Use of Arrest and Conviction Records in Employment May Be Discriminatory

by Laura Lapidus, Esq., CNA

In April 2012, the EEOC issued Enforcement Guidance No. 915.002, “Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964” (“Guidance”). It warns that blanket policies and practices that exclude all individuals with any type of criminal conviction record from employment may be discriminatory and in violation of Title VII.

One Size Does Not Fit All

Criminal background checks have long been an important part of the hiring process. These routine checks are valuable in mitigating the risk of negligent hiring claims. They can help prevent employers from hiring a worker charged with sexual harassment or who had a recent criminal conviction for sexual assault. Criminal record checks may also ensure that individuals, who were recently convicted of theft or fraud, are not hired as bank tellers.

However, background checks can lead to unintended consequences. For example, a decades-old marijuana possession conviction may preclude a perfectly capable, reformed, 50-year-old person from earning a job in which he or she may excel.

Blanket policies may result in “disparate impact discrimination,” a neutral policy or practice that has a discriminatory effect on a protected class or classes, even though no intent to discriminate exists. The EEOC references research indicating certain protected classes, such as African American and Hispanic men, have higher rates of criminal convictions. Thus, disqualifying an individual based upon a criminal conviction could have a disparate impact on those protected classes, and would violate Title VII unless an employer can prove that its policy is “job-related and consistent with business necessity.”

Background Checks and Screening Process—EEOC Guidance

Background checks remain legal and critical to the hiring process. But, rather than maintaining a blanket policy against employing individuals with conviction records, the EEOC encourages employers to develop narrowly tailored policies and targeted screens based upon each particular job to ensure exclusions are job-related and consistent with business necessity. The screening process, according to the EEOC, should focus on the:

  • Nature and dangers of the crime in question.
  • Time elapsed since the crime was committed.
  • Nature and risks of the particular job.

The EEOC further proposes that individuals with criminal records be offered individualized assessments. Such reviews would allow the individual to provide information employers may consider in determining whether the factors excluding those individuals from employment are, indeed, job related and consistent with business necessity.

The Guidance also indicates that the EEOC will defer only to federal laws that prohibit individuals with certain criminal convictions from holding certain jobs. Any employer that follows a state or local law which prohibits an individual with certain criminal convictions from holding a particular job must still demonstrate that its policy is job-related and consistent with business necessity. An employer cannot rely solely on a state or local law to provide justification for such an exclusion from employment.

The EEOC cautions that “convictions” and “arrests” are not the same. An arrest does not prove criminal conduct occurred, so excluding an individual from employment based solely upon an arrest record will not be job related or consistent with business necessity, and therefore, a violation of Title VII. However, an employer may make an employment decision based upon the conduct underlying the arrest if, after a factual inquiry, the employer determines the conduct that occurred renders an individual unfit for the position being filled.

Risk Control Recommendations

To comply with the Guidance and to mitigate the risks inherent in hiring:

  • Avoid across-the-board policies that automatically prohibit the employment of an individual based upon any criminal conviction.
  • Write narrowly tailored policies and procedures to govern the use of criminal background checks.
  • Review job descriptions and determine which specific criminal convictions that may render an individual unfit for a particular job.
  • Determine whether certain criminal conduct may be excused after a given time period, and if so, how many years should be relevant.
  • Document the justification for the policy and procedures, including consultations and research considered in crafting the policy and procedures.
  • Consider individualized assessments of applicants with criminal backgrounds.
  • Consider removing questions regarding criminal arrests and convictions from employment applications. Such questions may be asked in another form once a criminal background check is completed.
  • Focus on the dangers of particular crimes and the risks in specified positions when discussing criminal records with applicants.
  • Train hiring officials, managers and others involved in the recruitment and hiring process about Title VII prohibitions against discrimination, and train them to implement the employer’s policy and procedures.

Since the Guidance is not law, it remains unclear the extent to which the courts will agree with the EEOC’s position, although courts typically defer to the EEOC’s interpretation of Title VII. What is clear is that an employer should consult with an employment attorney to review and revise its policies and practices regarding criminal convictions before such policies and practices are challenged by the EEOC. Discrimination is against the law, and blanket policies that prohibit the employment of individuals with conviction records are more likely to be held as discriminatory, exposing employers to costly claims.

Additional Resources

Laura Lapidus, Esq., is CNA’s Management Liability Risk Control Director and provides risk control support to all of the insurance products which provide management liability coverage, with a focus on Employment Practices Liability insurance coverage. Lapidus has more than 25 years of experience in employment law. She has taught dozens of CNA’s School of Risk Control Excellence courses and webinars and has written various articles on employment practices issues.


Inflexible Leave Policies: Automatic Termination May Violate the ADA

by Laura Lapidus, Esq., CNA

The Equal Employment Opportunity Commission has stated its position with respect to employee leave policies. Once employees have exhausted their leave, their employers must determine whether they are considered disabled under the Americans with Disabilities Act and, if so, whether a “reasonable accommodation” is necessary to help them return to work. Inflexible leave policies that automatically terminate employees upon exhaustion of a maximum medical leave period, and in the absence of an individual assessment of whether an accommodation is necessary and possible, may violate the ADA and potentially result in litigation and consequent loss.

