Recent California Legislation May Have an Impact Contractors and Design Professionals

Kimberly A. Blake | Gordon Rees Scully Mansukhani | June 1, 2018

Several bills that have recently been introduced in California will likely have an impact on the construction industry and, in particular, contractors and design professionals. Below is an overview of recent and pending legislation in California that includes the Labor Code, the Business and Professions Code, and the Government Code.

Contractor Liability Under the Labor Code

AB 1701, which was introduced February 2017, and became effective on January 1, 2018, adds Section 218.7 to the Labor Code.1

The Labor Code governs the basic rights and obligations of workers and employers in the employment context. Under current law, an employee may generally sue her employer for wage claims, such as nonpayment of wages, fringe benefits, and contributions to a health and welfare or pension fund. Until January 2018, however, there had been no requirement that a direct contractor must assume liability for any successful wage claims brought against a subcontractor working for the direct contractor.

In an effort to create a new avenue for collecting remedies in wage claims, AB 1701 requires that a direct contractor making or taking a contract for the construction or repair of any structure must assume liability for “any debt owed to a wage claimant incurred by a subcontractor at any tier” acting under or by the direction of the direct contractor, where the wage claimant’s performance of labor is related to the construction project.2 Because AB 1701 covers “building(s)” and “structure(s)” as well as “other work”, it applies to all construction projects involving a direct contractor.3

Consequently, direct contractors are obligated to assume such liability at the time the contractor enters into the construction contract. However, AB 1701 provides that the direct contractor’s liability does not extend to penalties or liquidated damages unless otherwise provided.4 Therefore, a direct contractor must assume liability for wage claims against subcontractors, but should specify in the written contract that liability does not include penalties or liquidated damages.

Architect Liability

AB 1489, which was introduced February 2017, would add Section 5536.25 to the Business and Professions Code.

The Business and Professions Code provides rights and obligations to members of specific professions. Under current law, Section 5536.25 absolves a licensed architect of liability for damages that may arise when the architect’s signed and stamped plans or specifications are changed or used without the architect’s prior written approval.5 If enacted, AB 1489 would add the provision that an architect will not be liable for damages that may arise when the construction deviates from the permitted plans or specifications, regardless of written authorization.6

AB 1489 would create a broad liability shield for architects regarding construction projects that do not conform to the architect’s signed and stamped plans. Besides the direct benefit to architects, AB 1489 should reduce legal costs in the construction industry by providing greater certainty as to architect liability as well as reducing the usefulness of seeking a written authorization from the architect to deviate from the original plan.

Accessory Structures on Single-Family Lots

AB 2939, which was introduced in February 2018, would add Section 65852.2 to the Government Code.

The Government Code organizes the government of California and sets forth rights and duties of various governmental entities. Under current law, a local agency must approve an application for a building permit to create within a single-family zone one “accessory dwelling unit” per lot, if the accessory dwelling unit is part of an existing residence or accessory structure, has independent exterior access from the existing structure, and has sufficient side and rear setbacks for fire safety. An “accessory dwelling unit” is a residential dwelling unit providing complete, independent living facilities for one or more persons.

If enacted, AB 2939 would add a substantially similar mechanism enabling the construction of multiple accessory dwelling units on multifamily zoned lots which already contain at least five residential units. AB 2939 would require a local agency to approve an application for a building permit to create one or more accessory dwelling units on lots zoned for multifamily use, where each accessory dwelling unit is located within the existing an existing multifamily structure or accessory structure, access to the accessory dwelling unit is independent of access to other residential units, and where the side and rear setbacks of every structure are sufficient for fire safety.7 Therefore, AB 2939 could spur the construction of new accessory dwelling units on multifamily lots with at least five residential units.

Limit of a General Contractor’s Liability Under the Common Work Area Doctrine

Mark A. Nasr | Clark Hill | March 15, 2018

The Court of Appeals, in the recent decision Cockfield v. Sachse Construction & Development Corporation, et al., has again analyzed the affirmative obligations a general contract has to ensure the safety of subcontractors’ employees working on a construction site.  The answer, consistent with prior Supreme Court and Court of Appeals decisions, hinges on the application of the common work area doctrine to the specific facts at hand.

Sachse Construction and Development Corporation (“Sachse”) served as the general contractor for a commercial project in Birmingham, Michigan.  Plaintiff was an employee of American Steel Construction, Inc. (“ASC”), a subcontractor on the project.  On January 7, 2013, plaintiff and a colleague were assembling a stairway in the building.  During the course of his work, plaintiff went to the top platform of the uncompleted stairway to look for a tool.  Unfortunately, one of the clamps broke, causing the stairway and plaintiff to fall.  Plaintiff thereafter filed suit against Sachse.

