If you’ve been involved in a large construction project, you are familiar with surety bonds and all of the underwriter’s questions you need to answer. If you’re new to the game, it can be daunting.

Many small contractors pass on bidding for projects if they require a surety bond. But it doesn’t have to be that way as long as you are prepared and know what kind of questions the surety insurer’s underwriter will be asking.

Surety bonds protect project owners from loss if the contractor’s work is defective or of poor quality, or if the contractor fails to complete the work or follow the terms and conditions in the agreement.

For example, if the contractor fails to finish a project due to a shortage of workers or financial problems, the surety company has to step in and perform in the contractor’s place. Obviously, it’s in the carrier’s best interest to insure projects where they won’t be asked to perform. As a result, the questioning can feel like an inquisition, but it’s worth it to be prepared so that the insurer underwrites the bond and you can get to work.

Other areas of scrutiny

Besides the questions in the box, the insurer will also likely want to know:

• If the start and completion dates in the contract are feasible.
• The amount of the bid bond if there is one.
• Any warranty terms and if they are sensible.
• The payment terms and if they will allow the owner to manage expenses during the life of the project.
• If there is any retainage, or the withholding of the final contract payment for a specific time period to ensure that the job has been properly completed.
• If there are any damages that are set out in the contract in case of non-performance or shoddy workmanship.
• If the contractor’s costs to complete other projects it is working on are sufficient to ensure that it can cover its general and administrative costs in the following year.

The above list is not exhaustive and some surety insurers may have different areas of interest.

The bottom line is you’ll want to make sure your finances are up to snuff and that you have a strong track record.

A slew of new laws and regulations that will affect California businesses are taking effect for 2023.

Last year was a busy one, with ground-breaking new laws on employee pay disclosures, a law prohibiting discrimination against cannabis-using employees and another expanding the circumstances when employees can take leave to care for a loved one. The following are the top 10 laws and regulations that employers in the Golden State need to stay on top of.

1.  Pay disclosure

This sweeping law in part requires more disclosure of pay information by employers. Under current law, employers are required to provide the pay scale for a position upon reasonable request by a job applicant. SB 1162 goes a step further by:

• Requiring employers, upon request by a current employee, to provide the pay scale of the position they are employed in.
• Requiring employers with 15 or more workers to include pay scale in any job postings for open positions.
• Requiring employers to maintain records of job titles and wage rate history for each employee while employed for the company, as well as three years after their employment ceases.

Note: The law defines “pay scale” as the salary or hourly wage range that the employer “reasonably expects” to pay for the position. Penalties range from $100 to $10,000 per violation. This law took effect Jan. 1, 2023.

 

 2.  State of emergency and staff

This new law, SB 1044, bars an employer, in the event of a state of emergency or emergency condition, from taking or threatening adverse action against workers who refuse to report to, or leave, a workplace because they feel unsafe. “Emergency condition” is defined as:

• Conditions of disaster or extreme peril to the safety of persons or property caused by natural forces or a criminal act.
• An order to evacuate a workplace, worksite or worker’s home, or the school of a worker’s child due to a natural disaster or a criminal act.

SB 1044 also bars employers from preventing employees from using their mobile phones to seek emergency assistance, assess the safety of the situation or communicate with another person to confirm their safety. The law, which took effect Jan. 1, 2023, does not cover first responders and health care workers.

 

3. Cannabis use and discrimination

This law bars employers from discriminating in hiring, termination or other conditions of employment based on employees using cannabis while off duty. The bill’s author says the legislation is necessary because THC (tetrahydrocannabinol), the active ingredient in marijuana, can stay in a person’s system after they are no longer impaired. As a result, drug testing may detect THC in an employee’s system even if they used it weeks earlier and it is having no effect on their job performance. AB 2188 does not require employers to permit employees to be high while working. The bill would exempt construction trade employees and would not preempt state or federal laws that require employees to submit to drug testing. This law takes effect Jan. 1, 2024.

4.  Leaves of absence

The California Family Rights Act and the state’s paid sick leave law allow employees to take leave to care for a family member, defined as a spouse, registered domestic partner, child, parent, parent-in-law, grandparent, grandchild or sibling. The definition has been expanded to include “any individual related by blood or whose association with the employee is equivalent of a family relationship.”

5.  Contractor workers’ comp

Starting July 1, the following contractors must carry workers’ compensation coverage regardless of if they have employees or not:

• Concrete (C-8 license)
• Heating and air conditioning (C-20)
• Asbestos abatement (C-22), and
• Tree service (D-49).

