The Best of the Wisconsin Builders Association Legal Hotline 2013

April 29, 2013

The Wisconsin Builders Association Legal Hotline is a service provided for the Wisconsin Builders Association by the law firm of Axley Brynelson, LLP. Legal Hotline answers should be considered a general statement of applicable legal information. Given this format, it is impossible to fully address all potential legal issues which might apply in any particular situation. A determination of any individual’s legal rights in a transaction can only be obtained after a complete analysis of the law and its applicability to the particular fact situation. Please contact Axley Attorney Robert Procter at 608.283.6762 or rprocter@axley.com if additional information is needed.

In the typical construction project, the owner will hire a general contractor to construct the project. The general contractor will contract with subcontractors to do portions of the work. In this case, the subcontractor does not have a contractual relationship with the owner. If the subcontractor has completed its work, then the general contractor has a contractual obligation to pay the subcontractor even if the owner never pays the general contractor. Under Wisconsin law, a general contractor’s contract with a subcontractor cannot include a provision that states the general contractor will only pay the subcontractor if the owner pays the general contractor. Wis. Stat. § 779.135(3). These provisions are often called “paid if paid” provisions.There are situations where a contractor will contract with the owner only for the work that the contractor self-performs (for example, framing and finishing carpentry). The contractor will then assist the owner in a project management role to obtain bids from other contractors to perform the other portions of work such as roofers, siders, plumbers, etc. The other contractors will then directly contract with the owner. In these cases, the owner and not the contractor will be responsible for payment of the other contractors. However, any contractor that operates under this method should make sure that its contract is very clear so it does not create a prime contractor / subcontractor relationship as to the other contractors and the responsibilities that go along with such a relationship.

Yes – so long as it is in the contract between the general contractor and the subcontractor. Wisconsin law does not prohibit a contract provision that may delay a payment to a subcontractor until a general contractor receives payment from the owner. Wis. Stat. § 779.135(3). These provisions are often called “paid when paid” provisions. However, such a provision needs to be in the contract between the general contractor and the subcontractor or material supplier. This only allows for a delay in payment. As stated above, if the owner does not pay the general contractor, then the general contractor must still pay the subcontractor.

We assume the issue is that a general contractor has paid a subcontractor for his work; however, a downstream subcontractor or material supplier of the paid subcontractor that the general contractor had no knowledge of has filed a lien against the project. There is not a legal answer to such a question. The best defense is good trade practices. First, do not pay any amounts to any subcontractor or material supplier until all lien waivers are obtained from the subcontractor and downstream subcontractors and material suppliers.Second, you need to document all subcontractors and material suppliers that work at the site. This can be difficult to do. The prime contractor should demand a list of subcontractors and material suppliers from each subcontractor hired. Moreover, the prime contractor needs to monitor the site. Large projects provide a good example of how to protect against liens. On large projects, the prime contractor will set up a fence perimeter around the project with only one entrance. Each contractor or material supplier that enters is forced to sign in, and name who he or she is visiting at the site. For example, if a material supplier is showing up for delivery, then it is required to state which subcontractor ordered the materials. When the subcontractor submits a demand for payment, the general contractor requires that it provide a lien waiver for itself and the material supplier that delivered materials on the specific date.

Generally, the owner has a contract with the general contractor to construct the project. If there is a construction defect with the project, then the owner will look to the general contractor regardless of whether the general contractor or the subcontractor did the work. Assuming the work is defective, the general contractor would then have a claim against the subcontractor for the defective work. In other words, if there was a lawsuit, then the owner would sue the general contractor claiming the work is defective.The general contractor would sue the subcontractor claiming that if there is any defective work that the general contractor must remedy for the owner, then the subcontractor is responsible for the costs of the remedy.There are many variations of contracts that can change how the liability is allocated between the parties. For example, the subcontractors or material suppliers may provide a warranty directly to the owner. In such cases, the general contractor’s contract with the owner may exempt work covered by another contractor’s warranty from the general contractor’s warranty. The point is: you need to understand your contracts with the owner and with the subcontractors.

No! This is one of the most misunderstood areas of law for contractors. If the following tests are not satisfied, then the State of Wisconsin will consider the “independent contractor” your employee for unemployment insurance and/or worker’s compensation purposes. For example, if a general contractor hires a subcontractor to frame a house, the subcontractor will be considered an employee of the general contractor for unemployment insurance and/or worker’s compensation purposes unless the general contractor can prove to the State of Wisconsin that the subcontractor meets the following tests. The fact that the general contractor may not know the information as it applies to the subcontractor is not a defense.