During discovery, plaintiff acknowledged that he did not wear any fall protection equipment even though it was present on site, but argued that there was no place for him to “tie off”, and that he informed a Sachse construction manager of same.  In his suit, plaintiff argued, among other things, that Sachse negligently failed to discharge its duty as the general contractor by failing to provide safety harnesses, failing to instruct the workers in the common area of the stairway to utilize safety harnesses, and negligently instructing their subcontractors to perform dangerous activities without proper safety devices when they knew, or should have known, that severe injury could occur as a result of a fall from a section of unwelded stairway.

Sachse moved to dismiss plaintiff’s complaint.  Sachse relied on the general rule that general contractors cannot be held liable for the negligence of subcontractors and their employees, and that the common work area exception to the general rule was inapplicable.  Sachse also argued that it owed plaintiff no legal duty because MIOSHA regulations apply only to a worker’s employer—in this case ASC—and that subcontractors have the duty to ensure workplace safety for their employees.

The Court of Appeals found the Michigan Supreme Court’s ruling in Latham v Barton Malow Co, 480 Mich 105 instructive. The Supreme Court ruled in that case that, traditionally, “in the absence of its own active negligence, a general contractor is not liable for the negligence of a subcontractor or a subcontractor’s employee and . . . the immediate employer of a construction worker is responsible for the worker’s job safety.” Further, the common work area doctrine is an exception to the rule of general contractor nonliability. Latham, 480 Mich at 112. For a general contractor to be held liable under the common work area doctrine, a plaintiff must show that (1) the general contractor failed to take reasonable steps within its supervisory and coordinating authority (2) to guard against readily observable and avoidable dangers (3) that created a high degree of risk to a significant number of workmen (4) in a common work area. Ormsby v Capital Welding, Inc, 471 Mich 45, 54.

Plaintiff admitted that he and one other ASC employee had been assembling the stairway, and no other contractors used the stairway before it was installed. The Court noted that in a previous case, Hughes v PMG Bldg, Inc, 227 Mich App 1 (1997), the Court of Appeals determined that four workers subject to the same danger did not amount to a significant number for common work area doctrine purposes. Id. at 6-8.  Additionally, in Alderman v JC Dev Communities, LLC, 486 Mich 906, 906 (2010), the Supreme Court held that two to six employees of one subcontractor did not constitute a significant number of workers.

Based upon the lack of active negligence by Sachse, and the lack of a significant number of workmen being present, the Court of Appeals affirmed the trial court’s dismissal of plaintiff’s complaint, ruling that the common work area doctrine was inapplicable.

Michigan courts continue to walk a fine line concerning what constitutes an assumption of affirmative obligation by a general contractor on a project.

Looming Texas Supreme Court Decision Could Impact Contractor Liability in Construction Cases

Andrew D. Ness, William R. Taylor and J. Laurens Wilkens | Jones Day | December 2015

In November 2015, the Texas Supreme Court heard oral arguments to determine if a general contractor was a “seller” under Chapter 82 of the Civil Practice and Remedies Code and entitled to indemnification from the manufacturer of an allegedly defective roof truss. See Centerpoint Builders GP v. Trussway, Ltd., 2015 LEXIS 799 (Tex. Sept. 4, 2015) (granting petition for review). If the Court agrees with the general contractor, then the decision would likely increase the risk of liability for both general contractors and manufacturers of products installed by general contractors.

Chapter 82

Chapter 82 provides a means for an “innocent” seller to seek indemnification from the manufacturer of an allegedly defective product. SeeTex. Civ. Prac. & Rem. Code § 82.002. The statute requires a manufacturer to indemnify and hold harmless a seller against loss arising out of a product liability action, except for any loss caused by the seller’s negligence, intentional misconduct, or other act or omission for which the seller is independently liable. Id. at § 82.002(a). “Seller” is broadly defined in the statute as “a person who is engaged in the business of distributing or otherwise placing, for any commercial purpose, in the stream of commerce for use or consumption a product or any component part thereof.” Id. at § 82.001(3).

Notably, the Texas Supreme Court in Fresh Coat, Inc. v. K-2, Inc., 318 S.W.3d 893 (Tex. 2010) held that a contractor hired to apply synthetic stucco components to homes according to the manufacturer’s instructions and training is a “seller” of the synthetic stucco components. The Court inFresh Coat held that Chapter 82’s definition of “seller” does not exclude a seller who is also a service provider, and Chapter 82 does not require the seller to sell only the product at issue. Id. at 899.

Case Background and the Beaumont Court of Appeals’ Decision

Centerpoint began as a personal injury action filed by Merced Fernandez against Centerpoint Builders GP, LLC (“Centerpoint”) and Trussway Ltd. (“Trussway”) for injuries sustained while installing drywall at an apartment complex construction project. Centerpoint was the general contractor and Fernandez was an independent contractor. At the time of the accident, Fernandez was standing on a roof truss that had not yet been installed. The truss broke and Fernandez was severely injured from his fall. Fernandez filed suit, asserting that the truss, which was manufactured by Trussway and purchased by Centerpoint, was defective and unreasonably dangerous.