Starting Jan. 1, 2026, all licensed contractors must have coverage.

6.  OSHA citation postings

Under current law, employers that receive citations and orders from OSHA are required to post them in or near the place the violation occurred, in order to warn employees about a potential hazard. Starting Jan. 1, 2023, they must post the notice not only in English, but also: Spanish, Chinese (Cantonese, Mandarin), Vietnamese, Tagalog, Korean, Armenian and Punjabi.

7.  Permanent COVID standard

Cal/OSHA has a permanent COVID-19 prevention standard that will sunset in 2024. The new standard, which replaces the temporary emergency standard the agency had implemented, should provide more certainty for prevention procedures and practices. Here are the main takeaways:

• Employers are no longer required to pay employees while they are excluded from work due to COVID-19, or to screen employees daily.
• Employers must still notify and provide paid testing to employees who had a close contact in the workplace.
• Employers can now incorporate written COVID-19 procedures into their Injury and Illness Prevention Programs.

8.  CalSavers expanded

SB 1126 requires any person or entity with at least one employee to either provide them with access to a retirement program like a 401(k) plan or enroll them in the state-run CalSavers program. Prior to this new law only companies with five or more employees that do not offer a retirement plan are required to enroll their workers in CalSavers.

9.  Bereavement leave

Employers with five or more workers are required to provide up to five days of bereavement leave upon the death of a family member, under a new law starting in 2023. This leave may be unpaid, but the law allows workers to use existing paid leave available to them, such as accrued vacation days, paid time off or sick leave. Employers are authorized to require documentation to support the request for leave.

10.  PFL wage replacement

This law was passed last year but does not take effect until 2025. Existing California law allows employees to apply for Paid Family Leave and State Disability Insurance, both of which provide partial wage replacement benefits when employees take time off work for various reasons under the California Family Rights Act. Starting in 2025, low-wage earners (those who earn up to 70% of the state average quarterly wage) will be eligible for a higher percentage of their regular wages under the state’s PFL and SDI benefit programs.

GOVERNOR GAVIN Newsom has signed into law legislation that would bar employers from discriminating against employees and job applicants who use cannabis on their time off.
The law amends the California Fair Employment and Housing Act to prohibit discrimination against an individual based on “an employer-required drug screening test” that detects
the presence of “nonpsychoactive cannabis metabolites in their hair, blood, urine, or other bodily fluids.”
The new law does not bar employers from drug-testing, but it does impose restrictions on what they can do in response to a positive test.
The law, AB 2188, prohibits employers from discriminating against employees and job prospects, or otherwise penalizing them for either:
• Their use of cannabis off the job and away from work, or
• An employer-required drug test that detects cannabis in their system (from either a hair, blood, urine or bodily fluid sample).

Employer rights

The law is not a green light for workers to use or possess cannabis on the job. Also, it won’t impinge on an employer’s rights to maintain a drug-free workplace.
They do also have some leeway in trying to judge someone’s impairment, but it comes down to the type of test they use.

Acceptable tests

There are two types of tests:
• Ones that detect the presence of tetrahydrocannabinol (THC), the chemical compound in cannabis that causes impairment and psychoactive effects.
• Ones that detect the presence of nonpsychoactive cannabis metabolites, which is what is left after the body metabolizes THC. These metabolites do not indicate that an individual is impaired, but only reveal whether they have consumed cannabis recently (up to a month in the case of a urine test).
Under the new law, employers would be authorized to take disciplinary action if a THC test is positive, but not if they detect nonpsychoactive cannabis metabolites in their system. The latter is the more common type of test available.

Exemptions

There are some exemptions in AB 2188, in particular:
• It does not apply to workers in the building and construction trades. Employers would still be allowed to make employment decisions for workers and applicants who use cannabis in their off hours and test positive for nonpsychoactive cannabis metabolites.
• The law does not apply to applicants or employees hired for positions that require a federal government background investigation or security clearance in accordance with regulations issued by the U.S. Department of Defense or other federal agencies.
• The law does not preempt state or federal laws requiring applicants or employees to be tested for controlled substances as a condition of employment, receiving federal funding or federal licensing-related benefits, or entering into a federal contract.

The takeaway

Employers have time to change any policies they have in place concerning drug-testing and cannabis use. The law takes effect Jan. 1, 2024.
Remember, you can still take action against someone who is impaired at work.

