Vol 18, No. 9 (518) 869-9800 March 2000
Inside this Edition: DOL Policy Shift Could Be Very Costly * President's Message * Time Period For Suing a Surety * Help Wanted * U.I. Modifications Help Seasonal Workers * New York's Death Tax is Dead * NESCA Member to Open New Branch
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MEMBERS BEWARE!! DOL POLICY SHIFT COULD BE VERY COSTLY! (Go Top)
A recent development within the NYS Department of Labor regarding fringe benefit plans contributed to by open shop contractors and subcontractors who engage in public contracts could have severe fiscal implications for those businesses. In addition, both union and open shop prime contractors who have open shop subcontractors could be substantially affected as well since prime contractors are ultimately responsible for the payment of prevailing wages and supplements by their subcontractors. In April 1999, DOL issued a Notice which "clarified the manner in which the NYS Department of Labor enforces Article 8 of the Labor Law with regard to the payment of prevailing supplements." DOL covered two issues in its Notice which the agency contended "may not comport with the requirements under the Labor Law or the Department's regulations." Specifically DOL stated: 1) Contractors may not make payments into benefit plans on behalf of individual workers engaged on prevailing wage projects and use such payments to obtain benefits for individuals other than those on whose behalf the payments were made ("pooling"). 2) Contractors may not make payments for the period of time during which a worker is engaged on a public work project, yet use the payments to obtain benefits for a period of time during which the worker was engaged on a private project. In other words, for purposes of crediting a contractor's contribution toward prevailing supplements on public work, DOL will "annualize the benefits", which would reduce the credit the contractor would receive toward meeting his prevailing supplement obligation. The above essentially represented a policy shift by DOL, which had previously indicated it would only look to see that the proper dollar value in supplements was being contributed by a contractor on public work projects. The Notice was challenged in court by benefits provider Compensation Programs, Inc. (CPI), and on January 22, 2000 the judge ruled in favor of DOL. What does this mean for contractors and subcontractors who may be using a benefits plan under which benefits are not annualized or are pooled? It means that DOL intends to enforce its April 1999 Notice by penalizing contractors who they determine to have "underpaid" benefits concerning both the pooling and annualization issues. Worse yet, it appears DOL intends to apply this new rule retroactively, perhaps as far back as 2-3 years. This could represent a significant liability for many contractors and subcontractors! Recognizing the severe problem this new rule could cause within the construction industry, NESCA, along with GBC, AGC and ABC have met with Couch White LLP, an Albany law firm with expertise in this area, to identify ways to either challenge this new ruling or find other ways to mitigate the impact of the ruling on our respective members. Couch White also assisted the four organizations in developing a more detailed "Alert" which was recently faxed to all NESCA members. At the very least, members are strongly encouraged to immediately review your benefit plan situation with your attorney, accountant and/or benefit provider. NESCA will inform members about new developments as they occur.
As you can see by reading the lead story in this NESCA Newsletter, we have a significant problem brewing in the construction industry involving the Department of Labor and the payment of prevailing supplements on public work projects. It seems that DOL has decided to do a bit of an about face regarding fringe benefit plans, and enforce some new rules -- retroactively -- which run completely contrary to information provided over the last half dozen years to the industry by none other than -- the Department of Labor! At first glance, it appears this new DOL policy will have its heaviest impact on open shop contractors and subcontractors. However, upon closer examination it is clear that almost every contractor could be impacted, union and non-union alike. The DOL policy also raises some important questions. Since the "pooling" of supplements is a fairly common practice in many union benefit programs, will the Department also determine that union plans are not in compliance? Concerning the rationale behind DOL's new "annualization" policy, why do they say it's okay to pay supplements in cash during the time a worker is on a public project when you may not be making those same cash supplement payments to workers on private work? And given DOL's interpretation that the Labor Law requires supplements to be annualized, why haven't they required the prevailing wage itself to be annualized where there is a difference in wage rates paid on public and private work? Why does the Department insist that the information contained in the April 1999 Notice has always its policy when in the past contractors -- and contractor associations -- were repeated assured they were in compliance as long as the correct supplement amount had been paid on public projects? We expect to learn more in the coming weeks about how and to what extent DOL will attempt to enforce the Notice, but one thing already seems quite clear. We are witnessing a case of regulatory overreach at its worse. As more information becomes available, we will notify NESCA's membership. On another but perhaps related matter, enclosed with this Newsletter is a short survey regarding the possible establishment of a NESCA Legal Defense Fund. For several months now, NESCA's Board of Directors has been entertaining the idea of setting up a Legal Defense Fund as a means of pursuing the common goals of our members in the courts. I ask that you please take a minute to complete the survey and fax it back to the NESCA office. Given the aforementioned activities of the Department of Labor, perhaps a Legal Defense Fund is an idea whose time has come. On March 7th, the NESCA/ GBC/ECA Educational Partnership will hold a seminar on "Insurance Forms and Documents Administration for the Construction Industry". This will be a very practical, hands-on workshop intended for those on your staff who handle the insurance-related issues for our company. Participants will be educated on how they can more efficiently and accurately handle such things as bid & performance bond requests, satisfying bank requirements, insurance certificates, tracking and ordering enforcement requests, and much more. All members were mailed a flyer and registration form for this seminar. I encourage you to register.