ADA Requirements

Many companies’ leave of absence policies provide for termination of employment if the employee fails to return to work within a fixed period of time, typically ranging from 12 weeks to one year. While such a policy may satisfy an employer’s obligation to provide unpaid leave under the Family Medical Leave Act or other similar laws, it does not necessarily comply with the ADA. The EEOC has stated that if the employee is a qualified individual with a disability, the employer must engage in an interactive post-leave process to determine whether reasonable accommodation is possible. Any policy that automatically terminates employment at the end of a set period, regardless of its length, prevents consideration of reasonable accommodation and will likely be viewed by the EEOC as a violation of the ADA.

The EEOC and courts have stated that an employer may accommodate a qualified disabled employee by granting additional unpaid leave beyond the requirements of the employer’s policy and other laws, such as the FMLA. Although a general consensus has emerged that indefinite leave is not a reasonable accommodation, no bright-line test exists to determine what length of unpaid leave constitutes a reasonable accommodation. Whether a request for a longer leave would be considered an undue hardship depends upon individual circumstances, such as the size of the company and the position held by the employee requesting leave.

EEOC Settlements

The EEOC has aggressively pursued organizations that maintain inflexible leave policies. For example, one company paid more than $4.8 million to settle leave-related claims alleging that it automatically terminated hundreds of employees who could not return to work after exhausting their 12 weeks of leave. The EEOC asserted that this policy violated the ADA because it did not allow for consideration of reasonable accommodation, such as additional unpaid leave. The agency also contended that the company’s policy of prohibiting employees from returning to work if there were any restrictions placed upon them violated the ADA. According to the EEOC, such a blanket prohibition precluded consideration of a reasonable job accommodation that would permit employees with restrictions to return to work in some capacity. EEOC actions against companies with inflexible leave policies have resulted in a number of significant damage awards and settlements, ranging into the millions of dollars. The loss potential of these lawsuits is high, as claimants often include many past and current employees.

Risk Control Measures

The following strategies can help employers mitigate the risk of potential ADA violations:

  • Understand the ADA and its regulations, especially the mandate to engage in an interactive process designed to explore reasonable accommodation.
  • Review policies and procedures to ensure they allow for consideration of a reasonable accommodation for qualified individuals with disabilities who have exhausted their initial leave. Options, which should be examined on a case-by-case basis, include additional unpaid leave, modification of job functions or reassignment to an open position.
  • Eliminate rigid policies and/or procedures that authorize automatic termination upon exhaustion of leave, or that limit employees’ ability to return to work unless they have “no restrictions” or are “100 percent able.”
  • Document discussions with employees regarding their needs and potential accommodations in order to demonstrate that an interactive process has occurred.
  • Retain an employment attorney to review any changes to policies and/or procedures prior to their implementation.
  • Educate managers regarding the ADA and its regulations, as well as the company’s own policies regarding leave and reasonable accommodation.

By following these simple guidelines, organizations can minimize leave-related risk and help ensure that their policies and procedures are both legally compliant and fair to employees.

Laura Lapidus, Esq., is CNA’s Management Liability Risk Control Director and provides risk control support to all of the insurance products which provide management liability coverage, with a focus on Employment Practices Liability insurance coverage. Lapidus has more than 25 years of experience in employment law. She has taught dozens of CNA’s School of Risk Control Excellence courses and webinars and has written various articles on employment practices issues.

The Americans with Disabilities Act—Important Resources to Assist with Compliance

by Laura Lapidus, Esq., CNA

The federal Americans with Disabilities Act, 42 U.S.C. § 12101, as amended by the ADA Amendment Act, Pub. L. No. 110-325, 122 Stat. 3553 (2008) requires employers to provide reasonable accommodations to “qualified individuals” with disabilities. Under the ADA, a qualified individual with a disability is an individual who satisfies the employer’s requirements for the job and can perform the essential functions of the job, with or without reasonable accommodation. The primary purpose of the ADAAA was to expand the definition of “disability” enabling more individuals to obtain protection under the ADA. As a result, in determining whether an employer has complied with the ADA, the focus has shifted from whether or not an individual is disabled under the law to whether or not the employer has engaged in an “interactive process” to determine what, if any, accommodation should be provided, and whether or not the employee’s disability can be reasonably accommodated without undue hardship to the employer.

Accommodating employees with disabilities may at first appear to be a daunting task, but there are many resources available to assist an employer. The Job Accommodation Network, a confidential service offered by the Office of Disability Employment Policy of the U.S. Department of Labor, provides useful information regarding implementation of the accommodation process. JAN’s Web site,, provides employers with a number of resources, both written and multimedia, which can be used to train managers regarding the ADA and the employer’s obligation to provide reasonable accommodation. JAN has an online search system, the Searchable Online Accommodation Resource, which an employer can use to research various types of disabilities and potential accommodations. JAN also provides complimentary telephone consultations to assist employers in understanding the ADA and the accommodation process.

