read on and see the bankruptcy trustee is demanding you return the last payments that contractor made to you or risk being sued in federal court. Assuming you even made money on the job, those dollars are long since spent. What now?

This situation is all too real for thousands of roofing contractors around the country. How can a bankruptcy trustee take your hard-earned money or, worse, require you to pay back money on a job where you didn’t even make a profit? It all comes down to Section 547 of the Bankruptcy Code. When a company files for bankruptcy, a trustee is often assigned to administer that company’s assets and liabilities. In certain circumstances, the code allows a bankruptcy trustee to seek return of “Preferential” payments made to creditors within the 90-day period before the date the bankruptcy petition was filed (the “Preferential period”). This is also known as “clawing back”; the bankruptcy trustee is essentially attempting to take back payments made during the Preferential period while the company was insolvent. As unfair as this may seem, bankruptcy trustees in many instances are entitled to pursue these payments and commonly institute federal lawsuits against their claw-back targets

Your Defense

What can the target of a claw back demand do? Fortunately, the code provides several defenses to these actions. For the purpose of this article, I’ll focus on the most common, the “ordinary course of business” defense. In effect, the bankruptcy trustee may not claw back payments made in the ordinary course of business or financial affairs of the debtor (the company in bankruptcy) or made according to business terms (often a written contract). While it seems simple enough, the manner in which the court determines the normal course of business is something all contractors should be aware of.

To determine if a payment was Preferential and can be clawed back, the court may look at whether the parties’ business dealings changed during the Preferential period as compared to before the Preferential period. Here, seemingly innocuous changes in the parties’ behavior can often be all it takes for the court to mark a payment as Preferential and require the creditor to return it to the bankruptcy trustee.

One of the most common scenarios occurs when the debtor (typically the owner or general contractor or whoever owes you the money) makes late payments. For example, consider a situation where the contract between the parties called for payments to be made within 30 days and in fact all pre-Preferential period payments were received within the allowable timeframe. The debtor then begins making late payments, 35 days, 45 days, etc., and shortly thereafter files for bankruptcy. Under this scenario, the court may determine these late payments were made outside the normal course of business and thus you as the creditor would be forced to pay the bankruptcy trustee back for each such payment. However, if you could perhaps show you previously worked on other jobs with this debtor and late payments were not uncommon, you may succeed in defeating the attempted claw back.

Another typical scenario deals with unusual debt-collection efforts by a creditor. In this situation, if the court determines that you as the creditor undertook atypical debt-collection practices (for example, refusing to deliver supplies until payment of outstanding invoices is made), it may consider it evidence that the Preferential period payments made in response to the collection efforts were made outside the ordinary course of business. Once again, if you could show the court that this scenario typically occurred on other jobs with this debtor you may still defeat the claw back.

Protect Yourself

So what can we learn? Claw back situations should be a very real concern for roofing contractors as they often do not manifest themselves until months or years after a particular job or contract was completed. Although there is no fail-safe mechanism to prevent claw back scenarios, roofing contractors can protect themselves in several ways, including continually monitoring the financial condition of those they contract with, requiring payment on delivery of service or materials, keeping detailed records, strictly adhering to the ordinary course of business, and requiring a letter of credit when the entity with whom they contract is utilizing a bank or financier.

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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Pay Per Click Marketing for Roofers

Homeowners never know when Mother Nature is going to cause significant damage to their roof. Every house is only one bad storm away from thousands of dollars in repairs. In today’s market the majority of homeowners turn to Google, Bing and other search engines to find roofers that can come to the rescue.

I specialize in Pay Per Click (PPC) management. PPC is a form of Internet advertising in which advertisers pay a fee each time their ad is clicked.

PPC can be a powerful tool to generate new business. It is the only way to guarantee that your website appears when a potential customer searches for a term relevant to your business. However, it can also be an expensive waste of money if your account is setup incorrectly. Whether you decide to manage your PPC campaign in-house or outsource it, you need to follow these tips to make the most from your marketing budget:

Set up the Campaign Correctly

The first tip is also the most important. Make sure your campaign is set up correctly so every single website visitor you get is a realistic prospect for your services. PPC can be a black hole if you are paying the search engines for irrelevant terms, like “roofing equipment”. Also, if your account is not set up correctly, you could be paying for clicks that are completely out of your service area.

Remember, even if you get a bad click, Google still gets paid! Make sure your campaign is laser-focused, so that the keywords, location, device and time of day is most likely to turn into a sale.

Highlight Offers and Specials

For all of your ads you need to make sure you highlight specials and features about your company that will separate you from your competitors. The basic fundamentals are always going to remain the same, but you need to give customers a reason they should be excited to do business with you.

Pay Google and Bing Directly

If you outsource your PPC, it is best to work with a company that has the search engines charge you directly. PPC agencies charge a separate management fee for their services. If you pay a lump sum, then the PPC company does not have to tell you how your budget was divided. Keep in mind the average PPC management fee is about 20 percent of your total spend on Google, Bing and other search engines.

Also, if a PPC agency spends less on clicks for a particular month, then you should be the one to keep the money!