THE U.S. Supreme Court’s decision to not hear an appeal of the sweeping California independent contractor law known as AB 5 is likely to cause serious personnel headaches for motor carriers in the Golden State.
While the law is already in effect, there had been an injunction exempting trucking companies after the California Trucking Association had sued to overturn the law as it applies to the industry.
The Supreme Court’s decision effectively lifts the injunction, and the CTA is sounding the alarm on how it will wreak havoc on motor carriers.

The effects

Owner-operators who are classified as employees under this test will be covered by California labor and employment laws. The hiring entity will have to treat them like employees, meaning they have to secure workers’ compensation coverage, pay employment taxes and extend benefits to them. They also have to abide by labor laws and wage and hour statutes.

Here’s how AB 5 will affect various owner-operators:

Exclusive leased owner-operators – These operators drive exclusively for a hiring trucking company and work under the latter’s authority. They may or may not own their
own trucking equipment (tractors and trailers) and do not have their own motor-carrier operating authority from the Department of Transportation.
They’ve operated as independent contractors because the lease agreements let them choose their own loads, but the agreements bar them from using their equipment to drive for other entities.
Effect: These operators will essentially be illegal.

Non-exclusive leased owner-operators – These contractors own their own equipment and have DOT motor-carrier operating authority. They move cargo primarily for a motor carrier with which they contracted but they can also work for other customers.
Effect: This group may or may not be affected depending on the arrangements they have with the motor carrier.

For-hire owner-operators – These operators own their own equipment, have their DOT motor-carrier authority and source loads through brokers or other means. They are their own bosses and they choose whom they will move freight for.
Effect: This subset is the least likely to be affected.

AS WILDFIRES grow in number, intensity and scope, the cost of paying for the resulting claims is causing a property insurance crisis in some parts of the state that shows no sign of disappearing anytime soon.
Commercial property insurance rates have skyrocketed for businesses in areas exposed to wildfire risks. Many have received non-renewal notices and have had to secure coverage with the market of last resort, the California FAIR Plan. Here’s what’s going on and what your options are if your commercial property policy is non-renewed.

What insurers are doing

While rates are increasing nominally in most of California’s larger cities due to higher construction costs, it’s a different story in smaller cities and towns.
Insurers are responding. Some are pulling out of the state or ceasing to write policies in areas they deem high risk and are issuing non-renewal notices. Those that continue to write business in high-risk areas are taking steps to rein in their risk:
Increasing rates – Many carriers have more than doubled rates for at-risk properties.
Hiking deductibles – Many carriers are raising deductibles in wildfire-prone areas.
Stricter terms – Some insurers are limiting the amount they will pay out if a building is destroyed. That can sometimes be as low as 20% of the value, meaning the rest would have to be covered out of pocket by the property owner.

Protective measures insurers may require

Defensible space: Maintain a defensible space around your building, usually all the way to the property line. You can find a thorough description of how to create a defensible space here.
Non-combustible materials and other measures: Use only non-combustible building materials, such as fire-proof shingles for your roof. The insurer may require you to shore up roofs, gutters, vents and siding and ensure there are no gaps that would allow embers to penetrate.
They may require exterior wall cladding made of non-combustible siding materials.
Reliable water supply: Insurers are requiring property owners to have clear access to a reliable water supply, including proximity to public hydrants and the possible installation of private-site yard hydrants. The availability of a reliable water supply is critical and should be evaluated frequently.
You may also consider installing a back-up water supply, such as a fire pump and tank.
Routine clearing: Insurers are requiring property owners to have a routine property clearing regimen that includes regularly removing dried vegetation from the property and removing debris or other flammable materials. Debris and vegetation are the tinder for large fires.

Your options if canceled

If you’ve been cancelled by your insurer, we can mount a search for replacement coverage. If all California licensed insurers that we have access to
reject your policy, we have two choices:
The non-admitted market – These are insurers that are not licensed in the state of California, but they are viable insurance companies nonetheless. They can offer policies that may not cover everything a homeowner’s policy from an admitted insurer would have. Policies can often be customized for the insured.

California FAIR Plan – We can only go to the FAIR Plan if you’ve thoroughly exhausted the options available through the voluntary market and been denied coverage.
If only one admitted insurance company is willing to write your policy, no matter how steep the premium is, you cannot go to the FAIR Plan for coverage.
Not only are FAIR Plans more expensive, but they offer fewer coverage options and lower policy limits. That said, the limits have doubled in 2022 to $6.8 million per policy.