Employers and others with human resources responsibilities may wish to bookmark on their computers for useful information about workplace accommodations and ADA compliance.

Job Accommodation Network Resources

  • Contact via telephone, live online chat, email or social media—
  • SOAR database—
  • Training, including webcasts and podcasts—
  • Online training regarding the interactive process—
  • Written handout regarding the interactive process—
  • Accommodation and Compliance Series: The ADA Amendments Act of 2008—

Additional Accommodation Resources

  • The ADA National Network—The ADA National Network is a national network of 10 regional ADA centers that provide, for employers, up-to-date information, referrals, resources and training on the ADA.; (800) 949-4232.
  • U.S. Equal Employment Opportunity Commission—The EEOC’s Web site contains articles, checklists, a glossary, and links to useful disability resources to assist in complying with the ADA.
  • Questions and Answers on the Final Rule Implementing the ADA Amendments Act of 2008—
  • Questions and Answers for Small Businesses: The Final Rule Implementing the ADA Amendments Act of 2008—
  • The Americans with Disabilities Act: A Primer for Small Business—

Laura Lapidus, Esq., is CNA’s Management Liability Risk Control Director and provides risk control support to all of the insurance products which provide management liability coverage, with a focus on Employment Practices Liability insurance coverage. Lapidus has more than 25 years of experience in employment law. She has taught dozens of CNA’s School of Risk Control Excellence courses and webinars and has written various articles on employment practices issues.

Has Unethical Behavior Reached a Breaking Point? Criminal Prosecution of Bad Acts in the Construction Industry

by Bruce R. Demeter, Esq., AIC

Elizabeth Perino was recently sentenced to one year and one day in federal prison for allowing her firm to be used as a payroll pass-through for a general contractor. Perino owns Perdel Contracting Co., a WBE concrete and carpentry firm. Perino allowed the general contractor of a $7 million O’Hare International Airport runway repair project, Diamond Coring Company, to list several of its employees on Perdel’s payroll. Perdel also reported buying several street sweepers from Diamond for use on the project. Perdel performed no work on the project but received an 18 percent commission from Diamond on labor costs and $20 an hour for street sweeper use. Through this deceptive and unethical practice, Diamond was able to report compliance with the project’s DBE/WBE requirements.

Stories involving the criminal prosecution of construction companies, company officials and individuals are appearing with increasing frequency in the news, ENR and other construction industry publications. Not too long ago, an offending party would have been fined or barred from bidding public work for a certain period of time as punishment for an ethical transgression. For many those actions were considered to be no more than reprimands that did not outweigh the potential benefits of committing an unethical act. The call to impose more stringent punishments for unethical behavior is on the rise because it is perceived as the most effective means of ensuring ethical behavior at this time.

Many of us remember the backlash that grew in the 1970s and 1980s against the construction industry and contractors especially. Surveys listed contractors as one of the most unethical professions in the United States. Project delays, cost overruns, bid shopping, onerous contracting practices, lassie faire attitudes and various unsavory practices left the construction adjacent to the used car industry in the public’s perception of those individuals who had the least amount of moral fiber.

The reaction to the public’s outcry was aggressive action taken by the industry to clean up its act. Codes of ethics were drafted and instituted by companies and trade associations. Bid procedures designed to prevent bid shopping preceded the enactment of anti-bid shopping laws. “Whistle blower” protections were instituted. A plethora of seminars discussing acting ethically were created, and ethics became a key component of industry university degrees and trade educational programs.

Despite the industry’s significant efforts and gains in the area of ethics, many construction companies and individuals continue to act unethically. As a consequence commercial, residential and governmental clients still believe that contractors, subcontractors and design professionals care more about making money than performing quality work on time and on budget. They are convinced that harsher punishment is necessary in order to protect the public and overcome an inability of the industry to significantly abate unethical behavior on its own. The criminal prosecution of construction companies and individuals is a trend that is gaining momentum.

Laws, regulations and rules continue to be enacted that make acting ethically a construction contract obligation and a potential criminal act. For example, under the civil False Claims Act, contractors and their personnel face civil prosecution and treble damages criminal prosecution, and debarment from federal contracting under Federal Acquisition Regulation Subpart 9.4. Suspension and debarment actions include contractors and their employees.

In addition to listing Diamond employees as Perdel employees, Perino also teamed up with another general contractor, McHugh Construction Co., to circumvent federal and state DBE requirements on several other projects. It is estimated that Perino allowed McHugh to pass $40 million through Perino’s other company, Accurate Steel Installers, from 2004 to 2011. These activities came to light after a McHugh project manager, Ryan Keiser, started a whistle blower lawsuit. While Perino is going to jail, McHugh settled with government for $12 million and an agreement that it would revamp its DBE procedures, which included its hiring of an oversight supervisor to manage its subcontracting procedures in coordination with McHugh’s general counsel.