Centerpoint filed a claim against Trussway seeking statutory indemnification under Chapter 82. Trussway filed a cross-action against Centerpoint, denying that Centerpoint was a seller under Chapter 82 and contending that it was actually an innocent seller that was entitled to indemnification from Centerpoint. The trial court granted Centerpoint’s motion for summary judgment and held that Centerpoint was a “seller” under Chapter 82, but denied Centerpoint’s motion for partial summary judgment regarding its entitlement to indemnity. The trial court also held that Trussway was not entitled to indemnity from Centerpoint. The parties then filed a joint notice of agreed interlocutory appeal.

On appeal, the Beaumont Court of Appeals reversed the trial court’s order and held that Centerpoint does not fit the statutory definition of a seller.Centerpoint Builders GP, LLC v. Trussway, Ltd., 436 S.W.3d 882 (Tex. App.—Beaumont, pet. granted). The court examined Fresh Coat, but held that the case was distinguishable for several reasons:

(i) Unlike in Fresh Coat, Fernandez’s accident occurred before the trusses were installed and there was no indication Centerpoint or its subcontractors installed the truss pursuant to training or instructions from Trussway. Id. at 888,

(ii) Centerpoint’s contract with the apartment owner covered numerous products and materials as opposed to the contract in Fresh Coat, in which the contract covered only the specific product at issue.Id.,

(iii) Centerpoint was not engaged in placing the trusses into the stream of commerce when Fernandez’s accident occurred, and

(iv) Fresh Coat merely stands for the proposition that a contractor that provides services is not precluded from being a “seller” under Chapter 82. Id. The court in Fresh Coat did not, however, hold that a contractor who installs a product is always a “seller.”

For these reasons, the Beaumont Court of Appeals held that Centerpoint was not a “seller” under Chapter 82 and thus not entitled to seek indemnity from Trussway. Id. at 888-89. The court noted that this conclusion was consistent with the common law definition of “seller.” Id. at 888. The court also held that Centerpoint was not a manufacturer of the truss and was not obligated to indemnify Trussway. Id. at 889.

Arguments Before the Texas Supreme Court

On September 4, 2015, the Texas Supreme Court granted Centerpoint’s Petition for Review. Centerpoint Builders GP v. Trussway, Ltd., 2015 Tex. LEXIS 799 (Tex. Sept. 4, 2015).

Centerpoint’s primary argument before the Texas Supreme Court was that the Beaumont Court of Appeals’ decision conflicts with Fresh Coat. Centerpoint asserted that the Court of Appeals improperly relied on § 82.002(d) (which states that a wholesale distributor or retail seller “who completely or partially assembles a product in accordance with the manufacturer’s instructions shall be considered a seller”) in its attempt to distinguish Fresh Coat because Centerpoint did not assemble the truss. Centerpoint also argued that the Court of Appeals added requirements to Chapter 82, “such as requiring the ‘seller’ to sell only one product as opposed to ‘innumerable’ products” and adding an improper “temporal requirement” that the seller be engaged in placing the product into the stream of commerce at the time of the accident. Petitioners’ Brief on the Merits at p. 7. Finally, Centerpoint argued that the Court of Appeals erred in concluding that a determination that Centerpoint was a “seller” would improperly expand the common-law definition of “seller.”

Trussway, conversely, argued that Centerpoint is a construction company engaged in the business of building apartment complexes, not selling products. Further, by purchasing the roof trusses, according to Trussway, Centerpoint was the user or consumer; it did not place them into the stream of commerce. Next, Trussway argued that the Court should consider the fact that a builder is not a seller under the common law. Centerpoint also emphasized that Chapter 82 does not transform a builder into a seller of every building material used on a project. Trussway argued that applying Chapter 82 would “lead to absurd results by transforming most negligence or premises-liability cases against general contractors into products liability indemnity cases against material suppliers.” Respondent’s Brief on the Merits at p. 12. Finally, Trussway argued that Centerpoint could not possibly be a “seller” of a “product” because “if Centerpoint sold anything (other than its construction services), it sold a large, completed, custom-built, 166-unit apartment complex, which is not a product.” Id.

Practical Implications

Texas courts have struggled with establishing the parameters of Chapter 82’s definition of “seller.” The Texas Supreme Court in Fresh Coat tackled one such application of the term in the construction context, and Centerpoint represents an opportunity for the Court to either curtail Chapter 82’s applicability to construction cases or dramatically expand it.

Of particular note…

To finish reading this article