Helpful Suggestions to Avoid Construction Contracting Mistakes

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* Originally Published in the CAI-CV April, 2021 Edition of Quorum Magazine

By Jon H. Epsten, Esq. CCAL
Founding Member and Co-Managing Shareholder at Epsten, APC

I have been fortunate to represent common interest developments for close to thirty-eight years.  At the onset of my career I became involved in assisting associations with contracting for repairs, including major renovations and many post litigation reconstruction projects in the millions of dollars.  The basic rules of contracting for this type of work have not changed much over the years. What has changed is the complexity of the work and the insurance issues.

Our cottage industry has expanded over the years from cookie cutter “stick-built” homes constructed over hundreds of acres to much smaller foot prints and to more vertical construction with complex and ever-changing construction methodologies integrated with construction materials that oftentimes equally complex to install and repair.

To assist community managers and boards of directors through the contracting process I have put together some issues for the Board to consider which address problems I have encountered over the years. These issues are not exhaustive but touch upon the obvious issues which are often over-looked and can result in even a simple project failing.  Not every project will go well no matter how much work is put into the selection of the contractor. The goal is to minimize risk and when things aren’t going well have a good exit strategy or resolution process in the construction contract.

Here is an analogy. I grew up working on boats in San Diego. I learned that the process of painting a boat is a monumental task. But, it’s not spraying the paint on the hull that is difficult, rather it is preparing the hull for the paint that takes the most work.  Planning and preparation for your construction project is the difficult part of the project not necessarily the actual work being performed.

One of the most common mistakes is not defining the scope of work in enough detail. The absolute key to a good contract is a solid definition of the scope of work. By way of example, it is prudent to have an arborist define the scope of tree trimming while it may be prudent to have an architect define the scope of a roof repair or replacement.  Attorneys do not define scopes of work. The scope should be defined by the professional in the discipline. For you do-it-yourselfers there are resources on the web that contain plans and specifications for work (e.g. asphalt paving, painting, landscaping and irrigation). No matter what methodology you undertake to arrive at the scope of work you must always have a clearly defined scope of work in the contract.

I recently had a contractor argue successfully that their scope did not include painting the siding after the siding installation. He understood when bidding that the association was painting the siding. He referred back to the scope of work and while not specifically excluded, painting was not specified in the contract. Spend time understanding the scope, read and re-read the scope and incorporate all the scope documents (plans and specifications) into the contract and consider incorporating illustrative diagrams or photographs into the scope that show the site conditions. The scope needs to clearly define what is being repaired, the locations, the means and methods of repair and the material specifications, including warranties.

A very basic and old school approach to contracting is to interview contractors prior to selecting a contractor to perform work. This basic rule can bring out a lot of issues and calm nervous board members concerns.  That said, interview with a purpose. Just recently, I suggested to a board they interview a plumbing contractor.  I was not asked to attend. I called the manager the next day and asked how the interview went and she replied, the board only had two questions and they weren’t even sure what to ask. Take interviewing the contractor seriously.

  • A list of questions should be developed so you are always comparing apples to apples when interviewing a contractor for the job.
  • Check out their references.
  • Speak to other association boards of directors of similar sized communities the contractor has performed similar work for in the past.

I have found that a board interviewing contractors and taking the time to speak to other communities who used the same contractor(s) yields good information to make informed decisions. Do not just speak with the associations on the contractor’s reference list. They have typically been chosen because they will give the contractor a glowing review. Use your industry contacts to see if there are other projects not on the contractor’s list and get their input too. For example, when a problem arose on the project did the contractor deny responsibility or did it acknowledge the issue and work with the association to find a solution.

Many of us have to visually observe things to understand them. For me, it is no different with construction. By way of example, I need to see the paint colors, how the flashing will lay up against the fascia, and how the new windows compare to the windows that remain in place. I encourage my clients when possible, to have the contractor perform prototype repairs or illustrative mock-ups. Mock-ups and prototype repairs allow the board to better understand the work, adjust the work prior to formally committing to it and use the prototype or mock-up to explain the work to the owners or other contractors who may have to integrate their work with others.

Prior to starting work it is important to communicate with the owners and residents about what they can expect. Ideally, the contractor will assign a liaison to assist management and the board with communications with the residents and owners.  Good communication leads to a successful project. Regular communications between the contractor and the board is also important. Consider inviting the contractor to your regular board meetings to answer owners’ questions and address the board on the progress of the work.