Perino may be one of the latest construction industry individuals to be criminally prosecuted, but she is not the only. Wilmer Cueva, a construction foreman for Sky Materials was sentenced to three years in prison as a result of a 2015 trench collapse that killed Carlos Mancayo and endangered the lives of several others. Mancayo was working in a 13-foot deep trench that was not properly shored. Inspectors repeatedly warned Cueva, and the general contractor, that the trench was in danger of collapsing. Cueva and the general acted unethically by not taking any steps to correct the unsafe condition. After the trench collapsed, Lower Manhattan District Attorney Cyrus Vance Jr. charged Cueva with negligent homicide and the general contractor with manslaughter. Both Cueva and the general contractor were found guilty.

Using a relatively unused Pennsylvania consumer protection act, James Carpenter III, a residential contractor, was criminally convicted of defrauding two homeowners. Carpenter was sentenced to up to 23 months in prison; 400 hours of community service and up to seven years of probation. He was also order to repay $100,000 to the homeowners he defrauded.

Also in Pennsylvania, a general contractor and excavator operator were found guilty of six counts of involuntary manslaughter. On June 5, 2013, a building undergoing demolition collapsed into an adjacent building being operated as a Salvation Army Thrift Store. The collapse killed six people and injured 14 others. The Philadelphia District attorney said that the structural supports of the collapsed building had been improperly removed because the contractor was trying to do the job as cheaply as possible. The District Attorney noted that competing bids for the project were two to three times higher than the amount being charged by the contractor. Griffin Campbell, the contractor, was sentenced to 15 to 30 years in prison. The excavator operator, Sean Benschop, received a prison sentence of 7.5 years to 15 years.

Some will argue that the elimination of unethical behavior is not possible. They point to the fact that there are some individuals who inherently lack the ability to act ethically. They also argue that not all people see some acts as being unethical, which will prevent their acting ethically. For example, there are many people who still consider bid shopping to be an acceptable practice. They ask, “How can you ensure that the owner will receive the best bids for the project if the general contractor cannot shop bids?” To them, bidding shopping is an intelligent and effective means of doing business.

However, more than ever, contractors, subcontractors and construction workers are facing a multi-pronged attack against unethical behavior. Civil penalties will continue to be imposed against those acting unethically. Criminal prosecution for the same bad acts will continue to rise unless we, the collective construction industry, can demonstrate an increased compliance with rules, regulations, laws, and, most importantly an industry-wide code of ethical conduct. Acting ethically is not always the easiest course of action to pursue. But it becomes easier if everyone takes responsibility for acting ethically, and imposing sanctions against those who do not. Until this occurs we will see others trying to control industry ethics through the imposition of civil, criminal, and administrative actions.

Bruce R. Demeter, Esq., American Institute of Constructors, is the author of AIC’s “Mr. Ethics” column. He is former construction litigator. He has published construction industry articles and has been a featured speaker at various national association and organization meetings. He can be reached at

Game Winning Strategies to Ensure Your JV Performs at the Varsity Level

by Fielder Martin and Jodi Taylor, Baker Donelson

Although the air may not be cool and crisp yet, it is August, and in the South, that means football season is just around the corner. Perhaps it is “football brain” that drove our thoughts in presenting recommendations for creating and running a successful joint venture, resulting in the analogies discussed below. However, we believe it is more than that. A successful joint venture, much like a successful football program, requires thoughtful planning during the inception phase, strong leadership with well-defined roles, and careful risk management. Coin-toss, kick-off, and read on to learn effective ways to make your JV perform like it is playing on the varsity team.

Get in Formation

A JV may be created informally through oral agreements or through conduct of the entities involved. Even if the entities did not intend to create a JV, in those instances, both JV partners will be liable for the other’s actions. The better practice is to enter into a formal JV agreement any time your company engages in conduct that could arguably be seen as a joint engagement with another company.

Formal JV agreements, clearly defining the material terms, allow clarity at the inception of the project and later should any problems arise. Federal government contracts require that JV agreements are in writing, and that each participant sign the contract and all bid documents. In further example, forming the JV prior to bidding on government jobs is a necessity; creating a JV after a bid is awarded will invalidate the award because the JV would create a distinct legal entity from the bidding entity.

It is also important to determine the corporate structure best suited for the JV—such as contractual, corporation, LLC, partnership, or limited partnership. This selection depends on the tax implications for all entities involved, liability and risk tolerance of the participants, complexity of the project, size of the participating entities, and Disadvantaged Business Enterprise participants and requirements. Unless otherwise defined, JVs are usually treated as general partnerships. In those instances, all participating entities will be responsible for the actions and conduct of the other JV entities. Defining the JV otherwise is preferred to limit the liability of all JV members, but it must be done through a formal agreement.

Who Is Calling The Plays?

