If you want to play, you have to pay.

Just because you have included an arbitration provision in your contract does not mean that any dispute arising out of or related to the contract will be arbitrated. The Mississippi Supreme Court found in Sanderson Farms, Inc. v. Gatlin, that the refusal to pay the required share of the American Arbitration Association ("AAA") fee resulted in Sanderson Farms, Inc. ("Sanderson") waiving its right to arbitration. In that case, the arbitration clause provided in pertinent part as follows:

The cost of such arbitration will be divided equally among the parties to the arbitration. Each party will bear the costs of their own expenses and attorney’s fees. Failure to arbitrate all such claims or controversies arising under or related to this Agreement shall be deemed a breach of the Agreement.

Gatlin paid its share of the arbitration fees but Sanderson failed to pay its share. Gatlin filed suit in circuit court against Sanderson who filed a motion to dismiss arguing that the dispute was subject to arbitration. The circuit court denied Sanderson’s motion to dismiss. On appeal the Supreme Court held:

Sanderson farms waived its right to arbitrate by refusing to pay its one-half of the cost associated with the filing and administrative fees and/or the additional charges presented for payment one month before the scheduled arbitration hearing. This refusal amounts to an act inconsistent with the right to arbitrate. By waiving its right to arbitrate, Sanderson Farms has relinquished the right to seek the protections of the arbitration provision in the boiler contract.

It should also be noted that Rule 54 of the AAA Commercial Rules and Rule 56 of the AAA Construction Industry Arbitration Rules provide for procedures where a party has not paid its share of the arbitrator compensation or administrative charges.

The bottom line is a party may waive its right to arbitration if it does not comply with the requirements set forth in the arbitration clause and find itself in court rather than in arbitration.

Late Payment on Private Projects--When can a contractor recover late payment interest under Miss. Code Ann. §87-7-3?

If you are a contractor and submitted an application for a progress payment on a private construction project the owner should make timely payment under the terms of the contract.  However, all too frequently the owner does not make that timely payment.  If this occurs, contractors should look to Miss. Code Ann. §87-7-3 for relief.  It provides, with regard to progress payments as follows:

…If they [partial, progress or interim payments] are not paid within thirty (30) calendar days from the day they were due and payable, then they shall bear interest from the due date at the rate of one percent (1%) per month until fully paid.

Miss. Code Ann. §87-7-3(a).

This statute also provides the same relief where final payment is requested by the contractor and payment is not made within thirty (30) calendar days from the first occurrence of either (1) substantial completion under the terms of the contract, (2) beneficial use and occupancy by the owner, or when the project is certified as complete by the architect or engineer. Miss. Code Ann. §87-7-3(b).

Unfortunately, this interest is not automatic unless the amount requested is liquidated.  This was made clear by the Mississippi Supreme Court in a recent decision.  There was a dispute between the owner and the contractor concerning the amount due and owing under the contract.  The contractor demanded pre-judgment interest under Miss. Code Ann. §75-17-1 Ann. and late payment interest under Miss. Code Ann. §87-7-3.  In denying both of these requests the Court concluded:

Neither Section 75-17-1 nor Section 87-7-3 mentions whether monies owed contractors must be liquidated in order for the respective statute’s grant of prejudgment interest to apply.  However, the same considerations which preclude a recovery of prejudgment interest for unliquidated amounts owed under Section 75-17-1 apply to Section 87-7-3.  Therefore, Stubbs [the contractor] must show that his claims against the Falkners [the owner] were liquidated prior to the judgment in order to recover prejudgment interest under either statute.

Falkner v. John E. Stubbs d/b/a Mississippi Polysteel, 121 So.3d 899, 903 (Miss. 2013).  Damages are considered unliquidated if they are not set forth in the contract or cannot be established by a fixed formula. Id.

The bottom line is that contractors need to make sure that the payment provisions of the contract are clear and that any schedule of values is sufficiently detailed to identify the item of work and the value which the parties have agreed to assign to this item.  Of course, any change order work should also be priced and agreed to avoid creating a disputed and unliquidated amount.

 

 

 

 

Does Mississippi need a statute voiding forum selection clauses?