Your Community Association Manager is your consultant, but do not assume the manager has the time and/or expertise to handle a construction project. These projects can be time consuming and can take away from day to day association issues that need to be addressed. Always discuss with your manager their role in any construction project; set expectations early. It is possible you may need to hire a third party to administer the work. If the management of the work is being delegated to a committee make sure the members are knowledgeable in construction or willing to learn about the work to be performed – don’t take the first volunteer who raises their hand.

I am often asked, does an attorney need to review the construction contract? Answering, yes, appears self-serving, but in fact oftentimes these contracts are fraught with poison pills such as antiquated insurance provisions, indemnity language and limitation of liability provisions. Those provisions need to be reviewed by counsel and understood by the board. Another key consultant is your association’s insurance agent. Make sure your agent reviews the insurance provisions in the construction contract.

It’s difficult for me to conclude this article when I have so much more to say! Let me leave you with some closing thoughts.

  • Take the time you need to get the contract that gets the work done properly.
  • Don’t overly complicate or delay the process.
  • Use professionals, and board members remember, what you may do if you were the contracting party is not necessarily what the association should do (e.g. offering cash incentives to a contractor).
  • And lastly, always keep in mind that price variances in bids are a signal that bidders may not be bidding the same scope.

 

Earthquake Casualty Insurance For Community Associations

Insurance for “The Big One”

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By Jon H. Epsten, Esq. & Anne L. Rauch, Esq.

Although California is known for its easy lifestyle and climate compared to the snow and flood regions of the country, the Golden State is not without its calamity risks.  California is the land of wildfires and earthquakes.  The specter of a catastrophic earthquake naturally leads to the question of whether community associations should purchase earthquake insurance.  Given the notoriously high cost of the premiums, this is a big dilemma for many governing boards — especially for those communities along the major earthquake faults.

Must, may, or should an association buy earthquake insurance?

The purpose of this article is not to answer this ultimate question for all community associations. Whether and what insurance is appropriate is going to be different for each association. Instead, this article summarizes generally the law governing the question about an association’s rights and duties to obtain (or not obtain) earthquake coverage.  We also propose questions boards may wish to direct to their insurance brokers to fully understand the various earthquake insurance products available. This article helps guide boards through the important process of deciding what to do about earthquake insurance – and, we are here to help you through it.

Check Your Governing Documents!

To understand whether an association must or may purchase earthquake insurance, the first place to look is the association’s governing documents.  Most associations have comprehensive sections in their CC&Rs (less often in the Bylaws or Articles of Incorporation) specifying the type of insurance the association must purchase.  If the governing documents specify that the association must purchase earthquake insurance (rare), then that arguably creates a duty for the board to buy that insurance and include the premiums as part of the association’s annual budget and assessment structure. The alternative would be to obtain membership approval to delete the requirement from the CC&Rs.  However, most CC&Rs only require fire and casualty, liability, and “director’s and officer’s” coverage – either remaining silent about earthquake coverage or stating the association may purchase it. A careful review of the association’s governing documents is the first place to start.

What Does The Law Say?

The Davis Stirling Act (the “Act”) does not require community associations to purchase earthquake insurance.  In fact, the Act merely encourages, without requiring, associations to purchase other insurance and is completely silent about earthquake insurance.  Under Civil Code section 5047.5(e) and 5800, the Davis Stirling Act incentivizes associations to buy liability insurance and directors and officers coverage by providing a qualified immunity to the directors for buying policies with limits of either $500,000 or $1,000,000, depending on the size of the association.  Civil Code section 5806 requires an association to maintain fidelity bond coverage for its directors, officers, and employees.  That’s it for insurance under the Act!  Earthquake insurance is not contemplated by any of these provisions.

However, just because earthquake insurance is not mandated by the association’s governing documents or the Davis Stirling Act does not mean an association cannot, and arguably in some regions along the fault lines should, at least consider purchasing earthquake coverage.  What is clear is that each year the association must disclose to its homeowners the full extent of its insurance portfolio, whatever it includes.  Civil Code section 5300, subdivision (b)(9) requires disclosure of a summary of the association’s property, general liability, earthquake, flood, and fidelity insurance policy as part of the association’s annual report to members.

Overview of Available Earthquake Products and Questions for Insurance Broker

What earthquake insurance products should a board consider, and what questions should the board ask its broker?   The main earthquake insurance products presently available fall into three basic categories:

Master Earthquake Policy:  Purchased by the association to cover the entire project (with certain exclusions and exceptions).

