Law Offices of Stanley E. Niew, P.C.

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LABOR & CONSTRUCTION LAW UPDATES

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OCTOBER 2016

Inside This Issue

1. “Pay-When-Paid Clause” Versus “Pay-If-Paid Clause”

2. NLRB Revises Damages Available to Discriminatees

3. Sexual Orientation Discrimination Not Prohibited by Title VII

4. Implied In Fact Contracts

“Pay-When-Paid Clause” Versus “Pay-If-Paid Clause”

Under the 1985 case of A.A. Conte, an Appellate Court in the 1st District concluded that the parties’ subcontract “clearly make the receipt of payment from the [property owner] to [the Contractor], the condition precedent to [the Subcontractor’s} payment.” Thus, the concept of “pay when paid clauses” was found to be lawful and enforceable in Illinois.

In the case of Beal Bank Nevada v. Northshore Center, decided on September 30, 2016, the court carved out a distinction between “pay when paid clauses” and “pay if paid clauses.” The Beal Bank court was unwilling to extend the A.A. Conte case “without clear language indicating the parties’ intent that the subcontractor would assume the risk of non-payment by the owner.” A “pay-when-paid clause” governs the timing of the contractor’s payment obligation to the subcontractor within a fixed time, but in contrast a “pay-if-paid clause” provides that a subcontractor will be paid only if the contractor is paid provided the contract has language such as “Contractor’s receipt of payment from the owner is a condition precedent to contractor’s obligation to make payment to the subcontractor; the subcontractor expressly assumes the risk of the owner’s nonpayment and the subcontract price includes the risk." [1]

The court seems to have relied upon upon language in the subcontract agreement to the effect that “contractor agrees to pay subcontractor within seven days after receipt of payment from the owner.” The court refused to overturn A.A. Conte, but distinguish it on its facts and went on to say there are no “magic words” when making a determination of the parties’ intent from clear and ordinary language in a subcontract agreement. The court indicated it would review such disputes on a “case-by-case” basis.

Under Brown & Kerr v. St. Paul Fire, a Federal court interpreting Illinois law ruled that a “pay when paid clause” did not preclude payment under a surety bond when the subcontractor had satisfactorily performed but was not paid. The Illinois Mechanics’ Lien Act also provides in part, that “[a]ny provision in a contract, agreement or understanding, when payment from a contractor to a subcontractor or supplier is conditioned upon receipt of the payment from any other party including a private or public owner, shall not be a defense by the party responsible for payment to a claim brought… against the party.”

In sum, the Beal Bank case is the law in the 1st Appellate District in Cook County; however, there is no assurance that it will be followed in other Illinois appellate districts. [2] Contractors and subcontractors are advised to carefully look at their construction agreements under the holding in Beal Bank.

Footnotes:
[1] The Beal Bank court was quoting from a federal case which is not binding on Illinois courts.
[2] Trial courts in other appellate districts must follow the Beal Bank and A.A. Conte decisions until another appellate court rules differently.

NLRB Revises Damages Available to Discriminatees

In August the National Labor Relations Board (“Board”) overruled its longstanding policy that treated expenses as offsets to interim earnings rather than a make-whole remedy for someone who was unlawfully fired.

By example, Perez worked at a remote location earning $1,000 per month prior to her unlawful discharge. During the month following discharge, Perez spent $500 traveling to different locations looking for work. Perez could only find interim employment in another state that paid $750 per month. Perez moved to the new state to be closer to her new job and was also required to obtain training for her new position, costing her $5,000 and $500, respectively. Under the Board’s traditional approach, Perez would receive compensation for only $1,500 of her $6,000 expenses, far less than make-whole relief. Under King Soopers the make-whole remedy to a discriminatee will now include all search for work costs and interim expenses regardless of whether those expenses exceeded interim earnings.

In another 2016 case the Board ruled in Advo Serv of New Jersey that employers must compensate employees for the adverse tax consequences of receiving lump sum back payment awards.

There are also cases pending before the Board requesting consequential damages as a result of being terminated in violation of the NLRA. A make whole remedy for loss of earnings suffered as a result of unlawfully withheld wage increases requires a payment of interest compounded daily.

These cases illustrate the need for training supervisors and managers on how to avoid committing unfair labor practices. We offer such training programs. To inquire about a training program or schedule a training program, contact our office.

Sexual Orientation Discrimination Not Prohibited by Title VII

In a recent case alleging employment discrimination of a lesbian employee, The 7th U.S. Circuit Court of Appeals found that it was bound by its prior rulings concerning the scope of Title VII of the Civil Rights Act of 1964. The Court opined, “our precedent has been unequivocal in holding that Title VII does not redress sexual orientation discrimination … our holdings[] reflect the fact that despite multiple efforts, congress has repeatedly rejected legislation that would have extended Title VII to cover sexual orientation.”

The Court went on to note the emerging consensus among judges that sexual orientation discrimination cannot be tolerated. Inasmuch, the 7th Circuit has signaled that such an expansion of protection will require new legislation.

Implied In Fact Contracts

In Trapani Construction v. Elliot Group, an Illinois appellate court ruled that contracts implied in fact arise from promissory expression that show the parties’ intent to be bound as inferred from the facts. Here the Plaintiff was paid in excess of $18 million dollars by Defendant for construction work on other projects performed under unsigned draft contracts. The Defendant cannot deny a contract implied in fact based on the history of working together in the past under the same unsigned contracts.

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