Recently the United States Supreme Court took a close look at the enforceability of forum selection clauses in Atlantic Marine Construction Co. v. U.S. District Court for the Western District of Texas.  In that decision, the Supreme Court found that such forum selection clauses, when properly drafted, are enforceable.  Only where there is an overwhelmingly strong public interest should a venue selection provision be ignored.

Notwithstanding the Supreme Court’s decision, there are some twenty-four (24) states that have enacted statutes which render such forum selection clauses void.  Whether these statutes can withstand constitutional scrutiny was not addressed by the Supreme Court in Atlantic Marine.  An example is Arizona’s statute that provides as follows:

A. The following are against this state's public policy and are void and unenforceable:

1. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract that makes the contract subject to the laws of another state or that requires any litigation arising from the contract to be conducted in another state.

2. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract stating that a party to the contract cannot suspend performance under the contract or terminate the contract if another party to the contract fails to make prompt payments under the contract pursuant to section 32-1129, 32-1129.01 or 32-1129.02.

B. Any mediation, arbitration or other dispute resolution proceeding arising from a construction contract for work performed in this state shall be conducted in this state.

A.R.S. §32-32-1129.05.

It may be time for Mississippi to consider adopting a similar statute to protect resident contractors from having to pursue remedies against a non-resident contractor in a foreign jurisdiction and also being subjected to that state’s laws.

If you have any thoughts or comments on this issue, please contact Lee Nations, Executive Director for Associated General Contractors of Mississippi at (601) 9811-1144 or at lee@msagc.com.

SBA Increasing Size Standards - Issues Interim Final Rule Effective July 14, 2014

Today the Small Business Administration issued an interim final rule that increases revenue-based size standards.  The adjustment is made, in part, to take account of inflation since the last inflation-adjustment in 2008.  In Sector 23, Construction, for example, the $35 million size standard increased to $36.5 million.

To see all size standard adjustments in the interim rule, click here.  The interim final rule takes effect July 14, 2014, but the SBA will receive comments on it through August 14, 2014.

What?! I thought being named as an additional insured gave me coverage for any defective construction by my subcontractor.

Contractors frequently require subcontractors to specifically name the contractor as an additional insured in the subcontractors’ commercial general liability (CGL) policies. The "proof" of compliance frequently provided to the contractor is the Certificate of Insurance. Contractors can generally rely upon benefits of being an additional insured when there is a problem with the subcontractor’s work that causes property damage. It may also provide the contractor with the cost of a defense where it has been sued by the owner for the subcontractor’s defective work and property damages. However, timing is critical. Both the Mississippi Supreme Court and the Firth Circuit Court of Appeals have opined that "ongoing operations" coverage may not give the contractor coverage as an additional insured for damage that arises after the subcontractor has completed its work.

In Noble v. Wellington Assoc., Inc, [Link to Decision] the contractor hired a subcontractor to perform site work for a home. After the home was completed the owners experienced settlement and substantial cracks in the home. The contractor claimed the insurance carrier had a duty to defend it against claims for defective construction under the subcontractor’s CGL policy as an additional insured. The insurer argued that the defects did not develop until after the subcontractor had completed its site work and there was no duty to defend or coverage. The contractor argued it was the subcontractor’s "ongoing operations" during construction that ultimately resulted in the damage to the home. The Mississippi Supreme Court concluded "in order for ‘ongoing operations’ to have any meaning, it cannot encompass liability arising after the subcontractor’s work was completed".

The same conclusion was reached by the Fifth Circuit Court of Appeals in Carl E. Woodward, L.L.C v Acceptance Indemnity Insurance Company. [Link to Decision] Here, the allegation was that the subcontractor’s failure to comply with the plans and specifications caused the construction defect which manifested after a condominium complex was completed. The subcontractor’s additional insured endorsement limited coverage to "ongoing operations". The Fifth Circuit found, much like the Court in Noble, that "liability for construction defects, while created during ongoing operations, legally arises from completed operations." The contractor was therefore left to pay the defense cost when it believed it would be protected by the subcontractor’s additional insured endorsement.