AS INFLATION drives up salaries in all sectors, the workers’ compensation wage thresholds for construction dual class codes have increased in California as of Sept. 1, 2022.
State Insurance Commissioner Ricardo Lara in July approved the recommendation by the Workers’ Compensation Insurance Rating Bureau to increase the wage thresholds for highwage workers.
The new rates apply to workers’ comp policies that incept on or after Sept. 1.
In these dual class codes, workers’ compensation rates are different for workers above and below the wage threshold.
Rates are lower for workers whose hourly pay is above the threshold as statistics have shown higher-paid workers in these fields have fewer workplace injuries than those who are paid less.
Often the difference in premium rate between the workers who fall above and below the threshold can be significant.
Opposite are the new thresholds for each class code, that are now in effect.

THE MORE employees are working from home, the greater the risk that their employers’ sensitive data is also being stored on their poorly secured devices and laptops.
A new study by Symantec Corp. found many workers are sharing, moving, and exposing sensitive company data as part of carrying out the requirements of their jobs, and they may not realize they could be compromising the information or that what they are doing is wrong.
More worrisome, the study found that half of all employees surveyed who left or lost their jobs in the prior 12 months had kept confidential company data. When that happens, the departing worker, your company, and the new employer are all put at risk.

 

 

 

 

Worse still, the majority of employees put these files at further risk because they don’t take steps to delete the data after transferring it. “In most cases, the employee is not a malicious insider,” writes Symantec, “but merely negligent or careless about securing IP. However, the consequences remain. The IP theft occurs when an employee takes any confidential information from a former employer.”

 

 

 

 

 

What you can do

Symantec suggests attacking the problem from multiple angles:
• Educate employees – You should take steps to ensure that IP migration and theft awareness is a regular and integral part of security-awareness training. Create and enforce policies dictating how they can and cannot use company data in the workplace and when working remotely. Help employees understand that sensitive information should remain on corporate-owned devices and databases. Also, new employees must be told that they are not to bring data from a former employer to your company.

• Enforce non-disclosure agreements – If you have not done so already, you need to craft new employment agreements to ensure they include specific language on company data.
They should include language that the employee is responsible for safeguarding sensitive and confidential information (and define what that is).
For employees that are leaving your employ, conduct focused conversations during exit interviews and make sure they review the original IP agreement.
Include and describe, in checklist form, descriptions of data that may and may not transfer with a departing employee.

• Track your data – You need to know where your data is going and how you can find out by using monitoring technology. One option is to install data-loss-prevention software that notifies managers and employees in real-time when sensitive information is inappropriately sent, copied, or otherwise improperly exposed.
Also, introduce a data protection policy that monitors inappropriate access or use of company data and notifies the employee and you of violations.
This increases security awareness and deters theft. When you know how data is leaving your company, you can then take steps to prevent it from seeping out.

THE U.S. Supreme Court has put a significant dent in California’s Private Attorneys General Act, which in recent years has resulted in a surge in legal actions against California employers by their workers.
The law has been a huge thorn in the side of employers, who have been on the receiving end of litigation by workers who allege Labor Code violations.
The high court ruled that employers can compel arbitrations for employee-initiated PAGA actions. The court also held that if a plaintiff in a PAGA action is bound to arbitration, they automatically lose standing to prosecute claims on behalf of other “aggrieved” employees and remaining PAGA claims must be dismissed.
This is good news for businesses. Those that move to cement policies that comport with the new decision, will have a chance to drastically reduce their exposure should they be targeted by one of these actions. And because various court rulings have expanded the law’s breadth, PAGA has been a source of confusion among employers. The new ruling provides clarity.

The history of PAGA

The law was enacted in 2004, after the Legislature grew concerned that the state lacked the resources to fully enforce the California Labor Code.
PAGA permits employees to sue for civil penalties on behalf of themselves, fellow employees, and the State of California for alleged Labor Code violations. If they are filing on behalf of other employees, the other workers do not participate in the lawsuit.
The employee in essence acts as the state’s watchdog; they need not suffer any actual harm from an alleged violation in order to file a lawsuit. One employee has the ability to file a suit alleging multiple Labor Code violations.

For any provision of the Labor Code that does not specify a civil penalty, PAGA permits employees to seek a default penalty of up to $100 for each aggrieved employee per pay period for an initial violation, and up to $200 for each aggrieved employee per pay period for a subsequent violation.
If a suit is successful, the state receives 75% of the damages and the rest is distributed among the aggrieved employees.
The number of PAGA lawsuits filed in California on behalf of groups of workers has skyrocketed since 2014, when the California Supreme Court held that because PAGA plaintiffs step into the state’s shoes, their claims cannot be forced into individual arbitration.

