Colorado Business Litigation Lawyer Blog

According to a study conducted by the Associated General Contractors of America (“AGCA”), construction fatality rates have declined 47% since the passage in 1998 of federal oversight legislation that introduced a “collaborative safety” approach, safety incidents declined by 38% over the same time period.

This collaborative approach rewards contractors for finding and fixing safety problems before an accident occurs. The legislation provides for stiff penalties for companies that permit safety problems to exist until someone is hurt or killed.

During the 1998-2007 study period, the value and size of the construction market grew significantly, according to Chuck Penn, the executive director of the AGCA’s Shreveport chapter. Thus, the major decrease in accidents and deaths is even more remarkable.

[Source: “National Construction Fatality Rate Declines 47%, Associated General Contractors of America,” 8/25/09 news release on housingzone.com]

In Denny Const., Inc. v. City and County of Denver ex rel. Bd. of Water Com'rs. (1/09), a case of vital importance to contractors, the Colorado Supreme Court speaks to the issue of whether or not damages for impaired bonding capacity are recoverable, and by what standard such damages may be proved.

Denny Construction, Inc., (Contractor) was the successful bidder and was awarded a contract by the Denver Board of Water Commissioners (“Board”) to build a new headquarters building for the Board. During the course of construction, the contractor asked for extensions of time to complete the contract due to bad weather. The Board denied the extensions and ultimately declared the Contractor in default of the contract. As a result of the claimed default, Contractor’s surety reduced Contractor’s bonding capacity and later refused to underwrite bonds for the Contractor at all. Further, Contractor could not obtain bonds from another surety, which prevented Contractor from bidding on future public works projects-- about one-half of Contractor’s business.

In a suit brought by a subcontractor against Contractor and the Board, seeking payment for work performed on the project, Contractor filed a cross-claim against the Board requesting damages for breach of contract and other legal theories. After the subcontractor settled its case, the jury found in favor of Contractor and against the Board on Contractor’s breach of contract claims, and awarded damages of $845,000 for lost profits. On appeal, the Colorado Court of Appeals reversed the verdict, holding that lost profits because of impaired bonding capacity are “speculative as a matter of law,” and that in any event damages for impaired bonding ability “were not reasonably foreseeable” because there was no evidence that the Board actually knew that Contractor would lose profits if its bonding capacity were impaired.

The Colorado Supreme Court agreed to hear the case and reversed the court of appeals, holding (1) that lost profits due to impaired bonding capacity, like all claims for lost profits, are not speculative as a matter of law, but need only be proved with reasonable certainty, and (2) in order to prove lost profits, the plaintiff/contractor need not prove that the owner/defendant subjectively knew that the contractor would suffer lost profits due to impaired bonding capacity, but whether the owner/defendant knew or should have known that such loss would probably occur.

The Federal District Court for the Northern District of Texas has decided that an arbitration clause in a Blockbuster Inc. contract with its customers was illusory and could not be enforced by Blockbuster.

The lawsuit was brought by customers after the names of movies the customers rented from Blockbuster were published on Facebook under a contract between Blockbuster and Facebook. Customers claimed that such publication violated the Video Privacy Protection Act which prohibits a videotape service provider from disclosing personally identifiable information about a customer without the customer’s written consent. Blockbuster attempted to invoke the binding arbitration clause, taking the position that the court had no authority to decide the underlying issue and that it must be decided by arbitration.

The Blockbuster/customer contract contained a provision providing basically that the contract could be amended by Blockbuster “at its sole discretion” and “at any time.” The amendment became effective merely by posting it to the Blockbuster internet website. This right to amend did not exclude the arbitration provision The customers countered that the arbitration provision was “illusory” and that Blockbuster could not unilaterally change the rules of the game.

The court concluded that the arbitration provision was “illusory and unenforceable” and thus determined that the customers were not compelled to have their claims arbitrated.

The moral of this incident is that corporations should be very careful about including this type of unilateral right to amend in their contracts without first seeking legal advice from their attorney. It should be noted that this case applies only to Texas contracts. No attempt has been made by yours truly to determine the status of the law on this issue in other state or federal jurisdictions.

A new law, effective June 2, 2009 is of vital importance to employers in Colorado. The law imposes substantial fines and other punishment to any employer who misclassifies an employee as a subcontractor. The fine for a first willful violation is up to $5,000 for each misclassified employee. For a second willful violation, the fine is up to $25,000 for each misclassified employee and a two year disqualification pf the employer from contracting with any agency of the state.

The purpose of the bill is to protect rights to unemployment and workers compensation to those who should be classified as employees, to ensure that employers pay appropriate taxes to the state, and to prevent an unfair competitive advantage to those employers who misclassify persons as independent contractors over those who properly classify persons as employees.

An employer may request a written opinion from the Director of the Division of Employment and Training in the Department of Labor and Employment, concerning whether the employer should classify a person as an employee or independent contractor. The Director’s opinion is merely advisory and not binding. Thus, in the event any person files a complaint against the employer, and a hearing is conducted pursuant to the rules set up by the Director, an individual may be deemed by the Director to be an employee, notwithstanding an earlier informal opinion that the individual is an independent contractor.

It is interesting to note that nowhere in the law are there any definitions or guidelines concerning how to classify an individual. Thus, it would seem that the employer makes the classification at his, her or its peril.

Colorado court opinions give some guidance in this area. For example, in the 1993 case of Brighton School Dist. v. Lyons, the Court of Appeals notes that there are two tests for determining whether a relationship is one of employer-employee or independent contractor, the “control” test, and the “relative nature of the work” test.

Under the “control” test, the most important factor in determining employment status is whether the alleged employer exercises control over the means and methods of accomplishing the contracted service. This test also considers factors such as whether compensation is measured by time or lump sum and which party furnishes the necessary tools and equipment to perform the work.

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