Football games become a mess when the offensive coordinator, special teams and head coach get their wires crossed about who is handling what, and leadership of a JV is no exception. The JV Agreement should define the roles, responsibilities, and decision-making ability of each entity forming the JV. The project will be disjointed, and the schedule may be affected, if the members of the JV cannot agree on how to make decisions affecting the project and there is no mechanism in place for determining how critical path items will be decided.

Also, most government projects require that a DBE JV member assert majority control of the JV. If not, there is a chance the JV will lose the opportunity to bid or win public work. During the formation process, these types of requirements must be considered and addressed to ensure that the JV is able to procure its intended project.

Staying Off the Injured Reserve

The JV may have been necessary to win the work, bond the project, or adequately manage the construction process. A well-documented JV agreement will likely provide the most protection for the additional risks associated with the JV as discussed above. The agreement should also include a dispute resolution plan for managing the JV among the entities forming the JV. Further, it is imperative that all members of the JV be included as named insureds on the JV’s commercial general liability insurance policy. Most CGL policies contain an exclusion for liability that is arising out of the conduct of any partnership or JV of which the insured is a party or member. In short, JV entities not listed are not covered.

Team Roster

Staffing the JV is fundamental to the successful completion of the project. However, this can create additional liabilities. It must be clear that the employee is working for the JV, not the individual entities forming the JV. Best practices include having the employees who will work on the JV fill out new employment paperwork, such as I-9s, W-2s, etc., the distribution of company policies, handbook, and other company documents containing the JV name and logo, and employee email addresses, accounts, and signature lines should identify the JV entity. Paychecks should be issued through the JV, and paystubs should be written from the JV account on JV checks (whether paper checks or electronic deposit). The human resource departments of the JV members should be involved in integration to ensure that the JV workforce is trained on their roles within the JV.

Game On!

The JV Agreement, or playbook, has been signed, managerial roles defined, liabilities accounted for, and the starting players selected—you are ready to drive down the field for a successful project.

This is a snapshot of the issues surrounding JV construction projects. For more information on whether a JV is right for your next project, and counsel on how to implement a JV Agreement suited for your needs, contact Fielder Martin at or Jodi D. Taylor at in Baker Donelson’s Atlanta office.

Unforeseeable Employee Misconduct Defense to an OSHA Citation

by Philip Siegel, Hendrick, Phillips, Salzman & Siegel

A contractor who has established, implemented and enforced a safety program may be able to successfully defend an OSHA citation based on the defense of unforeseeable employee misconduct. The Occupational Safety and Health Review Commission and the U.S. Circuit Courts of Appeal recognize that employee misconduct may be a valid defense to an OSHA violation.

Contractors have successfully been able to defend themselves against OSHA liability in many cases based on showing “unforeseeable,” “unpreventable” or “isolated” employee misconduct. The unforeseeable employee misconduct defense is primarily geared toward violations over which employees have individual control. The rationale in support of the employee misconduct defense is that the employee’s misconduct was unpreventable or unforeseeable or was an isolated incident, atypical of the contractor’s normal operations. Even though there has been a violation of an OSHA regulation, the contractor will be able to avoid liability if he can show that the contractor’s conduct is such that he is entitled to rely upon the employee misconduct defense.

In order to be able to rely on the employee misconduct defense to vacate an OSHA citation, an employer must satisfy four requirements that have been enunciated in decisions rendered by the Review Commission to show that the employee misconduct occurred despite the employer’s efforts to require safe work practices. If any one of the four requirements is lacking, the defense fails and the contractor will be liable. If a contractor is committed to safety and avoiding OSHA liability, the contractor can reduce the likelihood of accidents and potential OSHA liability by actively managing his or her company in such a way that each of the four requirements is satisfied.

The four requirements that a contractor must show in order to vacate an OSHA citation based on employee misconduct are:

  1. The contractor established work rules to prevent the violation from occurring.
  2. The contractor adequately communicated the work rules to employees.
  3. The contractor took steps to discover violations of its work rules.
  4. The contractor effectively enforced its rules and took action when there were employee violations.

Contractor-Established Work Rules to Prevent the Violation

The first requirement to invoke the employee misconduct defense is for the contractor to show that it adopted work rules, consistent with OSHA requirements, that were intended to prevent the violation for which the contractor has been cited. The Review Commission has defined a work rule as “an employer directive that requires or proscribes certain conduct and that is communicated to employees in such a manner that its mandatory nature is made explicit and its scope clearly understood.” There is no requirement that the work rule be written, but the rule must be clear and protect against the specific hazard addressed by the standard. The work rule must be designed to foster compliance with the cited standard and should not be general and open to interpretation.

The best practice is for a contractor to develop specific written work rules that are distributed to each employee in a safety manual and orally reviewed from time-to-time at job site meetings or tool-box talks. A contractor is likely to meet this requirement by adopting a safety program in accordance with OSHA regulations applicable to the contractor’s operations.