(PPC requires an in-depth knowledge of Google AdWords. It is deceptively easy to create a campaign in-house but I recommend working with an expert to make sure you are maximizing your marketing budget.)

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Essential Ladder Rack Features

As a roofing professional, you rely very heavily on your ladder for work. Keeping that ladder secure during transportation should be a priority. If you recently purchased a new work vehicle or a new ladder and are in the market for a secure storage solution for your ladder, it’s important to understand all of your ladder rack options before you make an investment.

At first glance, a ladder rack is just that—a piece of equipment that attaches to the roof of your van or truck to aid in the transportation of your ladder. But did you know that different ladder racks have different elements that may benefit you as a roofing professional?

Take a look at some of the most important features to consider when shopping for a ladder rack for your work vehicle:

  • Ergonomics: You use your ladder on a daily basis, if not more! Overtime, all of that loading and unloading can really take a toll on your back, shoulders and overall body. Even if you’re in fantastic physical shape, if you twist wrong or lose your balance while unloading a ladder, you could get seriously injured. An ergonomic ladder rack is ideal for professionals just like you. These types of ladder racks allow users to lower the ladder down to an easily reachable height. No more straining to reach your ladder!
  • Security: When you choose a ladder rack, you will want to make sure that it’s one that will keep your ladder secure during transportation. The last thing you want is to deal with a lawsuit because your ladder fell off your vehicle’s roof while driving. Look for ladder racks with lockable, gripping mechanisms to ensure safe transportation of your ladder.
  • Durability: No one wants to invest in a ladder rack just to have it rust out in a few years. Like with most products, the cost of a ladder rack is often directly correlated with its quality. A high-quality ladder rack may have a high sticker price but, in the long run, its durability and reliability will prove to be more cost-efficient. However, if you’re just looking for a short-term solution, a cheaper ladder rack maybe a better fit for your situation.
  • Versatility: Sometimes you may need to transport things other than your ladder on the roof of your work vehicle because of their size. If this is the case, you may want to consider a roof storage solution that has the ability to secure ladders and cargo. Look for a utility rack that features heavy-duty tie-down cleats to secure loads on the roof while traveling. Ladder racks come in all shapes and sizes with many different features available. So if you’re in the market fora new ladder rack, do your homework before you buy to ensure you’re getting the right product for your trade.

Lessons Learned During a Merger

In August 2014, I purchased the assets of a fourth-generation, 133-year-old roofing contracting company with which I had been competing locally for a few years. As a relatively new contractor in the area (I had been in business just under nine years), I wanted a larger share of the commercial roofing market. The clients I hoped to inherit with this acquisition would help me to accomplish that goal.

I had no formal business training, nor knowledge of how to make such a merger work. I started my company with very little industry experience back in 2005; I had a working knowledge of roofing and a desire to be my own boss. Things had gone well, so I trusted that my instincts would guide me through the merger. I was operating on nothing more than a gut feeling that this merger would be a good thing and a blind assumption that I would be able to handle whatever challenges might come my way.

I began the dialogue with the company’s owner in early 2013 and it took until August 2014 to close the deal. There were plenty of challenges created by this process—definitely some things I handled well and some I did not.

The primary goal of this acquisition was to retain the company’s customer base, thus growing my own. Relationships were in place that went back years, even generations, and maintaining those relationships was of utmost importance. I had a plan in place to personally visit with or reach out to all of these customers within the first two weeks. I thought this would be one of the main challenges—certainly the most important thing to get right—but, surprisingly, it was one of the easiest things to achieve. The previous owner assured these customers I would continue to take care of them well and I think these customers’ trust and loyalty already was so solid that the accounts transferred over to me almost without question. As planned, I personally met most of my new customers within the first couple weeks, continued to serve their needs with the same people and took care of them with the same high level of service to which they had become accustomed. I am proud to say, after six months, we have retained 100 percent of these customers.

I am fond of saying, “I don’t know much, but I know exactly what I don’t know.” It’s the tenet to which I attribute what modicum of success I have had. I knew that I did not know how to manage a process like this! It was definitely a good move on my part to work with a consultant. It did not answer all the questions, nor did it eliminate all mistakes, but the insight and advice of someone who had been through similar processes was invaluable.

Before we closed on the deal, I told myself that despite what problems, issues or frustrations might arise, I would treat the first five months as an observational period rather than a time to implement changes. I was patient and held true to that timeframe. Trust takes a while to establish and people take a while to know. I am glad I waited to learn what I needed to know before making any significant changes.

The biggest challenge the merger created was in dealing with the significant increase in my employee count and all the associated human-resource issues that resulted. I had kept my business pretty light on hourly employees in the field, whereas the company I purchased had close to 30 full-time roofers. I had written an employee handbook prior to the merger but many of the policies had not yet been questioned or tested. Of course, in the first few days after the merger, I had a wave of guys coming at me with issues and problems with the new systems to which they would be subjected. I modified a few policies based on legitimate concerns and to ease the transition while I held firm on others. I should have had clearly defined and time-tested policies in place, so I would have been better prepared for the questions I was asked.