Brian B. Carmer President
TIME PERIOD FOR SUING A SURETY DETERMINED BY COURT OF APPEALS (Go Top)
In a recent decision, New York State's highest court determined that the limitations period in which to bring suit under the State Finance Law provisions which allow subcontractors to sue sureties on public improvement construction bonds to be one year from the date the subcontractor demands final payment and 90 days have passed since the subcontractor ceased work on the project. Windsor Metal Fabrications, Ltd. v General Accident Insurance Co. of America, 74 N.Y.2d 124, 700 N.Y.S.2d 90 (Ct. App. 1999). The Court of Appeals, overruling the Appellate Court's decision, further held that the time frame in which to sue the surety under the State Finance Law may not be extended or overridden by any provisions of a subcontract. State Finance Law Section 137(4)(b) states: "No action on a payment bond pursuant to this section shall be commenced after the expiration of one year from the date on which final payment under the claimant's contract became due". Further, under State Finance Law Section 137(3), the right to sue the surety on a payment bond applies to anyone who has furnished labor or material pursuant to a subcontract made directly with the contractor, and who is not paid within 90 days "after the day on which the last of the labor was performed or material was furnished." The Court, noting that the State Finance Law provisions set the beginning and end point measurements for a lawsuit against a surety, determined that the issue before it hinged on the definition of "the date on which final payment under the claimant's subcontract became due." In Windsor Metal, Eberhard Construction Co., the general contractor on a public improvement contract for the construction of a healthcare facility, held the prime contract with the State of New York. Plaintiff Windsor Metals Fabrication, Ltd. ("Windsor"), was the subcontractor on the project, and General Accident Insurance Company of America ("General Accident") provided the statutory payment bond for the project. The bond was issued pursuant to State Finance Law Section 137 and stated as much therein. In Windsor Metal, the prime contract with Eberhard was terminated by the State on March 28, 1995. On April 19, 1995, Windsor filed a demand for arbitration against Eberhard pursuant to an arbitration clause in their contract. On April 2, 1996 Windsor won the arbitration award against only Eberhard, who was insolvent. Windsor then turned to General Accident for recovery and General Accident denied this demand for payment. In 1997, Windsor sued General Accident and the Supreme Court granted summary judgment to General Accident based on the statute of limitations under State Finance Law Section 137(4)(b). The Appellate Division reversed the lower court, relying on specific provisions of Windsor's subcontract and finding that none of the final payment provisions in the subcontract could operate to raise a time bar. The Court of Appeals reversed, dismissing Windsor's complaint as untimely. In its decision, the Court focused primarily on when the one year limitations period begins to run under State Finance Law Section 137(4)(b). Upon a thorough review of the legislative history of the relevant sections of the State Finance Law, the Court concluded that the one year limitations period "starts at a point when a subcontractor who has directly contracted with a general contractor has submitted an invoice for final payment (or given a functional equivalent thereof) and 90 days have passed since the subcontractor has ceased to work on the project." The Court thus determined that subdivisions 3 and 4 of Section 137 of the State Finance Law must be read together in determining the relevant one year limitations period. The Court further held that contractual provisions between a subcontractor and general contractor cannot modify this starting point and date for the statute of limitations. Windsor asserted that the arbitration provision in its subcontract would allow Windsor to measure the one year limitations period for a lawsuit against the surety only after the arbitration with the general contractor was complete. The Court found this argument unpersuasive for policy reasons, noting that this approach would "override the statutory formula [of State Finance Law Section 137]". The Court, although observing that their holding yielded the "ironic result" of a subcontractor losing the ability to file a timely lawsuit by a statute specifically enacted to protect the rights of subcontractors, determined that their decision followed the intent of the legislature in enacting State Finance Law Sections 137 and 138. In conclusion, subcontractors similarly situated are wise to bring a suit against a surety even if the subcontractor thinks the suit may be stayed pending resolution of arbitration with the principal. The subcontractor surely is better off bringing a premature suit than a late one that gets dismissed, as was the case in Windsor Metal Fabrications, Ltd.