Individual Owner Policy: California Earthquake Authority (“CEA”):  Purchased by the individual owners through carriers approved by the CEA to cover the (sometimes large) deductible an association might have to pay through a special assessment and other gaps between the association’s master policy limits and the cost to rebuild.  Often, these policies include owner relocation costs during reconstruction.

MOTUS: Association “Mini” Master and Individual Owner Enrollments:  This product is newer, and might require some additional homework.  The association purchases a “mini” (limits of $10,000.00) master policy, allowing the owners the opportunity to enroll individually to purchase coverage roughly equal to what a special assessment would be for an uninsured catastrophic earthquake loss.  Some brokers describe the MOTUS as designed to be supplemental to a full Master policy – make sure your broker explains this!

The main questions to ask an insurance broker are:

  • What are the premiums?
  • What exactly does the “master” policy cover versus the individual CEA policy, and how does that compare to a MOTUS product with the association as insured under a “mini” ($10,000 limit) master policy, with individual owner enrollments?
  • What is the association’s deductible (often a percentage of the loss)?
  • What are the policy limits?
  • What is the estimated cost to rebuild the entire project in the event of a catastrophic loss?

The premium for a master policy is tied to the policy limits and the amount of a deductible the association chooses in the event of a catastrophic event.  An important fact for boards to understand about their project, in evaluating the adequacy of a proposed master policy, is what is the actual estimated cost to rebuild the project?  Understanding this is important to assessing how close to complete coverage the proposed policy would yield in the event of a total destruction of the building(s).  The MOTUS model of insurance is an interesting concept, but it relies almost exclusively on individual owners to enroll and most brokers explain that even with 100% owner participation the MOTUS does not replace the value of a full coverage Master policy. Moreover, if only a few owners enroll in the MOTUS, the policy is not going to do much for the community in the event of the Big One.  Another useful comparison is to consider what the total cumulative premium cost is for all owners to enroll in a MOTUS, and that compares to the total premium for a traditional association master earthquake policy?  It may be less expensive overall, with better coverage, for the association to simply purchase a master policy with limits sufficient to cover the reconstruction, passing the premium on to the owners through the assessments.  But a MOTUS is sometimes viewed by some as better than nothing, and it does provide the association an opportunity to educate owners on options which are available.

Membership Involvement in the Decision.

In most cases, the board makes all the arrangements and final decisions for the association’s final insurance profile.  However, when it comes to earthquake insurance there are many reasons why membership input (or vote) is either a good idea and in some cases required. If your association does not already have earthquake insurance built into its budget and assessment structure, the decision to purchase earthquake coverage might require membership approval as a practical matter because of the significant increase in revenue needed to cover the premium.  It might require an increase in regular assessments beyond the discretionary increase the board may make each year without membership vote.  If your governing documents require earthquake insurance, but the premium is deemed by the board cost prohibitive, an amendment to delete the requirement might help mitigate a breach of duty claim for failing to obtain the insurance.  If your governing documents are silent or permissive on the question of earthquake insurance, and boards wish to confirm the membership has had an adequate opportunity to participate in this important decision, a vote to clarify the governing documents (to expressly state earthquake insurance is not required) might help protect boards against claims they did not meet a duty in the event an uninsured catastrophic loss occurs.  All of these amendments would require membership vote, and that process is a useful one in which the pros and cons of earthquake insurance can be the subject of homeowner discourse and education.  Short of a membership vote, an advisory “straw” poll of members as to whether they wish to pay the premiums through a master earthquake policy purchased by the association or face an uninsured catastrophic loss through an earthquake can also be a useful and informative process.  Overall, getting membership input on these important issues can be extremely helpful in the overall education of the community and potentially to mitigate claims that the boards breached any duty by failing to get earthquake insurance in the event of the Big One.  Hindsight is often 20/20 in lawsuits, and the more board members can do to educate themselves and solicit, where appropriate, membership input, the better in defense of a breach of duty claim.

Before You Hit “Send” on that Email, Make a Call?

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By Jon H. Epsten, Esq.

Many board members believe that when an email is sent to the association’s attorney, it is automatically a “privileged communication” and therefore not admissible in a legal proceeding.  That mistake has landed clients in hot water over comments which are not necessarily privileged and inadmissible.

