Virginia Real Estate, Land Use & Construction Law : Virginia Construction Lawyers & Attorneys : Bean Kinney & Korman Law Firm : VA Real Estate, Land Use & Zoning

Typically, Virginia courts will simply review and apply the terms of contracts.  This is great if you have a good contract, horrible if the contract tilts towards your opponent.  In contrast to the general rule, Virginia courts are quite hostile to non-compete agreements and are more than willing to throw them completely out when the clauses go overly broad.

Another recent example was highlighted yesterday in The VLW Blog.  The case, Specialty Marketing v. Brunson, involved Specialty, a wholesale distributor of electronics.  Brunson was a sales representative.  When he became a director and purchased stock in the company, Brunson signed a non-compete.  Brunson left Specialty's employment and was hired six months later to act as an account representative for a competitor in his old territory. 

The non-compete stated in pertinent part:

A. BRUNSON shall not own, manage, operate, control, be employed by, participate in, or be connected in any manner with the ownership, management, operation, or control, whether directly or indirectly, as an individual on his own account or as a partner, member, joint venturer, sole proprietor, officer, director or shareholder of a corporation, firm, association or other entity, of any business competitive until SPECIALTY in areas where SPECIAL]'Y has a market for its business.

 The court looked at this clause and quite easily threw it out.  The clause violated Virginia law by prohibiting the former employee from performing functions unrelated to the functions performed for the previous employer.  The court also found the geographic limitations contained elsewhere in the contract to be unreasonable in scope.

We see non-compete and non-solicitation agreements used with some regularity in the construction industry although not with the same frequency as some other industries.  If you are going to go this route as an owner, a reasonable scope is critical or the clause will get thrown out.  Ironically, for employees this is an arena where you may actually be rooting for the employer to overreach and go too far.

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Rockville based contractor Hann & Hann will pay $600,000 plus the plaintffs' legal fees to settle a wage and overtime based class action suit.  As reported in the Washington Post by Rubin Castaneda on January 30, 2010, Hann & Hann agreed to pay overtime plus 50% for every employee working with the company not paid overtime between May 8, 2006 and May 8 2008.

There are a couple important subtexts to this case and settlement.  First, reports describe the 200 plus employees and former employees as almost all Spanish speaking immigrants.  This naturally raises questions not only of immigration status, but also of whether the contractor was perceived as taking advantage of employees less able to defend themselves.  In this case, the employees not only had the Immigrant and Refugee Rights Project at the Washington Lawyers' Committee for Civil Rights and Urban Affairs on the case, but also were represented by Arnold and Porter pro bono.

Second, claims by employees for unpaid overtime and wages have been a hot topic over the last several years (some more detailed discussion touching on this is available here at Daniel Schwartz' excellent blog).  In many ways, the issue of classification of exempt and non-exempt employees which dictates whether overtime is required dovetails quite closely with distinctions between independent contractors and employees which we recently discussed.  Back wages, penalties and attorneys' fee claims are a big risk in this arena, as is the underlying threat of more involved scrutiny as the weight of the government comes to bear.  Contractors should:

• Take employee classifications seriously
• Understand that mistakes in classifications can translate to serious damages
• The short term benefit of cutting corners can come at a cost that buries your company
• As a result, handle classifications conservatively and pay out overtime accordingly

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Abuse of independent contractor status continues to get significant regulatory and legislative attention.  Critics of this practice argue that misclassifying employees as independent contractors is an unfair competitive advantage and robs federal and state governments of justly due employment related taxes.

On the federal level, there have been rumblings over the last year of not only stepped up scrutiny through both the Internal Revenue Service and Department of Labor, but also bills proposed in Congress during 2009 which would curtail the scope of current safe harbor provisions.  I received a note from Associated Builders & Contractors yesterday pointing to a recent new bill introduced by Sen. John Kerry which would rewrite existing safe harbor provisions and require all employers to obtain written documentation from the IRS as a precondition to independent contractor status.

The feds are not the only ones getting in on the action.  Our friends at Aronson have previously reported on the State of Maryland's creation of a multi-agency Task Force to coordinate investgations of work place fraudulent practice including misclassification of employees.  The Task Force report, issued in December 2009, details tens of millions of dollars of lost tax revenue which makes this topic tasty to legislators in these cash strapped times.  Other states are pursuing similar efforts, such as those in Connecticut analyzed by our good friend and terrific employment blogger Daniel Schwartz.

We see this issue continuing to gather steam, especially given the nationwide budget and tax shortfall issues faced at every level of government.  Here are some take-aways:

1. Contractors should be extremely conservative in classifying independent contractors
2. Be wary of exercising too much control over independent contractors
3. Know the regulatory standards and get help analyzing the question
4. Understand the downside: not just payments of the back taxes, but potentially interest, very heavy penalties, imposition of personal liability on corporate owners, and even criminal sanctions.

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A federal judge in Maryland has ruled that Executive Order mandating compliance with the “e-verify” program for confirmation of immigration status as part of the Federal Acquisition Regulations is constitutional and enforceable. The case decision, issued on August 26, 2009, granted summary judgment to the federal government and leaves intact an administration decision to implement the final rule effective September 8, 2009.

 The issue may not end here. On August 31, 2009, various parties filed a notice of appeal of the decision. Further, the appellants have filed an emergency motion for stay to delay application of the court’s ruling during the pendency of the appeal and accompanying memorandum. We still have no ruling on this motion, so for a few more days it is still perhaps unclear whether e-verify will officially start on September 8 or perhaps be punted back until resolution of the appeal of this case. 

Updated on 9/5/2009: The court officially denied the emergency motion for stay on September 4, 2009 so it appears that e-verify will indeed kick off on Tuesday.  Our employment and labor colleague here at Bean Kinney, Phil Keating, has written a more detailed discussion memorandum of the issues relating to e-verify.
 

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