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Laborers and the
20-Day Notice
The Court of Appeals
rules that laborers’ immunity from issuing the preliminary lien notice does not
extend to the companies that furnish those laborers
As a major player in
Arizona construction, you know that a supplier of services or materials to a
construction project can protect its payment rights by filing a lien on the
property (A.R.S.
§ 33-981).
To enforce their lien,
they must be able to prove that they properly issued a written preliminary
20-day notice to the owner, the contractor, the construction lender, and the
party with whom they contracted. The notice must be served within 20 days after
the first day on which they provided services or materials. (A.R.S. §§ 33-981[D]
and
33-992.01) It is this preliminary 20-day notice requirement that, in our
experience, most frequently trips up potential lien claimants.
All of that should seem
quite familiar, but what you may not know is this: Only one class of “suppliers”
is exempt from the preliminary notice requirement: actual laborers on the job.
In the words of the statute, “Except for a person performing actual labor for
wages, every person ... shall … serve ... a written preliminary twenty day
notice as prescribed by this section.” (A.R.S. § 33-992.01[B])
Who can claim to be a
laborer? A recent Arizona Court of Appeals case has clarified who can claim
to be a person performing actual labor for wages.
In Performance
Funding, LLC, v. Arizona Pipe Trade Trust Funds, a company, Industrial
Mechanical, Inc., provided services and equipment to a 1998 construction project
at a Motorola site in Mesa. Industrial Mechanical’s employees were union
workers, and the company contracted with Phoenix-area pipe trades and metal
workers unions to make monthly contributions to the unions’ trust funds for
employee benefits.
In November 1998,
Industrial Mechanical became insolvent and was unable to complete its contract
due to foreclosure by a creditor. The company had paid its employees all of the
wages owed up to the point of foreclosure. However, before the foreclosure
Industrial Mechanical had stopped making fringe benefit contributions to the
union trust funds. The company had posted bonds to secure those contributions,
but the amounts owed to the funds exceeded the bonds’ limits.
In January 1999, the
union trust funds recorded liens against Motorola’s property for fringe benefit
contributions. However, they did not serve preliminary 20-day notices.
In the ensuing trial, the
union trust funds successfully argued that because they provided laborers for
wages, they had the right to file the liens and were exempt from the preliminary
20-day notice requirement.
On appeal, the Court of
Appeals agreed that, within the meaning of A.R.S. § 33-981, the trust funds were
“persons who labor”– that is, they had a right to file their liens. Arizona has
a long tradition of liberally construing the lien statutes to ensure that
laborers receive their bargained-for benefits, and the court recognized that the
monies owed to the trust funds were part of the compensation owed to individual
union members.
Not immune to 20-day
notice. However, the Court of Appeals ruled that the trust funds were not
exempt from the preliminary 20-day notice requirement and that their failure to
serve those notices was fatal to their claims.
The court noted the
statutory requirement that every person who furnishes labor must issue a written
preliminary 20-day notice, “except for a person performing actual labor for
wages.” The ruling drew a sharp distinction between a party that merely
furnishes labor and a person who actual performs the work.
The court observed that
an individual laborer working at a site might not know that a preliminary notice
is required or have access to the information required in the notice. By
contrast, a trust fund – managed by sophisticated trustees who are expected to
be experienced in matters related to construction contracts – can readily obtain
the information it needs to protect the interests of the fund and its
beneficiaries.
In other words, the
trustees should have the knowledge and expertise to protect the fund’s interest,
while laborers at a site cannot be expected to have the same knowledge and
expertise.
Far-reaching
implications. We believe that the Performance Funding ruling – that a
laborer’s exemption from the preliminary 20-day notice requirement does not
extend to his union trust fund – extends beyond organized labor and may also
apply to employee leasing companies and other third-party providers of workers.
Actual laborers – the men
and women with the strong backs and calloused hands – can lien for wages without
first giving preliminary notice but, under our interpretation of this decision,
the company that furnishes those laborers cannot.
It’s a subtle bit of
information that may prove extremely valuable the next time a company with whom
you contract to furnish labor fails to provide a preliminary 20-day notice.
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