If the predominate purpose of the communication is related to an attorney’s advice or opinions, the communication will most likely be protected and not admissible in a legal proceeding.  However, if the email is a communication to the attorney and copied to other board members, but the primary purpose of the email is, by way of example,  to tell all of the recipients the sender’s opinion of another person, it may very likely be discoverable.  Think about this scenario, a board member and the association’s attorney are discussing a contract and in that communication the board member calls the vendor, a liar and a thief.  After signing the contract, a dispute arises between the association and the contractor and the contractor subpoenas the board member’s emails.  A court may not allow the legal advice about the contract in that email to be admitted into evidence, but may allow the board member’s (potentially defamatory) comments about the vendor to be admitted.  Be mindful, this same type of partial admissibility might apply to executive session minutes, as to items discussed and noted in the minutes which are not properly the subject for an executive session.

Beware, too, of sending any emails to “reply to all.”  Take the time to check the actual recipients.  Don’t make the mistake and send a critical email, summarizing attorney advice, to an adverse party—by pressing: reply to all. Yes, this scenario really happens and it happens more frequently than you would expect.

Consider that most Board email communications concerning association business are severely limited by the requirement that normal business of the association is to be conducted only in noticed meetings, pursuant to a published agenda.  While it is still permissible to receive (and send) emails to counsel, any discussion of the subject matter, by a majority of the board, of the email is supposed to take place in a meeting (most likely an executive session).  While under limited circumstances, such as an arbitrary and urgent deadline, discussion via email can be proper, in many cases, it is not.

Remember too that the attorney-client privilege may be forfeited by including persons other than the attorney, the board, and in most cases management.  Whatever privilege may have existed is likely lost when the email is sent to somebody not entitled to assert a privilege (e.g., neighbor, friend, vendor, roommate).

When a privileged communication is inadvertently sent to an opposing party, it must be immediately “clawed back” by the sender.  A “claw back” means taking prompt, specified actions to notify the opposing party of the mistaken transmission.  If you need to claw back an email, it is wise to discuss the process with legal counsel.  Communications between board members are typically not privileged unless the attorney’s opinions or strategies are being shared.  In that case, always copy the lawyer.

Before you hit “Send,” ask yourself, “How would this email look to a judge or jury, or to the media?”  If you can see that the words might be problematic, or that the communication via email might violate the prohibition on communicating with board members via email in place of a duly-noticed meeting, DON’T hit “Send” but rather pick up the telephone and have a “conversation” with the proposed recipient.

 

Related articles of interest:

Email Policies for Community Associations

Emergency Board Meetings via Email

Email Do’s and Don’ts for Community Associations

San Diego County Increases Compliance Efforts

By Jacquelyn E. Quinn, Esq.

San Diego County recently increased its Health Order Compliance team and launched a 24/7 call center for the community to submit complaints of businesses and organizations not complying with the Health Order. According to the County, the compliance team’s primary focus is “egregious violations” and businesses not permitted to be open (e.g., bars, indoor gyms, etc.). However, if a complaint regarding your association is submitted a member of the compliance team may contact the association.

According to the County, the compliance team will first contact the association to discuss the complaint and learn about your association’s operations to determine if there is a violation of the health order. If necessary, the compliance team may conduct a site visit. The County states the main purpose of the compliance team is to bring awareness and seek voluntary compliance, but notes it will have the authority to determine whether additional enforcement measures are necessary such as fines ($1,000 per instance) and/or cease and desist notices or closures, etc. Local cities may also have additional enforcement efforts in place.

Keywords: COVID-19, Coronavirus

Association Employee is Diagnosed with COVID-19… Now What?

By Jacquelyn E. Quinn, Esq.

If your association has employees, it may have certain responsibilities if one of them is suspected of having or diagnosed with COVID-19.

The State of California’s COVID-19 Employer Playbook for a Safe Reopening provides guidance on what to do if there is a case of COVID-19 in the workplace and actions employers may consider when reporting cases to local health departments and communicating with employees and vendors.

The California Department of Fair Employment and Housing also published guidance to assist employers and employees with frequently asked questions about how to address employees diagnosed with COVID-19 while upholding an employee’s rights. The State’s FAQ can be found here.

In addition, the Centers for Disease Control and Prevention (“CDC”) has issued a FAQ for businesses when suspected or confirmed cases of COVID-19 occur in the workplace.

Your local county or city may have also issued further guidance that your association should be familiar with. San Diego, for instance, in accordance with paragraph 16 of the San Diego County public health order, requires that employers notify the County Department of Public Health when an employee is diagnosed with COVID-19 and cooperate to identify and provide contact information for any person exposed by the employee at the workplace. San Diego County also recently instructed that employees are not required to undergo COVID-19 testing before being permitted to go back to work, as found here.