The lesson to be learned from these decisions is that contractors must obtain a copy of the insurance policy and additional insured endorsement to ensure that there is coverage not only for "ongoing operations" but also "completed operations". Relying upon a certificate of insurance alone as evidence of coverage may lead to an unhappy finding that there is no coverage at the very time you need it. Further, absent an additional insured endorsement that includes "completed operations" coverage, the contractor may be left without the insurance coverage for defective construction by its subcontractor.

Right to Recover Under Federal Miller Act Overrides State Law Barring Recovery

California’s Business and Professions Code bars a non-licensed contractor from an action to collect for unpaid services. However, the Ninth Circuit Court of Appeals recently held that this state law ban on such actions has no application if the services were provided to a federal project and suit is filed to collect under a Miller Act payment bond.

Plaintiff Technica, Inc. was a sub-subcontractor to Candelaria Corporation, a prime contractor on a federal fence replacement contract. Carolina Casualty Insurance Company issued the payment bond required by the Miller Act (40 USC § 3131 et seq.). Technica submitted invoices in excess of $800,000 to Otay Group, Inc. (a subcontractor) and Candelaria. After Candelaria terminated Otay and full payment had not been made to Technica, Technica sued Candelaria and Carolina Casualty in federal district court under the Miller Act.

The district court granted the prime contractor and surety’s motion for summary judgment on grounds that Technica did not hold a California contractor’s license. The Ninth Circuit reversed, following United States Supreme Court precedent and decisions by the Eight and Tenth Circuits. Distinguishing this case from others that dealt with the substantive law of contracts, the Ninth Circuit held that the California statutory limitation on the right to maintain an action "does not apply to an action under the Miller Act." The rationale was that "application of California’s licensing statute as a defense to a Miller Act claim would…condition the rights of a subcontractor on the procedural requirements of state law … and … result in the nullification of those rights entirely." The Ninth Circuit’s opinion is attached here for convenience.

New Mississippi Lien Law, SB 2622-A Summary of the Vast Changes

The Legislature has completely rewritten the Mississippi lien law for commercial and residential projects.  Senate Bill 2622 has now been sent to the Governor for his signature and provides lien rights to prime contractors, subcontractor and material suppliers. [Link to SB 2622]  The new lien law will require those seeking to file a lien to comply carefully with strict notice and filing requirements.  An error in complying with these requirements could lead to a “claim of lien” being ineffective or unenforceable. 

Some of the key points in the new lien law are:

     

  • There are no lien rights if a contractor has provided a payment bond. (Miss. Code Ann. §85-7-431)

     

  • To have lien rights the party filing a "claim of lien" must be properly licensed by the Mississippi State Board of Contractors.  However, it should be noted that there are counties and municipalities that also have licensing requirements. (Miss. Code Ann. §85-7-403)

There are numerous ways that a contractor and/or subcontractor or materialman can lose its "claim of lien", including:

     

  • If the contractor fails to provide a list of subcontractors to the owner within a reasonable period of time after requested or if the subcontractor fails to furnish a list of its subcontractors to the contractor within a reasonable period of time after requested (Miss. Code Ann. §85-7-407).

     

  • If lien claimant fails to file its "claim of lien" within ninety (90) days following the last labor, services or materials provided (Miss. Code. Ann. §85-7-405(1)(b)).

     

  • If a subcontractor not in privity with the contractor fails to send written notice to the contractor, or, if there is no contractor, to the owner, within thirty (30) days after the first delivery of labor, services or materials to the property. (Miss. Code. Ann. §85-7-407(2))

     

  • If the owner has made payment to the contractor in reliance upon a lien waiver issued by the lien claimant (Miss. Code Ann. §85-7-413(1)(a)).

     

  • If a "payment action" is not commenced within one hundred eighty (180) days after the "claim of lien" is filed, the "claim of lien" is unenforceable (Miss. Code Ann. §85-7-421(1)).

The basic requirements for filing a "claim of lien" are set forth in Miss. Code Ann. §85-7-405.  If a party fails to comply with any of the requirements the "claim of lien" shall not be effective or enforceable.  The filing of a "claim of lien" is not intended to prejudice a party’s right to arbitration.

     

  • The right to claim a lien cannot be waived in advance of furnishing labor, service or materials (Miss. Code Ann. §85-7-419).