In hindsight, I think the biggest mistake I made was to agree to keep this sale completely confidential until the deal was confirmed and I had officially taken over. This meant the first time I met any of the employees they were already on my payroll. There had been no opportunity to meet existing employees, interview the office staff, or gain any insight into systems and processes prior to the day of the merger. I basically had to jump right in! That could have been avoided and would have prevented a lot of stress and at least one early layoff I had to make.

I should definitely have hired, if only temporarily, an additional office person to assist with the mountain of paperwork that was created. We used a Small Business Administration loan to finance the purchase, which added significantly to an already overwhelming workload. A backlog of paperwork was created that took a few months to sort out.

Although I do not consider the merger process completed, we are definitely over the hump and, despite a few challenges, it has turned out as I hoped it would. Our commercial revenues have increased as forecast and I feel good about the fact that, had I not purchased this business, the employees I gained would be unemployed right now. Instead, they are part of a growing company that aims to provide long-term security for them and their families.

Twice in the same day earlier this month I was asked, “What one thing have you learned from the process of buying another business?” I did not have a clue how to answer that question. Certainly I have learned a great many individual lessons and become the wiser for it, but I’m not sure how to boil it down to one thing. I guess it can be summed up with my favorite cliché:
“That which does not kill you makes you stronger.” Mistakes are inevitable, and they are good. If you are afraid to make them, you will accomplish nothing. You will learn way more from one mistake than you will from 10 good decisions. People will not notice your mistakes nearly as much as you think. So don’t hesitate; make the call; learn from it if you can; and move on.

On a personal note, I owe a very heartfelt and big thank you to Horace Thompson King III (Tommy) for being such a pleasure to work with and for making a difficult process much easier than it could have been.

Perseverance Will Keep You Ahead of the Competition

I have never climbed a ladder to inspect a job my company bids on, but that has never been an obstacle to winning roofing contracts. I know a great many roofers who have climbed the proverbial “ladder” to the top of a company they now run from the windowed corner office. A lack of hands-on experience has never been an obstacle for me. In fact, just ignore that I’m a woman working in a predominately male construction industry and I will also ask you to disregard that I’m paralyzed from the chest down. That has not been an impediment either—as difficult as that may be to believe.

No, I have not allowed this long list of potential challenges to be an obstacle (for long!) to my business success. Doing so would just not make good business sense.

When I see an obstacle in business, it’s a boulder in the road and my business sense shifts into full gear: Get over it, around it, smash through it or phone a friend with a crane. I never choose another path. I never give up. I simply don’t allow an obstacle to loom larger than my own determination.

The unwavering willingness to “get the job done” is a common thread I share with many hard-working roofers. However, there is a secret weapon that separates those who marginally succeed and those who are, well, let’s just say “comfortably successful”. I call it perseverance.

Many industry people are silently nodding their heads in agreement saying to themselves, “yeah, that’s me”. But are you too comfortable? It takes more than true grit to persevere in the highly competitive roofing business world of today.

Not only do we face the ever-present competition, there are increased regulations, greater safety standards, high costs for workers’ compensation, not to mention the shrinking pool of qualified professional roofers. We have a lot that challenges us!

Today, perseverance will cement your future success because if you don’t stay ahead of the curve, boulders, like the newest technology, higher industry standards in energy efficiency, new and improved environmentally responsible products and guaranteed safety standards, will stop you. These boulders require greater perseverance, as does meeting customer demands for knowledge and understanding their needs.

To persevere in the roofing business, you have to continue to challenge your team (and yourself) at every turn. Encourage learning and invest in employee training and professional development. As a business owner, I take the lifelong approach to learning in my business. When I had questions and was hungry to learn more about how to run a successful business, I reached out to the community for answers. I discovered allies, like The Women’s Business Development Center that provides workshops, business counseling, networking and access to knowledge that empowered me. No matter where you are in business, you have to keep learning and growing to persevere. Even the largest of boulders look small in the rearview mirror once you have overcome them.

In 1999, I was a young sailor in the U.S. Navy when Hurricane Floyd blew into Virginia where I was stationed and hurled me off a balcony that was just 1-story up. That gust changed my physical world forever. But I had something that storm could not steal from me: perseverance—a willingness to overcome challenges and a commitment to succeed. There are blockades up for each of us, but there are also ways around them, over them and through them if you refuse to accept failure as an option.

My military training has always helped me to stay “mission focused” with a commitment to excellence. The Navy also gave me a strong work ethic and the ability to work under pressure. It taught me to put an emphasis on teamwork and gave me the leadership skills to build a great business. I seek out opportunities to not only learn and grow, but also to become involved in communities of knowledge, such as The Bunker, the nation’s first veterans incubator for small businesses.

Although being a woman- and service- disabled veteran-owned business can bring advantages over many competitors, I still have to earn each and every opportunity. We have been successful at this by building relationships with our customers and earning their trust by performing projects on time, on budget, and with the quality and safety expected. In addition, just as importantly, we bring determination, knowledge and truckloads of professionals who gladly climb all kinds of ladders for me.