If an association employee is diagnosed with COVID-19, contact your legal counsel to discuss appropriate next steps.

Keywords: COVID-19, Coronavirus

Sign, Sign, Everywhere a Political Sign

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By Kieran J. Purcell, Esq.

As the 2020 political season gears up it is not uncommon to see political signs popping up in community associations which often leads to questions like: “Do homeowners have the right to display political signs?” “If so, where can they post political signs? “How soon after the election can we make them take down their signs?”  Chances are your association’s governing documents have a sign provision, and the city or county your association is located in likely has an ordinance governing political signs too.  However, the answers to these questions are found in your association’s governing documents and/or the California Civil Code.  Spoiler alert-you may not like the answers.

An Association May Prohibit an Owner From Posting Political Signs in the Common Area, But Not On or In Their Separate Interest Property. Generally, an association’s CC&Rs provide its board of directors has the sole and exclusive right manage and control the common area.  Some CC&Rs may also provide no signs may be erected or displayed in the common area without permission from the board. Or the CC&Rs may allow specific signs, e.g. one (1) sign of customary and reasonable dimensions offering a condominium for sale or lease.  If so, that means the board does not have to allow an owner to put political signs on the common area, right? And if an owner does place a political sign in the common area and refuses to timely remove it, the association can remove it, right? The answer to both questions is yes. Here’s why.

Civil Code section 4710 provides:

(a) The governing documents may not prohibit posting or displaying of noncommercial signs, posters, flags, or banners on or in a member’s separate interest, except as required for the protection of public health or safety or if the posting or display would violate a local, state, or federal law.

(b) For purposes of this section, a noncommercial sign, poster, flag, or banner may be made of paper, cardboard, cloth, plastic, or fabric, and may be posted or displayed from the yard, window, door, balcony, or outside wall of the separate interest, but may not be made of lights, roofing, siding, paving materials, flora, or balloons, or any other similar building, landscaping, or decorative component, or include the painting of architectural surfaces.

(c) An association may prohibit noncommercial signs and posters that are more than nine square feet in size and noncommercial flags or banners that are more than 15 square feet in size.

Therefore, a homeowner may post political sign(s) not larger than nine (9) square feet, made of the statutorily permitted materials in or on his or her separate interest property, but Civil Code section 4710 does not grant a homeowner the right to post signs-political in nature or otherwise-in the common area.

How Long Can a Political Sign Be Displayed Before/After An Election?  While CC&Rs rarely contain similar provisions, it would be reasonable for an association to adopt a rule with similar time limitations for owners to post political signs within their association, right?  Maybe. Many cities and counties have ordinances establishing time limits for when political signs may be posted, e.g. ninety (90) days before, and ten (10) days, after an election.  Civil Code section 4710 allows an association to prohibit the posting or displaying of noncommercial signs on an owner’s separate interest if the posting or display would violate a local, state, or federal law. Consequently, an association may be able to adopt rules which mirror the same time limitations set out in local ordinances.

Okay, So We Have To Let Someone Post a Political Sign, But Just One Right?

Maybe.  Civil Code section 4710(a) says governing documents may not prohibit noncommercial signs, posters, flags or banners, plural.  Unless prohibiting the sign(s), etc. protects public health or safety or if the posting or display would violate a local, state, or federal law.  Some examples of this would be: (a) if an owner displayed so many flags close to the street it impaired drivers from seeing other cars, (b) the city requires a permit for a flag pole over a certain height and the owner has no permit, or (c) the city limits how many signs can be displayed at one time on private property.

Census Taker Access

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By Jacquelyn E. Quinn, Esq.

It’s almost time for the 2020 Census to begin and associations may find census takers seeking access to the community or information regarding its occupants.  Households will receive an invitation to respond to the 2020 Census between March 12-20. If a household does not respond to the 2020 Census, a census taker may follow up in person to collect their response. This will occur between May-July.

Then comes the question – must associations grant census takers access to the community to gather information from occupants?  In short, yes.

13 U.S. Code Section 223 provides:

Whoever, being the owner, proprietor, manager, superintendent, or agent of any hotel, apartment house, boarding or lodging house, tenement, or other building, refuses or willfully neglects, when requested . . . to furnish the names of the occupants . . . or to give free ingress thereto and egress therefrom to any duly accredited [census taker] . . . shall be fined not more than $500.