Terence J. Burke NESCA Legal Counsel
The Door Division at KAMCO Supply Corp. is accepting applications for the following positions: Estimator/Project Manager Estimating and Project Management position for hollow metal doors and frames, wood doors, architectural hardware, toilet partitions and accessories. Experience a plus but not required. Understanding of blue prints and specifications a plus. Will train right person. Welder/Fabricator This position requires MIG welding experience, basic math skills with a strong emphasis on adding and subtracting fractions, attention to detail. Shipping/receiving experience a plus but not required. Experience reading templates a plus but not required. Will train right person. A pre-employment drug test is required. Interested persons should mail/fax their resume to: Brian Milanese, Door Division Manager, KAMCO Supply Corp., 5 Forts Ferry Road, Latham, NY 12110. Phone: 786-3681, Ext 228. Fax: 786-1955.
U.I. MODIFICATIONS HELP SEASONAL WORKERS (Go Top)
Governor Pataki has signed into law legislation that will aid seasonal workers by modifying eligibility criteria for unemployment insurance. This legislation addresses a issue that was created by the U.I. modifications enacted in 1998, and will now ensure workers are eligible for U.I. if employment is not available due to seasonal factors. This modification of the unemployment insurance law will put a cap on the high quarter amount used in calculating U.I. eligibility, thereby allowing claimants with large earnings in one quarter to qualify for benefits even though they earned relatively little in the other three quarters. Previously, a claimant established eligibility for U.I. by showing that he/she earned 50 percent of the amount earned in his/her best earnings quarter in the other three quarters of the year. This formula was criticized by claimants, particularly in the construction industry, who earned a large amount of money in a single quarter, but much less in the other three.
NEW YORK'S "DEATH TAX" IS DEAD (Go Top)
New York's infamous "death tax", the portion of the estate tax that was imposed by New York State, has been eliminated leaving only that portion of the tax required by the federal government. Beginning February 1, 2000 that estate tax has become a "pickup tax". This will eliminate state taxes for estates under $675,000, more than 80 percent of the estates that would have paid taxes before this tax cut was enacted. The only tax that will remain in place above $675,000 is one required by the federal government and no more than the tax imposed in any other state. Under the terms of the tax cut legislation, New York's estate tax will be replaced with the pickup tax equal to the maximum credit for state death taxes, which federal law allows against the federal estate tax. Equalizing the state's estate tax with the federal tax credit, in effect, eliminates any separate New York tax for estates. This action will eliminate the tax altogether for most New Yorkers. The cut will also benefit estates of more than $675,000 by reducing the tax liability by as much as 40 percent.
NESCA MEMBER TO OPEN NEW BRANCH (Go Top)
Jim Filipski, owner of Little Falls Lumber Co., has announced the opening of a new branch in Rochester, New York on March 1st. The store is located at 1187 Brighton Henrietta Townline Road, Henrietta, five minutes north of exit 46. The Rochester Branch will stock many products including all Dimensional Lumber, Plywood, BB Plyform, Nails, Chamfer Strip, Drip Edge, Waterstop, and Scaffold Plank.