Unemployment Insurance

Under Wisconsin law, anyone that does work for a contractor is considered an employee for unemployment insurance purposes unless the contractor satisfies the department that the individual meet both 1. and 2. below:

  1. The services of the individual are performed free from control or direction by the contractor over the performance of the individual’s services. In determining whether services of an individual are performed free from control or direction, the department may consider the following nonexclusive factors:

a. Whether the individual is required to comply with instructions concerning how to perform the services.

b. Whether the individual receives training from the contractor with respect to the services performed.

c. Whether the individual is required to personally perform the services.

d. Whether the services of the individual are required to be performed at times or in a particular order or sequence established by the contractor.

e. Whether the individual is required to make oral or written reports to the contractor on a regular basis.

 

In addition, the individual must meet 6 or more of the following conditions:

 

a. The individual advertises or otherwise affirmatively holds himself or herself out as being in business.

b. The individual maintains his or her own office or performs most of the services in a facility or location chosen by the individual and uses his or her own equipment or materials in performing the services.

c. The individual operates under multiple contracts with one or more contractors to perform specific services.

d. The individual incurs the main expenses related to the services that he or she performs under contract.

e. The individual is obligated to redo unsatisfactory work for no additional compensation or is subject to a monetary penalty for unsatisfactory work.

f. The services performed by the individual do not directly relate to the contractor retaining the services.

g. The individual may realize a profit or suffer a loss under contracts to perform such services.

h. The individual has recurring business liabilities or obligations.

i. The individual is not economically dependent upon a particular contractor with respect to the services being performed.

Worker’s Compensation

Under Wisconsin law, Wis. Stat. § 102.07(8)(b), an independent contractor is not an employee of an employer for whom the independent contractor performs work or services if the independent contractor meets all of the following conditions:

1. Maintains a separate business with his or her own office, equipment, materials and other facilities.

2. Holds or has applied for a federal employer identification number with the federal internal revenue service or has filed business or self-employment income tax returns with the federal internal revenue service based on that work or service in the previous year.

3. Operates under contracts to perform specific services or work for specific amounts of money and under which the independent contractor controls the means of performing the services or work.

4. Incurs the main expenses related to the service or work that he or she performs under contract.

5. Is responsible for the satisfactory completion of work or services that he or she contracts to perform and is liable for a failure to complete the work or service.

6. Receives compensation for work or service performed under a contract on a commission or per job or competitive bid basis and not on any other basis.

7. May realize a profit or suffer a loss under contracts to perform work or service.

8. Has continuing or recurring business liabilities or obligations.

9. The success or failure of the independent contractor’s business depends on the relationship of business receipts to expenditures.

If you cannot prove that an individual you hire meets the above tests, then that individual will be considered your employee.

There is no requirement that a home builder provide a warranty for his work. However, a builder should understand that as a general matter defective work will be considered a breach of the contract with the owner. Such a claim has a six year statute of limitations. All contracts are different, and some contracts provide that the only remedy for construction defects is the warranty for the work. In such cases, such claims are generally limited to the length of the warranty (the warranty the builder affirmatively gives the owner).Moreover, when a builder or developer conveys new construction (for example, a “spec home” or “turn-key home”), Wisconsin law implies a covenant that such improvement shall be performed in a workmanlike manner, and shall be reasonably adequate to equip the premises for such use and occupancy unless such warranty is disclaimed. Wis. Stat. § 706.10(7). In other words, if you are selling new construction and you do not intend to provide such a warranty, you should make sure that your contract disclaims all implied warranties such as those implied under Wis. Stat. § 706.10(7).

As always, it depends how the contract defines the costs. Generally speaking, if it is just a time and materials contract where the owner pays the “actual costs,” then the builder may only charge his actual costs – the $30.00 hourly rate; however, many contracts provide definitions for costs that go beyond the actual hourly rate. For example, some contracts will define employment costs as the “burden” labor rate (wage plus overhead attributable to that labor such as benefits). In such a case, the actual hourly rate would be $30.00 plus an amount attributed to overhead.