An association is required to cooperate with census takers and cannot deny access into the community or giving the names of the occupants of the premises to any census taker who has shown proper identification.  Failure to grant access to the community or furnish names of occupants requested by a census taker may result in substantial fines.  The association may utilize whatever security measures it has in place (e.g., call resident and announce visitor).  It will be up to an individual resident if they choose to open their door or not.

Associations can and should require evidence that the person is an official census taker.  All census takers will be issued a census badge, which includes their name, photograph, Department of Commerce watermark, and an expiration date. Community Association Managers, patrol staff, or homeowners may ask to see a census taker’s badge. When in doubt, contact the nearest Regional Census Center to verify a census taker’s status. https://www.census.gov/about/regions/los-angeles/contact/identify.html

In order to comply with federal regulations, make sure your Community Association Managers, patrol staff, and gate and lobby attendants (if any) understand that access must be granted to census takers. They are allowed to knock on doors, ring doorbells, use call boxes, etc.  Also, census takers are within their rights to ask associations to verify occupancy information (e.g., name and address). While you’re not expected to supply the information immediately, you should provide the requested name and address within a reasonable amount of time.

Please be aware that there is no requirement to provide any information to a census taker over the phone.  If the association receives a phone call from a person claiming to be a census taker requesting occupancy information the association should not provide such information over the phone.

Record Retention: Meet the New Board, Same as the Old Board

By David A. Kline, Esq.

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Often I hear members and directors distinguish between events that took place “under the old board” and those that take place “under the new board.” The implication of this distinction is that the election that brought in “the new board” somehow wiped the slate clean or that a new entity was somehow formed.  In reality though, a community association is a single entity that continues despite changes in its membership, officers, directors and management.

There is no legal distinction between decisions made by “the old board” and those made by “the new board.” Rather, the business and affairs of community association are conducted by one body – the board.

Although the board may change its mind from time-to-time, it is important to recognize that decisions made by the board may continue to affect the association into the future, regardless of any changes that may occur in the composition of the board or management.

A recent decision by a Federal District Court in Florida illustrates the problems that can occur when a community association fails to recognize decisions made by “the old board.” (Peklun v. Tierra Del Mar Condo. Ass’n, 2015 U.S. Dist. LEXIS 163554 (S.D. Fla., Dec. 7, 2015), “Tierra Del Mar.”)

In February of 2015, Sergey Peklun took his own life. He had been living with his dog, Julia, at Tierra Del Mar Condominium Association in Boca Raton, Florida. In 2011, he received a notice from the association that his dog’s presence violated the association’s pet restrictions.  He responded to that notice explaining that his doctors recommended keeping Julia as an emotional support animal due to his anxiety and depression. His assertion that Julia was an emotional support animal was supported by letters from two doctors. In September of 2011, the association’s board of directors granted Mr. Peklun a reasonable accommodation to keep his emotional support dog. Then, the composition of the association’s board changed and the association changed management companies.  Can you see where this is headed?

A neighbor complained about the dog’s presence and the association demanded that Julia be removed from the premises. When Mr. Peklun asserted that Julia was a service dog, the association sought evidence of the dog’s certification as such. In 2013, when Mr. Peklun failed to provide that evidence, the association denied Mr. Peklun’s request to keep his dog and demanded its removal.  Importantly, the board focused its attention on whether the dog was trained to provide a service for Mr. Peklun rather than on whether he continued to need the dog as an emotional support animal.

Meanwhile, the complaining neighbor sued Mr. Peklun for an injunction ordering the dog’s removal. The judge issued that injunction based on an affidavit from the association’s president stating that there was no record the board of directors had ever granted Peklun an accommodation. Mr. Peklun took his own life on the day he was to appear in court on a contempt motion for his willful disregard of that court order.

Mr. Peklun’s widow and son sued the association, its president, and the neighbor for intentional infliction of emotional distress and for violations of the Fair Housing Act, among other causes of action. The Court refused to grant the association’s motion for summary judgment on the Fair Housing Act claim. The Court explained that the association was within its rights to inquire whether Mr. Peklun continued to need his dog as a reasonable accommodation.  However, the Court continued, “Because knowledge of the 2011 accommodation…was imputed to [the association’s] current board and also brought to its attention again in 2013, it had an obligation to open a dialogue regarding Julia’s purpose before denying the request.” (Tierra Del Mar, at 48.)

