Labor and Employment Update - Fall 2014

PENNSYLVANIA HIGH COURT FREES REAL ESTATE DEVELOPER FROM MECHANICS’ LIEN ASSERTED BY CONTRACTOR’S EMPLOYEES

The Pennsylvania Supreme Court recently dealt a victory for real estate developers when it unanimously held in Bricklayers of Western Pa. Combined Funds, Inc. v. Scott’s Development Co. that union workers employed by a general contractor could not assert a mechanics’ lien claim against a developer for unpaid employee benefit contributions.  The decision reversed the Superior Court, which in 2012 had held in favor of the unions.

In 2007, Scott’s Development Company retained J. William Pustelak, Inc. as its general contractor to perform construction work on a commercial property at the intersection of two highways in Erie, Pennsylvania.  Two years earlier, Pustelak had entered into collective bargaining agreements with two unions to use their bricklayers and laborers on his projects within their territory.  In 2008, Pustelak retained these union employees to work on the Scott’s Development project, but failed to make required payments to the unions’ benefit funds despite being paid in full by Scott’s Development.  The trustee of the benefit funds thereafter imposed a mechanics’ lien against Scott’s Development seeking $24,935.73 for unpaid benefits.

Mechanics’ liens in Pennsylvania date back to 1806, when the state legislature passed its first act granting “mechanics and others” the right to secure payment for their labor and materials used in erecting buildings.  The purpose of the current Mechanics’ Lien Law (enacted in 1963) remains the same as that of the original: To protect the prepayment labor and materials that a contractor invests in another’s property.  Mechanics’ liens achieve this end by giving lienholders security for their payment without having to first sue the property owner for breaching their contract.  Under the current act, only “contractors” and “subcontractors” can assert mechanics’ liens, employees of a contractor cannot.

The key issue in the case was whether the union workers were employees or subcontractors.  The union argued that the collective bargaining agreements were subcontracts because they were contracts for work to be performed under Pustelak’s general contracts.  Scott’s Development, on the other hand, argued that the agreements were not subcontracts because they provided for the general employment of union members, rather than addressing a specific project.  Scott’s Development highlighted the fact that the agreements were executed two years before it retained Pustelak.

The Supreme Court agreed with Scott’s Development.  The court reasoned that the legislature had specifically intended to limit the use of mechanics’ liens to contractors and subcontractors who perform specific discreet projects because, among other indicia, it noted in the statute that “laborers are not subcontractors even though employed by a contractor.” The Superior Court had reasoned that because the Mechanics’ Lien Law was enacted to remedy the problem of laborers and suppliers working without pay, the statute should be interpreted broadly to extend that relief to union members who contract with a general contractor.  The Supreme Court declined to affirm the Superior Court because it believed it would be improper to endorse such a dramatic change to the Mechanics’ Lien Law without any indication that the legislature intended the liberal interpretation adopted by the Superior Court.

The Supreme Court’s decision should come as a relief to real estate developers because it limits their responsibility of ensuring that their general contractors are properly making pension benefits due under a contract between the contractor and the Unions.  Expanding develop-liability in such circumstances could make budgeting and planning building projects vastly more difficult.  Bricklayers illustrates how tenuous this situation can become:  The payments sought by the unions’ benefit funds from Pustelak did not necessarily arise from the Scott’s Development project, but from all the work performed by the unions for Pustelak under their collective bargaining agreements, including work for other developers.

For now, the Supreme Court has assuaged these fears and has restored order to what could have become a flood of mechanics’ liens asserted by contractors’ employees against developers.  However, the prudent developer should nevertheless continue to ensure that it does business with only reputable and financially stable contractors, and should perform the appropriate due diligence during the contracting process.  Finally, as discussed in another article in this newsletter, developers might be held liable under other statutes depending on the amount of control they exercise over the contractors.  

RECENT EFFORT BY THE EEOC TO EXPAND PROTECTION FOR TRANSGENDER PERSONS

The U.S. Equal Employment Opportunity Commission (“EEOC”) recently filed two noteworthy lawsuits–the first of their kind to be filed by the Commission, alleging sex discrimination against transgender individuals in violation of Title VII of the Civil Rights Act of 1964 (“Title VII”).  While many states and municipalities (including Philadelphia, New Jersey and New York) have laws that protect LGBT classifications from discrimination, the federal law has not historically been interpreted to do so.

In EEOC v. R.G. & G.R. Harris Funeral Homes, Inc., the EEOC alleges that the defendant, a Detroit funeral home, discriminated against a funeral director/embalmer based on her sex in violation of federal law by firing her because she is transgender, because she was transitioning from male to female, and/or because she did not conform to the employer’s gender-based expectations, preferences, or stereotypes. According to the allegations in the case, which was brought in the Eastern District of Michigan, the funeral director/embalmer had been adequately performing the duties of the position since she was hired by the defendant in October 2007.  In 2013, she gave her employer a letter explaining she was undergoing a gender transition from male to female, and would soon start dressing in appropriate women’s business attire at work, consistent with her gender identity as a woman.  Two weeks later, defendant fired her, telling her that what she was “proposing to do” was unacceptable. This alleged behavior would violate Title VII, which prohibits sex discrimination, including that based on gender stereotyping.  

In EEOC v. Lakeland Eye Clinic, initiated in the Middle District of Florida, the EEOC alleges the defendant clinic violated Title VII by firing an employee because she is transgender and did not conform to the employer’s gender-based expectations, preferences, or stereotypes.  According to the allegations, the employee, hired in 2010 when she presented as a man, was performing her duties satisfactorily throughout her employment; however, when she informed them she was transgender and intended to start presenting as a woman, the clinic fired her.   