     

  • The "special lien" granted by the statue to contractors, subcontractors and materialmen is limited to the amount due and owning under the terms of the express or oral contract, subcontract or purchase order (Miss. Code Ann. §85-7-403(3)).  The "special lien" also includes interest (Miss. Code Ann. §85-7-403(4)).

     

  • A judgment secured in a "payment action" to enforce a "claim of lien" is limited to a judgment in rem against the property and does not impose any personal liability upon the owner (Miss. Code Ann. §85-7-405(1)(d)(ii)).

     

  • If payment is made by the owner in reliance of a lien waiver or statements of the contractor, the aggregate lien amount of the subcontractors and materialmen not in privity with the contractor shall not exceed the unpaid balance of the contract price between the owner and the contractor at the time the first notice of lien is filed (Miss. Code Ann.§85-7-405(5)(a)).

     

  • Party seeking to assert a "claim of lien" must be in "substantial compliance" with the contract, subcontract or purchase order (Miss. Code Ann. §85-7-405(1)(a)).

     

  • "Claim of lien" must be filed in the chancery court of the county by a contractor, subcontractor or materialman where the property is located and within ninety (90) days of the last labor, services or materials provided.  It must also contain certain language notifying the owner of its right to contest the lien and be sent to the owner and contractor within two (2) days after it is filed (Miss. Code Ann. §85-7-405(1)(b)).

     

  • A subcontractor or material supplier not in privity with the contractor, or, if there is no contractor, with the owner, must provide notice within (30) days following the first delivery of labor, services, or materials as a condition precedent to filing a "claim of lien" (Miss. Code Ann. §85-7-407(2)).

     

  • The "claim of lien" can be amended at any time provided there is compliance with certain procedures (Miss. Code Ann. §85-7-405(1)(e)).

     

  • All liens under Miss. Code Ann. §85-7-403 have equal priority.  If the proceeds are insufficient to satisfy all liens, distribution is on a pro-rata basis (Miss. Code Ann. §85-7-403(3)(d)).

     

  • A "payment action" (lawsuit) to enforce the "claim of lien" must be commenced within one hundred eighty (180) days from the date of the filing of the "claim of lien" (Miss. Code Ann. §85-7-405(1)(c)).  This period can be shortened by the owner or contractor filing a "Notice of Contest of the Lien". (See, Miss. Code Ann. §85-7-423(1))

     

  • A lis pendens notice must be filed with commencement of the "payment action" and furnished to the owner and contractor (Miss. Code Ann. §85-7-405(1)(d)(ii)).

     

  • The court in its discretion may award reasonable costs, interest and attorney’s fees to the prevailing party in an action against the owner to enforce a lien against the property (Miss. Code Ann. §85-7-405(3)(c)).

     

  • The statute provides a procedure for "bonding off" a lien.  The amount of the bond is required to be one hundred ten percent (110%) of the amount of the "claim of lien" (Miss. Code Ann. §85-7-415).

There are also substantial penalties for not complying with certain aspects of the lien law and filing a false "claim of lien".

     

  • The penalty for filing a knowingly false "claim of lien" is three (3) times the value of the "claim of lien" (Miss. Code Ann. 85-7-429).

     

  • The penalty for not paying a subcontractor after securing a waiver and release of lien without good cause is three (3) times the amount claimed on the face of the waiver and release (Miss. Code Ann. §85-7-407(3)).

     

  • There is a penalty of three (3) times the actual damages suffered by an owner, purchaser or lender if the contractor falsely and knowingly submits a statement that the agreed price or reasonable value of the labor, services or materials has been paid or waived in writing by the lien claimant. (Miss. Code Ann. §85-7-413(1)(b))

     

  • There is a penalty for failing to cancel a "claim of lien" if not accomplished within fifteen (15) days after fully paid of not less than $500/day plus reasonable attorney’s fees and costs. (Miss. Code Ann. §85-7-421(3))

Residential projects require a slightly different process.  Lien claimants on residential projects must give the residential owner a pre-lien notice at least ten (10) days notice before filing a "claim of lien". (Miss. Code Ann. §85-7-409(2))

This is just a taste of what the new Mississippi lien law contains and is neither intended to be a complete summary of the new lien law nor should it be solely relied upon in filing a "claim of lien".  The new statues are filled with hoops to jump through and hazards for those who have not carefully read it.  If you have any questions about this Mississippi’s new lien law you can contact Christopher Solop at csolop@bislawyers.com, Lynn Thompson at lynnthompson@bislawyers.com or go to the website for Biggs, Ingram & Solop, PLLC at www.bislawyers.com.