Contractor Adequately Communicated the Rules to Employees

The second requirement is to communicate the work rules to employees. The contractor must be able to show that the employee, whose conduct was in violation of the contractor’s work rules, had previously been told of the work rule. This requirement can be satisfied by conducting for all employees regular safety training programs that cover the OSHA regulations most applicable to the work being performed. Every employee must be provided safety training prior to being allowed to work. Periodic training should be conducted to make sure that employees are reminded of the contractor’s safety program and work rules. Safety videos are an excellent means to communicate work rules. Contractors must emphasize to all employees, and especially foremen and superintendents, that compliance with fall protection rules is required at all times and that safety should not be compromised to increase productivity.

Contractor Took Steps to Discover Violations

The third requirement—that the employer take steps to discover violations—can be satisfied by the contractor’s conducting regular job-site monitoring to check that the safety rules are being followed. There is no rule that job-site monitoring be conducted with any particular frequency. The employer must establish that it exercised reasonable diligence in detecting workplace hazards. The criteria will be satisfied if the contractor can show that it took reasonable steps to determine whether its jobs were being run in compliance with safety rules. If there is little correlation between the work rules and what takes place regularly in the field, the employee misconduct defense will fail. An effective safety program requires “a diligent effort to discover and discourage violations of safety rules by employees.” A failure to discover a safety violation that occurs in a short period of time is not evidence that the employer was not diligent in its effort to discover violations.

Contractor Effectively Enforced the Safety Rules and Took Disciplinary Action When Violations Were Discovered

A contractor can meet the fourth criteria by establishing and enforcing a disciplinary program directed at employees who do not follow the safety rules. First, a disciplinary program should be established and communicated to all employees. When an employee is seen violating the work rules, the employee must be disciplined. Often, the key to establishing the employee misconduct defense is proving that the employer has a regularly enforced disciplinary program for safety violations. If employees feel free to violate work rules, there is not unforeseeable or isolated employee misconduct.

Disciplinary action could include verbal and written reprimands, suspension, demotion, removal from a safety incentive or bonus program, and termination. Written evidence of disciplinary actions taken should be maintained by the contractor to show that the contractor enforced its safety rules and took disciplinary action against employees who did not follow the rules. Formal records of the disciplinary action should be maintained indefinitely. The disciplinary program should be structured as a progressive program, so that an employee who continues not to abide by company safety rules receives a harsher penalty, culminating in termination of employment. If the contractor has not disciplined the employee whose misconduct led to the citation and there is little evidence of prior disciplinary action within the company, the employee misconduct defense will not be accepted.

Several factors can negate the employee misconduct defense, such as placing an untrained employee on the job or failing to provide the needed safety equipment.

Supervisor Misconduct

When the employee who is involved in the violation of a safety rule is a supervisor, the proof of unpreventable employee misconduct is more rigorous and the employee misconduct defense is more difficult to establish. A supervisor’s conduct is imputed to the employer and the supervisor has the duty to protect the safety of employees under his supervision. In addition, the “fact that a supervisor would feel free to breach a company safety policy is strong evidence that the implementation of the policy is lax.”

“When the alleged misconduct is that of a supervisory employee, the employer must also establish that it took all feasible steps to prevent the accident, including adequate instruction and supervision of its supervisory employee.” The Review Commission has held that the failure to give specific instructions on how to accomplish a job can amount to a lack of reasonable diligence.

Nevertheless, there have been cases where contractors have been able to rely on the employee misconduct defense, even though the employee who engaged in the misconduct was a supervisor, by showing compliance with the four criteria.

In L.R. Willson and Sons, Inc. v. OSHA, 18 BNA OSHC 1129, 134 F.3d 1235 (4th Cir. 1998), the Review Commission concluded that because a supervisory employee committed the violation, knowledge of the violation should be imputed to the employer and the employer bore the burden of establishing that it had made a good faith effort to comply with the fall protection standards. The Fourth Circuit Court of Appeals reversed this decision and held that OSHA bore the burden of proving that the supervisory employee’s actions were neither unforeseeable nor unpreventable.

Philip Siegel is a partner and shareholder with the firm Hendrick, Phillips, Salzman & Siegel, P.C., whose practice focuses on labor and employment matters within the construction industry. Siegel has an undergraduate B.B.A. from the University of Michigan, and he earned his law degree from Emory University School of Law. Siegel can be reached at (404) 469-9197 or

LEGALLY SPEAKING: Five Boilerplate Terms to Negotiate in Your Next Subcontract

by James R. Lynch, Esq., Ahlers & Cressman, PLLC

Whether you negotiate your own subcontracts or rely on your lawyer to do the heavy lifting at contract time, a savvy subcontractor should understand the basic purpose of common subcontract provisions, and be prepared to negotiate for fair and commercially reasonable terms. While most sophisticated subcontractors are skilled at negotiating the core terms of a subcontract—scope of work, price, and time—a few simple but less obvious tweaks to common subcontract terms and conditions can go a long way to protect a subcontractor from unfair results when a dispute arises.
From the desk of an experienced construction lawyer, below are my top five “boilerplate” provisions that subcontractors too often overlook during contract negotiations, along with tips on language to include and to avoid.