Absolutely yes it matters. The most significant reason for having a corporate entity is to shield the builder from personal liability. If the builder is individually named in the lawsuit, then any judgment will attach to the builder personally (i.e., it would become a judgment lien against the builder’s home, etc., and not just against the company’s assets). Anytime your company is involved in a lawsuit, you should make sure that the lawsuit does not include you personally. In those cases where either the builder individually or his/her employees are named as a party to the lawsuit you should move to have them dismissed.

Assuming that both policies comply with Wisconsin’s requirements for wage and hour policies, an employer may adopt a new drive time policy for new employees while “grandfathering” older employees under a former policy.

This is an area of law that is fact specific; however, employers need to be very careful as it is a basis for many wage and hour claims. To determine whether or not time spent in travel is working time that must be paid depends upon the kind of travel involved. Wisconsin Administrative Code sec. DWD 272.12(2)(g) explains when travel is considered work time that must be paid (federal wage and hour regulations are similar to Wisconsin law, but must also be individually reviewed if the employer decides that it does not have to pay drive time as work time):a. Home to work; ordinary situation. An employee who travels from home before their regular workday and returns to their home at the end of the workday is engaged in ordinary home to work travel which is a normal incident of employment. This is true whether they work at a fixed location or at different job sites. Normal travel from home to work is not work time, and does not have to be paid. See Adm. Code § DWD 272.12(2)(g)2.b. Home to work in emergency situations. There may be instances when travel from home to work is work time. For example, if an employee who has gone home after completing his/her day’s work is subsequently called out at night to travel a substantial distance to perform an emergency job for one of their employer’s customers, all time spent on such travel is working time, and must be paid. See Adm. Code § DWD 272.12(2)(g)3.

c. Home to work on special one-day assignment in another city. A problem arises when an employee who regularly works at a fixed location in one city is given a special one-day work assignment in another city. Such travel cannot be regarded as ordinary home-to-work travel occasioned merely by the fact of employment if performed for the employer’s benefit and at their special request to meet the needs of the particular and unusual assignment. It would thus qualify as an integral part of the “principal” activity which the employee was hired to perform on the workday in question; it is like travel involved in an emergency call, or like travel that is all in the day’s work. All the time involved, however, need not be counted. Since, except for the special assignment, the employee would have had to report to their regular work site, the travel between their home and the railroad depot may be deducted, it being in the “home-to-work” category. Also, of course, the usual meal time would be deductible. See Adm. Code § DWD 272.12(2)(g)4.

d. Travel that is all in the day’s work. Time spent by an employee in travel as part of their principal activity, such as travel from job site to job site during the workday, must be counted as hours worked. Where an employee is required to report at a meeting place to receive instructions or to perform other work there, or to pick up and to carry tools, the travel from the designated place to the workplace is part of the day’s work, and must be counted as hours worked regardless of contract, custom, or practice. If an employee normally finished their work on the premises at 5 p.m. and is sent to another job which they finish at 8 p.m. and is required to return to their employer’s premises arriving at 9 p.m., all of the time is working time. However, if the employee goes home instead of returning to their employer’s premises, the travel after 8 p.m. is home-to-work travel and is not hours worked. See Adm. Code § DWD 272.12(2)(g)5.

e. Travel away from home community. Travel time away from the home community for business purposes that occurs for the benefit of the employer is considered hours worked. See Adm. Code § DWD 272.12(2)(g)6.

f. When private automobile is used in travel away from home community. If an employee is offered public transportation but requests permission to drive their car instead, the employer may count as hours worked either the time spent driving the car or the time they would have had to count as hours worked during working hours if the employee had used the public conveyance. See Adm. Code § DWD 272.12(2)(g)7.

g. Work performed while traveling. Any work which an employee is required to perform while traveling must of course be counted as hours worked. An employee who drives a truck, bus, automobile, boat or airplane, or an employee who is required to ride therein as an assistant or helper, is working while riding, except during bona fide meal periods or when the employee is permitted to sleep in adequate facilities furnished by the employer. See Adm. Code § DWD 272.12(2)(g)8.

Yes, all work time must be counted as part of an employee’s overtime calculation. If drive time must be paid under applicable state or federal law, then it must be included when calculating overtime. If drive time does not have to be paid (for example, home to work; ordinary situation), but the employer pays the employee for drive time anyway, then the drive time must be considered work time and counted toward an employee’s overtime calculation.

For more information about "The Best of the Wisconsin Builders Association Legal Hotline 2013," contact Robert C. Procter at rprocter@axley.com or 608.283.6762.