The above case is just one example of the problems that can occur when a community association fails to retain adequate records through a change in management.

  • Are your association’s records maintained in a way that would alert future directors and managers of decisions the board makes today?
  • Does your document retention policy adequately ensure that minutes will not be destroyed?
  • Does your association maintain minutes in a format that is easily searchable?
  • If a new management company has taken over, were the old records reviewed and incorporated into the association’s current files? Or, were they placed in a file box and stored in archives without a second thought?
  • When corresponding with a homeowner, what steps do you take to ensure that the association’s “institutional memory” is as good as that homeowner’s? Does your association maintain an individual file for every unit or lot?

When associations change management companies, it is understandable that emotions may run high.  Rather than simply transferring disorganized boxes from one office to another, it is well worth the association’s efforts and expense for the old management company to index its files and records and to meet with the board and the new management company to explain how those records are organized.

  • What could the Tierra Del Mar board have done in 2011 to ensure that its decision in 2011 would be known by the board in 2013?
  • If you were the old manager, how would you have ensured a smooth transition of association records?
  • If you were the new manager, how would you have incorporated the association’s old records into your own records-management system?

If you have suggestions or best-practices that you would like us to share in our next newsletter, please e-mail us.

Sexual Harassment Training Requirements

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NEW UPDATE: Associations That Have Five or More Employees Must Provide Sexual Harassment Training by January 1, 2021
(Rather than January 1, 2020).

Employers with five or more employees no longer have to provide sexual harassment training by January 1, 2020 as previously required under Government Code section 12950 (Senate Bill 1343). Rather, pursuant to Government Code section 12950.1 (Senate Bill 778 signed by Governor Newsom on 8/30/19), an employer with five or more employees (which include seasonal and temporary employees, unpaid interns, unpaid volunteers, and independent contractors), must provide two hours of sexual harassment training to all supervisory employees and at least one hour of sexual harassment training to non-supervisory employees by January 1, 2021.

Subsequently, the employer must provide the training once every two years. This new law also requires an employer to provide initial training for non-supervisory employees within six months of hire.  However, if your supervisory employees received training in 2019, they need not be trained again until two years thereafter. Employers must keep the training documentation for at least two years.

More information about the training requirements, other related requirements, and resources for the required trainings can be found on the DFEH’s website at: https://www.dfeh.ca.gov/resources/frequently-asked-questions/employment-faqs/sexual-harassment-faqs/

AB 5: New Requirements for Independent Contractors

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Does Your Association Have Independent Contractors Providing Services?
If so, Assembly Bill 5 Will Further Impact the Ability of Companies Including Associations to Classify Workers as Independent Contractors.

What Are the New Laws?

You may have seen or heard the recent uproar in the news by Uber and Lyft over the so-called “gig worker bill.” Unfortunately, this new bill will impact not just the “Gig Economy,” but almost all California businesses including community associations and community management companies.

On September 18, 2019, California Governor Gavin Newson signed into law Assembly Bill 5 (“AB 5”) to be incorporated into the California Labor Code beginning January 1, 2020, as Labor Code section 2750.3, with an amendment to the definition of “employee” in Labor Code section 3351 and other related amendments to the Unemployment Insurance Code at sections 606.5 and 621.

What is the Proper Classification of Individual Workers?

This new law essentially requires employers to comply with the California Supreme Court decision in Dynamex (Dynamex Operations West, Inc. v. Superior Court of Los Angeles County 4 Cal.5th 908 (2018)) concerning classification of workers as independent contractors rather than employees and creates statutory liability for not complying with these new limitations on worker classifications. AB 5 and the Dynamex case permit California hirers to classify  individual workers as independent contractors only if it meets the ABC Test, which provides workers are employees  unless: (A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under contract and in actual fact; (B) whether the worker performs work that is outside the usual course of the hiring entity’s business; and (C) the worker is “customarily engaged” in an independently established trade, occupation, or business of the same nature as the work being performed for the hiring entity. AB 5 includes some exceptions for certain businesses or industries. However, there are no specific exceptions for community associations or community management companies.

What if There is a Bona Fide Business-to Business Relationship? Should Associations or Management Companies Be Worried?

Yes. AB 5 also provides guidance when there is a “bona fide business-to-business contracting relationship.” AB 5 defines what is a legitimate “business-to-business contracting relationship” and sets forth further requirements to determine whether a “business service provider” is a properly classified independent contractor (e.g., janitorial services, etc.).