Delay/Liquidated Damages

Contrary to popular belief, liquidated damages are not a penalty for late performance. In fact, in many cases the consequence of late performance can be much higher without a liquidated damages provision than with one. Below is a checklist of points to negotiate a fair liquidated damages provision to benefit all parties:

  1. Clearly define when liquidated damages will apply. This can be based on a specified duration or a date certain. Clearly state all assumptions supporting the contract time. Where feasible, the general contractor’s schedule should be attached to your subcontract to establish your baseline schedule.
  2. Negotiate a Reasonable Rate. This requires a project-specific inquiry, considering factors such as daily project burn rates, anticipated management/consultant costs, extended overhead, upstream liquidated damages, and subcontract scope and size.
  3. Make it Exclusive. Negotiate for express language indicating the specified liquidated damages are the exclusive remedy for late performance. An example is as follows:

    Subcontractor’s payment of liquidated damages as specified in this section shall be the sole and exclusive remedy for any delay by Subcontractor in the performance of the work or completion thereof.

  4. Caps. Consider negotiating a cap on the aggregate liquidated damages. The cap may be an amount equal to your fee, the total contract price, or any other justifiable amount.

Payment Terms

Use Net Payment Terms, and Clarify Pay-When-Paid Provisions. In a subcontractor’s ideal world, payment would always be due within a defined time period after each application for payment (e.g. “Net 30”). Some subcontractors can achieve this by specifying “net” payment terms in their proposals. More often, however, general contractors will not commit to pay subcontractors until they receive payment from the project owner. As such, “pay-when-paid” provisions have become commonplace, with contractors agreeing to pay subcontractors within X days after receipt of funds from the owner. As a subcontractor presented a pay-when-paid clause, you should negotiate for language calling for payment within a “reasonable time” if the owner fails to pay, and specify what time will be deemed “reasonable” if there is a significant payment delay. At a minimum, this will clarify the issue is only one of the timing of your payment, not your right to payment. That is, your “pay-when-paid” provision will not be misconstrued as a “pay-if-paid” provision, under which you are not entitled to any payment if the owner fails to pay.

Pay-if-paid or “conditional payment” terms are unlawful in some states, and require specific language to be effective in others. As a subcontractor, you should strike pay-if-paid language wherever possible, and many general contractors are willing to negotiate to convert pay-if-paid into pay-when-paid terms.

Negotiate for a Right to Stop Work for Nonpayment. Absent from most contractor forms, insert a provision that you may suspend work if you are not timely paid all undisputed amounts. For example:

In the event Subcontractor does not receive payment of all undisputed amounts within thirty (30) days after submission of an application for payment, then upon seven (7) days’ written notice to Contractor, Subcontractor may suspend work until all undisputed amounts are paid. For purposes of this paragraph only, an “undisputed amount” means any amount or portion thereof specified in Subcontractor’s application for payment, including any payment items, changes, and claims therein, to which Contractor has not provided specific written objection. The subcontract time and price shall be equitably adjusted to reflect any shutdown, delay, and start-up pursuant to this paragraph.

You can usually cleanly insert such suspension language directly into the section governing the timing of payments, the provision for suspension of work (if any), or the terms governing continuation of work during disputes (if any).

Never Give Up Your Lien Rights. This is unlawful in many states. A subcontractor’s lien rights are a powerful source of leverage and a possible last resort on a financially distressed project.


An indemnity provision comes into play when the general contractor or owner incurs some liability as a result of a subcontractor’s work. Your overarching goal as a subcontractor is simple: You should only be required to pay for liabilities to the extent caused by your fault, and covered by your commercial general liability (CGL) insurance. Otherwise, you could be required to pay for a claim even if you did nothing wrong, and even if you had no reasonable way to manage and price for the risk of that claim.

Generally, your CGL insurance will only cover claims by third parties for bodily injury or physical property damage caused by your negligence. As such, you should always negotiate for an indemnity provision limited to the following:

  1. Third party claims
  2. For bodily injury or physical property damage
  3. To the proportionate extent caused by your negligence

As a practical matter, these points can often be incorporated through relatively simple redlines. For example, the following broad-form indemnity provision that could require you to defend and pay for a claim not caused by your fault (or pay a grossly disproportionate share) and not covered by your insurance:

Subcontractor shall defend, indemnify, and hold harmless Contractor and Owner from and against any and all claims, liabilities, or obligations of any kind whatsoever, arising out of or relating to Subcontractor’s work.

The subcontractor’s indemnity checklist above can be inserted through simple edits:

Subcontractor shall defend, indemnify, and hold harmless Contractor and Owner from and against any and all claims, liabilities, or obligations of any kind whatsoever by third parties for bodily injury or physical property damage, but only to the proportionate extent arising out of or relating to negligence by Subcontractor in the performance of Subcontractor’s work.

Many state-specific laws may affect the indemnity provision—and you should consult your legal counsel on this complex issue—but these basic points will go a long way to avoid turning your company into the project’s insurer.