Delay in Issuance of Time Extension May Constitute Active Interference or Bad Faith

Contractors frequently encounter circumstances where they are entitled to an extension of the contract time and request the extension, but, in some instances, the owner and/or architect refuses to timely act on the request by either granting or denying the request. When a contractor encounters such a circumstance, it must decide whether to accelerate its performance to avoid missing the contract completion date and being assessed damages by the owner or maintain its schedule based upon the assumption the contractor will receive the extension and risk a potential termination for default by the owner for not making adequate progress toward the completion date. This is the very reason why the Mississippi Supreme Court suggested that the "refusal to grant extensions on a timely basis can reasonably be interpreted as active interference or bad faith" and could justify the award of damages to a contractor.

Contractors should therefore not just request an extension of time with supporting documentation but also demand a timely response. If no response is forthcoming, the contractor should then advise the owner and/or architect of the consequences of a further delay in a decision.

Waiver of Right to Assess Liquidated Damages

Contractors who have a liquidated damage provision in their contracts should be aware that their assessment can be waived by the conduct of the owner.  The Mississippi Supreme Court has found that an owner was estopped from asserting delay damages where it failed to timely assert that right.  Contractors faced with a liquidated damage provision may therefore be able to defend against assessment of these damages where the owner fails to affirmatively and timely assert the right to them.  This may occur when the owner waits until the end of the project, long after the completion date has passed, to claim its right to liquidated damages without deducting them as they accrue.

Senate Bill No. 2622--Proposed Legislation Changing Mississippi Lien Law

The Mississippi construction industry is about to undergo a radical change to its lien law in response to the Fifth Circuit’s decision in Noatex Corp. v. King Construction of Houston, LLC, 732 F.3d 479 (5th Cir. 2013). Noatex affirmed a district court’s ruling that Mississippi’s "stop payment" statute was unconstitutional because it included no due process.  Construction Law Toolbox reported on this decision on October 15, 2013 [Click here to view Noatex post].  Rather than revise the "stop payment" law to cure the due process issue, legislators have decided to re-write Mississippi’s lien laws.  Senate Bill No. 2622 was introduced and would extend lien rights to second tier subcontractors and suppliers who currently have no lien or "stop payment" rights in Mississippi. [Click here to view SB No. 2622] This legislation can be followed by logging into www.legislature.ms.gov/. ‎

Biggs, Ingram & Solop, PLLC’s construction attorneys Christopher Solop and Lynn Thompson are closely monitoring the legislation. When a new lien law is passed lenders, owners, contractors, subcontractors and suppliers will need to understand the intricacies of all lien rights, including effectively filing a lien, penalties for false representation of actual and conditional payments; defending or eliminating a claim of lien, deadlines for initiating litigation or arbitration of a claim of lien, and penalties for false liens.

Oral contracts - be careful what you say.

There are plenty of different ways that a contractor can get in trouble with an owner or its subcontractors.  One is to talk too much and wind up entering into a separate enforceable oral contract.  The existence of an oral contract is a factual issue that will be decided by a jury or a judge in a trial without a jury, also known as a bench trial.  However, the formation of a contract requires three (3) simple elements: (1) an offer, (2) acceptance of the offer, and (3) consideration. If those elements are proven by one of the parties, an enforceable contract may have been formed and someone may have to pay.  There are some limited situations in which the law requires that a contract be in writing.  Nevertheless, the best course of action is to speak with caution so that there is no opportunity to argue that an oral contract was made.

And remember, the statute of limitations for an oral contract is three (3) years. Miss. Code Ann. §15-1-29. So, you may want to watch what you agree to do or you may lose sleep for quite some time until the statute of limitation expires.