The lawsuits are based on an April 2012 EEOC decision [Macy v. Dep’t of Justice, EEOC Appeal No. 0120120821], in which the Commission expanded the meaning of “sex discrimination” under Title VII to include discrimination against transgender people. The Commission relied on Supreme Court precedent, as well as on decisions issued by the Eleventh and Sixth Circuit Courts of Appeals.  The Commission has recognized that when an employer considers an employee’s sex in taking an adverse action – for example, if an employer fires a transgender employee because the employee does not conform to the employer’s expectations or stereotypes regarding how someone “born” that sex should look – the employer violates Title VII.

While efforts to pass a federal Employment Non-Discrimination Act, which would include protection based on sexual identity and orientation, have stalled, as noted above, a number of state and local laws already protect gay and transgender workers.  Further, federal courts are increasingly using the ban against “sex discrimination” in Title VII  to combat discrimination against transgender persons.  Against this backdrop, employers should work to ensure that all decisions made with respect to employees are made without regard to that employee’s sex or failure to conform to gender stereotypes. 

IF YOU THINK YOU KNOW WHETHER YOU WOULD BE CONSIDERED AN EMPLOYER UNDER AN EMPLOYMENT STATUTE, YOU SHOULD THINK AGAIN

For over thirty years, the National Labor Relations Board used essentially the same test to determine whether a company was a “joint employer” under the National Labor Relations Act (NLRA or the Act).  The Board asked whether the alleged “joint employer” exerted significant control over employees, directed the employees on a day-to-day basis, or meaningfully impacted employment conditions such as hiring, firing, imposing discipline, setting compensation and benefits, and scheduling.  Generally, only when this degree of direct control existed did the Board find that a corporation was a “joint employer” under the Act.  Recognizing this, companies have had some guidance on how to structure their business relationships with subcontractors, staffing agencies, franchisees, and subsidiaries so as to not have to negotiate over conditions of a workplace they do not control and incur liability for unfair labor practice charges for which they had no involvement.  

However, recently, there have been several indications that this guidance from the Board may change (and possibly already has changed) significantly. Specifically, concerning franchisor-franchisee relationships, on July 29, 2014, the Board’s General Counsel announced in a press release that he has authorized the filing of administrative complaints against franchisor, McDonald’s USA, LLC, as a joint employer, for unfair labor practices concerning those employed directly by the franchisee-owned restaurants.  The press release noted that, since 2012, the Board has investigated 181 cases of unfair labor practices at McDonald’s and, in at least 43 of those cases, has found sufficient evidence that McDonald’s was a joint employer.  In addition, this announcement came just as the Board was accepting briefs in another case on whether to expand its joint employer test.  

In Browning-Ferris Industries of California, Inc.., a case that does not involve a franchisor-franchisee relationship, but, instead, concerns the relationship between an independent staffing agency and a facility’s regular employees, the General Counsel asserted that the traditional “joint employer” test “undermines the fundamental policy of the NLRA to encourage stable and meaningful collective bargaining.”  Thus, the General Counsel advocated for the use of a much broader standard that could subject an entity to liability even when it exercised only indirect control over the significant terms and conditions of employment, when it had the potential (even if unexercised) to control these terms and conditions, or when the “industrial realities” was such that the entity “wield[ed] sufficient influence over the working conditions of the other entity’s employees such that meaningful bargaining could not occur in its absence.”  According to the General Counsel, companies, in effect, can control wages by controlling other aspects of the business.     

While the NLRB has not yet decided whether to adopt the General Counsel’s proposed standard, and the Browning-Ferris case still is pending before the Board, the possibility that the Board might adopt the broader joint employer test should be enough to make franchisors, contractors, joint-venture partners, and parent corporations concerned.  If the Board adopts the standard, it likely would mean that more companies will find that they are joint employers under the Act.

Also, the Board is not the only agency that may begin to target franchisors and other “indirect employers.”  David Weil, the Department of Labor’s new Wage and Hour Chief, has expressed that franchise relationships exemplify the “fissured” workplace and it is this “fissured workplace” that is to blame for the prevalence of wage and hour noncompliance.  Weil has promised to increase the DOL’s efforts to hold indirect employers accountable for noncompliance.  

Further, courts have continued to find companies liable for violations of the Workers Adjustment and Retraining Notification Act (“WARN”) under the theory that those companies were a “single employer” of those directly employed by another entity.  To determine if there is “single employer liability,” the vast majority of courts throughout the country generally have considered five factors, including: (1) common ownership; (2) common directors/officers; (3) de facto exercise of control; (4) unity of personnel policies emanating from a common source; and (5) dependence of operations.  While courts consistently have stated that these factors are not weighted evenly and all need not be present for single employer liability to attach, recently, more courts have begun to find potential single employer liability even if the plaintiffs have little else than evidence of one prong – de facto control.  Specifically, when the de facto control has involved the parent, investor, or private equity firm (rather than the direct employer) making the decision that violated the Act, courts have held that single employer liability can be implicated.     

Because of the NLRB’s and the DOL’s apparent commitment to pursue entities on the basis that they are joint employers, as well as the very real risk that an affiliated company or lender can be liable under the WARN Act if it makes the decision implicating the WARN Act, companies should carefully examine how they do business and evaluate, in particular, the issue of control and relationships between entities.

By:  Lee D. Moylan
lmoylan@klehr.com