Changes & Claims

Beyond a basic reminder to read and confirm that the change and claim processes align with the process the parties actually intend to use—a point too often missed by subcontractors and generals alike—the following negotiating points and questions can help you achieve more fair and practical procedures, and ease the consequence of technical failures.

Strike Forfeiture Language. While it is not unreasonable for the general contractor to require early notice and an opportunity to address potential change orders and claims with reliable information, it is not reasonable to strip a subcontractor of an otherwise valid claim for extra time or compensation simply because the subcontractor has not strictly complied with the often complex, overly technical, overlapping, and sometimes conflicting provisions governing written notices and claim documentation. To avoid this result, you should search for and strike terms such as “strict compliance,” “condition precedent,” “waive,” and “forfeit,” and consider adding a provision such as the following:

Notwithstanding anything to the contrary, a party’s failure to provide any notice strictly in the time and form required shall not result in a waiver of an otherwise valid right or claim unless, and only to the extent that, the party entitled to receive such notice demonstrates actual harm resulting from such failure.

Require Executed Change Orders for Extra Work. A strict pre-work Change Order requirement protects the general and owner against claims for extras after the work is completed. It also protects the subcontractor from being directed to perform extra work without prior agreement on the cost and time adjustments. However, it can also be a trap where the subcontractor performs time-sensitive extra work in good faith based on clear direction, but the contractor later denies the requested Change Order. As a subcontractor, this means it is important for you to be firm in requiring signed Change Orders before you perform any extras. If you cannot agree on your entitlement or cost, demand a formal Change Directive.

Include a Clear “Change Directives” Procedure. A good “Change Directive” process will require a written Change Directive when Change Order terms cannot be agreed, specify how interim compensation will be determined, and dovetail with the Claims provision. Again the key for you as a subcontractor is to demand that the general follow its own procedures and issue a formal directive before you commence any extra work.

Remove Advance Change Order Limitations. Does a signed Change Order automatically waive all related rights and claims? What about cumulative impacts, which might only arise or are only identifiable when change orders become excessive? Is there any limitation on the time or money you may receive for certain types of changes? As a subcontractor, you should any such advanced limitations in the subcontract documents where possible, and instead address specific issues in the individual Change Orders to be issued during the work.

Dispute Resolution

While there are many other important subcontract terms that come into play more often, the Dispute Resolution provision makes the Top 5 here because most subcontractors overlook it as a possible item for negotiation, yet it can have important long-term consequences.

Keep It Simple. As a general rule, the more mandatory steps in the dispute resolution process, the more costly it will be for you to enforce your rights as a subcontractor. While it may be desirable to try to resolve disputes initially at the project level, then through direct executive negotiations, and then by mediation before finally commencing litigation or arbitration, each of those steps takes time and costs money. Where feasible, you should negotiate to make these aspirational, not mandatory prerequisites you must fulfill before litigation or arbitration.

Litigation vs. Arbitration. While there is no one-size-fits all option, you should understand the differences between litigation and arbitration and recognize that this is often a negotiable term.

Arbitration is a private resolution process where an experienced lawyer, industry professional, or panel hears the case and renders a binding decision. Generally, the parties agree on the arbitrator or panel’s qualifications, if not the individual arbitrator(s). The arbitration hearing typically occurs within six to 12 months of filing. Discovery is usually more limited than litigation. The process is less formal. The proceedings are not public. Appeals are usually more difficult than in court.

By contrast, litigation is an open public process where a judge and/or jury decides the case. Judges are generalists and not usually construction specialists. Trial is often scheduled 12 to 18 months from filing. The discovery process is formal and can be extensive. All filings and proceedings are public, unless sealed by court order. Appeals are relatively common and can take years to resolve.

The important point here is to consider which process best suited to the types of disputes most likely to occur on your project, and negotiate for that process when appropriate. On a complex project with novel means and methods where the most likely disputes will be highly technical, arbitration may be a better option for all parties. On a simple but financially risky project where the most likely disputes relate to payment issues, the formality of the litigation process may be more desirable.

While you should always read your subcontract carefully and understand your rights and obligations, engaging in active negotiation with a general contractor on key terms such as those above can not only reduce your risk as a subcontractor, but it can also help all parties avoid potential disputes down the road, and set a beneficial tone of professionalism and conscientiousness to carry forward into a successful project.

James R. Lynch represents and advises property and project owners, general contractors, trade contractors/subcontractors, and design professionals on a variety of matters, including contracts and claims, litigation and arbitration, alternative dispute resolution, risk evaluation and management, real estate transactions and disputes, procurement, bid protests, and insurance coverage matters. He additionally provides general outside counsel to several closely-held Pacific Northwest companies. Since joining Ahlers & Cressman in 2011, Lynch has recovered millions of dollars for clients on construction and real estate claims, and successfully defended his contractor and developer clients from millions more in potential liability. He can be reached at (206) 287-9900 or