PREGNANCY COSTS J.C. PENNEY $40,000 - WHAT WILL IT COST YOU?

On January 16, 2014, the EEOC issued a press release advising the public that J.C. Penney had agreed to pay $40,000 to settle a pregnancy discrimination lawsuit brought by the EEOC. In the lawsuit, the EEOC charged J.C. Penney refused to hire a female applicant for a salon position after she told the manager she was pregnant. Such actions are in violation of the Pregnancy Discrimination Act ("PDA"). The EEOC tried to resolve the matter without litigation, but was unsuccessful. The settlement also requires J.C. Penney to implement an equal employment opportunity training and reporting program including posting of anti-discrimination notices.

The EEOC reports 4,901 pregnancy discrimination charges were filed in FY2006, up approximately 1,000 cases over FY 1997. However, there was a jump in cases beginning FY2007 that has remained high. In FY2011, 5,797 complaints were filed with the EEOC. Importantly, in FY 2011, employers paid out $17.2 million in monetary benefits, excluding amounts awarded in litigated cases, arising out of pregnancy discrimination claims. Such cases are costly not just in terms of cash outlay, but also in terms of employee morale, workplace environment and employer reputation.

Are you next? The PDA was passed in 1978 as an amendment to Title VII of the Civil Rights Act of 1964. Unfortunately, after such an extended period of time, employers become lured into a false sense of security that everyone understands what they can and cannot do in the workplace. That simply is not true and employers who want to avoid costly claims such as that experienced by J.C. Penney must be proactive.

Construction companies are not immune to PDA claims. There are ways for all employers to reduce the risks to such claims. If you do not have a plan in place to address discrimination in the workplace, contact an attorney experienced in employment law to assist you in developing a program.

NEW YEAR MEANS COMPANY REPORTS DUE AGAIN!

The new year brings with it annual reporting requirements for companies doing business in Mississippi. All corporations and limited liability companies formed in Mississippi or qualified to do business here are required to file with the Mississippi Secretary of State’s Office an annual report which must be completed online. The process is easy and takes only a few minutes of your time. However, failure to file your annual report may have serious consequences.

The reporting forms are available for completion on the Mississippi Secretary of State’s website. Take the time now to go complete your report so you won’t forget. You will be finished quickly and can mark that task off your "to-do" list until next year rolls around! It will be one less thing for you to worry about this year.

To file the annual report for a CORPORATION, click here.

To file the annual report for a LIMITED LIABILITY COMPANY OR LLC, click here.

Challenge to Arbitration Award Untimely

Once a party receives an arbitration award, it does not necessarily mean that it will voluntarily be paid. Frequently, the party receiving the arbitration award must have it confirmed by the court and converted into a judgment. However, the party against whom the award has been made may challenge the award and seek to have it vacated. If the dispute involves an agreement related to construction, the parties must follow the procedures set forth in the Construction Arbitration Act, Miss. Code Ann. §11-15-101, et seq. If the dispute is unrelated to construction, the parties must follow the procedures set forth in the Mississippi Arbitration Act ("MMA"), Miss. Code Ann. §11-15-1, et seq. In a recent decision, the Mississippi Court of Appeals found the party against whom an award had been granted failed not only to timely challenge the arbitration award but also failed to set forth sufficient grounds to justify vacating the arbitration award and reversed the trial court’s findings. [click here to view decision].

In reversing the trial court, the Court of Appeals first considered the timeliness requirements for vacating an arbitration award under both the MMA and the Federal Arbitration Act ("FAA"), 9 U.S.C. §§1, et seq. Under the FAA, a motion to vacate must be served within three months after the award is filed or delivered. 9 U.S.C.§12. However, under the MMA provides as follows:

An application to vacate or modify an award shall be made to the court at the term next after the making and publication of the award, upon at least five days’ notice, in writing, being given to the adverse party, if there be time for that purpose; and if there be not time, such court, or the judge thereof, may, upon good cause shown, order a stay of proceeding upon the award, either absolutely or upon such terms as shall appear just, until the next succeeding term of court.

 

Miss. Code Ann. §11-15-27.  Because the challenging party complied with neither of these provisions, the Court of Appeals found the trial court had erred when it concluded the challenger's motion for vacation was timely.