  • First, the two parties contracting must both be “business service providers” which are either a business entity formed as a sole proprietorship, partnership, limited liability company, limited liability partnership, or corporation, which includes nonprofit mutual benefit corporations, such as many common interest developments (Labor Code section 2750.3(e)(a)(1)).
  • Second, the determination of employee or independent contractor status of the business service provider in a business-to-business relationship shall be governed by a different test as opposed to the ABC Test that applies to individuals (Labor Code section 2750.3(e)(a)(1)). This business-to-business test is known as the Borello Test from the California Supreme Court case that historically and previously set forth the applicable test to determine proper worker classification (G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341). The Borello Test has been in use since approximately 1989 and sets forth 12 factors, all of which must be satisfied to have a bona fide business-to-business/independent contractor relationship, not an employer-employee relationship:
  1. The business service provider is free from the control and direction of the contracting business in connection with the work, both under the contract for the performance of the work and in fact.
  2. The business service provider is providing services directly to the contracting business rather than to customers of the contracting business.
  3. The contract with the business service provider is in writing.
  4. If the work is performed in a jurisdiction that requires the business service provider to have a business license or business tax registration, the business service provider has the required business license or business tax registration.
  5. The business service provider maintains a business location that is separate from the business or work location of the contracting business.
  6. The business service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed.
  7. The business service provider actually contracts with other businesses to provide the same or similar services and maintains a clientele without restrictions from the hiring entity.
  8. The business service provider advertises and holds itself out to the public as available to provide the same or similar services.
  9. The business service provider provides its own tools, vehicles, and equipment to perform the services.
  10. The business service provider can negotiate its own rates.
  11. Consistent with the nature of the work, the business service provider can set its own hours and location of work.
  12. The business service provider is not performing the type of work for which a license from the Contractor’s State License Board is required, pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code.

(Labor Code section 2750.3(e)(a)(1)(A)-(L); S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341.)

Are There Any Other Considerations Related to Misclassification of Employees?

In addition to this new law, associations should continue to be cognizant of the risks of being deemed a joint employer and plan ahead to minimize their liability for these potential joint employer risks. For example, an association should understand that when it has onsite workers who are employed by their management companies or vendors, these onsite workers could also be deemed employees of the association under the joint employer doctrine and under AB 5 which amends the definitions of “employee” and “employer” in Labor Code section 3351 and Unemployment Insurance Code sections 606.5 and 621.

What Can Associations Do In Response to These New Laws?

Community associations should consult with legal counsel about whether to reclassify all of their workers as employees unless they are confident their workers can meet the ABC Test set forth in the Dynamex case and AB 5. If employees are misclassified as independent contractors, these workers could file a lawsuit in state court or initiate a claim with the Labor Commissioner’s Office, the Employment Development Department, and the Franchise Board, all of which have jurisdiction and authority over worker misclassification matters. If such a claim or lawsuit is filed against an association, these claims are considered “wage and hour” or “misclassification” claims and are typically not covered by the standard Employment Practices Liability Insurance (“EPLI”) policies that cover associations or their management companies. Nonprofit corporations and smaller companies are not financially equipped to participate in protracted litigation or administrative proceedings in an attempt to prove their workers are properly classified.

What are Some Options to Minimize the Risks of Misclassification?

What can associations do to try to protect themselves if they are concerned about workers providing services that may be misclassified as independent contractors by the association or its vendors or contractors?

  • Classify association workers as employees and ensure that your onsite workers are being classified as employees by your vendors or contractors if these workers cannot satisfy the ABC Test.
  • Contact your insurance agent to obtain an EPLI policy for the association that covers wage and hour claims, misclassification claims, third party claims as well as coverage for your independent contractors, especially if there are independent contractors providing services for the association. It is best to make this inquiry now before the next budget disclosures are distributed to the owners in case the association will need to increase assessments to cover increased insurance costs.
  • Timely and immediately notify any applicable EPLI carrier of facts or circumstances that may give rise to a claim if you have any concern you may have misclassified workers as independent contractors.
  • Carefully draft new written contracts or revise existing contracts with vendors or contractors, in order to minimize risks of liability for misclassification claims because it is possible that the association may be deemed a joint employer of the workers provided by the vendors or contractors. For example, an association can require its vendors or contractors to (i) indemnify the association for employment-related claims; (ii) have EPLI insurance including wage and hour, misclassification, independent contractor and third party coverage; and (iii) require an additional insured endorsement in favor of the association on these EPLI policies, if available.