In addition, the challenger did not set forth any of the grounds that might justify the vacating of an arbitration award. These grounds are very limited and set forth in 9 U.S.C. §10(a) or under Miss. Code Ann. §11-15-23. Accordingly, the Court of Appeals reversed the trial court for finding otherwise.

Although this case dealt with the MMA, the Mississippi Construction Arbitration Act also has strict filing deadlines for challenging an arbitration award and extremely limited grounds for challenging an award. It is therefore imperative that upon receipt of the arbitration award contractors consult their lawyer or the Mississippi Construction Arbitration Act to determine the time limitations for modifying or vacating an arbitration award.

Dismissal of claim for sexual harassment does not mean the battle is over

Consider these facts: You hire a female to work as your leasing manager for your apartment complex on Monday, August 3rd. The manager’s workplace is a desk in a small front office. During her first week, two male maintenance workers enter her office and hover over her at her desk and "sniff" her. The two men sometimes go to the office alone and at other times go together. Despite being told several times by the female worker that their behavior was bothering her, the men continued the conduct. In fact, over the course of her first few days, the men "sniffed" her twelve times each.

On Wednesday of this first week of employment, the female worker complained to her supervisor. The supervisor responded to "let it slide" because "you know how men are like when they get out of prison." By Thursday, the supervisor decided to have a meeting to air the complaints. In the meeting, the female worker said that she did not like the men "sniffing" her. One maintenance worker claimed to have a medical condition, while the other worker stated that he "needed to get a release."

How would you handle this situation? What do you do now? In this case, the supervisor fired the female worker the same afternoon as the group meeting. The supervisor gave no reason for the firing. Unsurprisingly, the female worker sued for sexual harassment and retaliation. Before the case was ever tried by a jury, the lower court granted summary judgment in favor of the employer. The lower court determined that the conduct of the maintenance worker was not objectively unreasonable so as to create a hostile work environment so there could be no sexual harassment. The lower court then concluded that, because a reasonable person would not believe that sexual harassment had occurred, the female could not have been fired for complaining about an unlawful employment practice and thus her claim of retaliation was unsupported.

The employer was probably rejoicing at this point, but the celebration didn’t last long. The U.S. Court of Appeals for the Fifth Circuit in Royal v. CCC&R res Arboles, L.L.C. considered the case on appeal. Click here to read the decision.  For whatever reason, the female worker did not appeal the sexual harassment claim itself, but only appealed the claim of retaliation. Needless to say, the Fifth Circuit reversed the judgment and sent the retaliation claim back to the lower court for trial.

In evaluating the case, the Fifth Circuit first discussed whether the maintenance workers’ conduct could constitute an unlawful practice under Title VII of the Civil Rights Act of 1964. The conclusion was that a reasonable jury could determine that the workers’ conduct violated Title VII because it was carried out in a small, confined space over a short period of time with multiple instances of such behavior. The appeals court concluded that, in fact, "the only thing interrupting this conduct seems to have been [the female worker’s] termination." The court then addressed whether the female could have been fired in retaliation for her reporting of the conduct. The employer claimed the female was fired for "swatting a fly harder than was necessary and slamming a door." The court noted that those reasons are "legitimate," although they may not be "plausible." However, the termination of the female worker on the same day as the meeting was clearly an adverse employment action that, combined with all the other factors, could lead a reasonable jury to believe that the termination was done in retaliation. Therefore, the case was sent back to the lower court for a jury to decide.

If you are thinking that this must be a very old case because the facts are so far-fetched, think again. These events occurred in 2009 and the Fifth Circuit just issued its opinion on November 21, 2013. Even though Title VII has been around since 1964, it does not mean that employees know what they should and should not do in the workplace, nor does it mean that supervisors know how to properly handle complaints. Many employers become trapped in a false sense of security that everyone knows how to act. Don’t be one of those employers. A training program for all employees—both workers and supervisors—will educate your workforce on acceptable behavior and will go a long way in defending against claims of this kind.

If you need assistance training your workforce you should call your attorney to review your current program, develop a training session for you and do on-site training at your convenience. Don’t wait until you face a claim in court to decide to be proactive!