A resounding decision

The U.S. Supreme Court’s 8-1 ruling in the case of Viking River Cruises Inc. vs. Moriana is likely to stem a flood of lawsuits filed in recent years accusing companies of widespread wage law
violations.
The court ruled that the Federal Arbitration Act, which states that in employer-worker agreements employees are required to arbitrate legal claims, trumps the earlier California Supreme Court decision barring forced arbitration.
SCOTUS ruled that PAGA plaintiffs can only establish standing to sue by first alleging an individual claim. And since the FAA requires individual claims to go to arbitration if a worker has
signed an arbitration agreement, the plaintiff cannot add additional claims for other employees, Justice Samuel Alito wrote in the decision.

Here’s what employers should take away from the decision:
• Individual PAGA claims can be arbitrated if an employee has signed a contract agreeing to arbitrate Labor Code and other employment-related actions.
• PAGA claims for other alleged aggrieved employees that the complaining employee includes in the lawsuit are not subject to arbitration, and those claims should be dismissed.
• If you have arbitration agreements for your workers, you should revisit them to ensure they allow you to compel arbitration of PAGA claims.

CONSTRUCTION FIRMS are reeling from snowballing costs of building materials due to spiking demand and supply chain snarls, which are resulting in massive budget cost overruns.
This is especially affecting construction businesses that are managing apartment or commercial projects. These cost overruns are imperiling profits – and risking red ink – on the projects after the contractors won carefully constructed bids.
Building materials and labor costs are going through the roof. According to the U.S. Census Bureau, construction costs spiked 17.5% year-over-year from 2020 to 2021, the largest increase in this data from year to year since 1970. And 2021’s costs were more than 23% higher than pre-COVID-19 pandemic 2019.
Many of the materials used in the construction of apartment and commercial buildings, including concrete, flat glass, and steel products are affected by volatile prices, with steel seeing a more than 123% increase in costs in the past year.

The fallout

With the prices of materials climbing rapidly, it’s easy for project costs to quickly exceed expectations and sink a project if those costs break the profit margin and force a loss. To avoid this fate, construction firms need to be proactive and put in place procedures for dealing with materials cost increases, supply chain disruptions, and a shortage of capable manpower. It could mean the difference between turning a modest profit or losing their shirt.
There are steps that contractors can take to avoid that fate. In an article on the website Construction Dive, Ripley Bickerstaff related what Hoar Construction, where he works as director of business development in Nashville, is doing to reduce the risks of price shocks and materials shortages so that builders can keep projects on track and in the black.

Don’t delay

Bickerstaff also recommends ordering items as early as possible, not just when needed. Due to supply chain issues, some items require a year lead time from order to delivery.
This way, you can lock in the price ahead of time. Even if it’s an item you’ll need for later in the project, considering the rapid pace of price increases, it’s best to order in advance so
you avoid being hit with higher prices later. This can protect your profit margin.
Additionally, the general contractor should work with architects and designers of the project to identify which materials they should order and which ones make sense in the current cost environment.
This can also give the builder time to shop around and find deals on similar or comparable items made of different materials to save money. Contractors that order materials early will have to arrange for storage as well. So securing warehouse space should be a priority.

Secure your workforce, subs early

With demand for construction workers and contractors exceeding supply, general contractors have to get in line and book them early.
For example, in some markets, electrical contractors are booking projects as far as a year out. Builders should secure subcontractors in advance to give them time to book their crews and order the materials they’ll need.
“Many builders are now shooting to lock in 70% of costs prior to construction documents, which should minimize the chances of double-digit material price hikes after a developer closes their
loan,” Bickerstaff writes.

The takeaway

Working on a large construction project now requires greater foresight and planning. You’ll need to price in factors you normally may not consider to ensure that you can meet your project budget and turn a profit.

THE WORKERS’ Compensation Insurance Rating Bureau of California is recommending that advisory benchmark workers’ compensation rates increase an average of 7.6% starting Sept. 1.
The proposal comes as the economy heats up and workplace injuries increase, all while COVID-19 workers’ compensation claims continue growing in number. The recommendation stilll needs to be approved by Insurance Commissioner Ricardo Lara, who last year rejected a proposed rate hike and instead ordered a cut.
However, because the benchmark rates – also known as the pure premium rate – are advisory only, insurers are free to price as they feel fit so the full effects will vary from employer to employer and some may see rate decreases.

What’s happening

The Rating Bureau says there are number of factors that are contributing to the increasing rates, including:
• An overall claims costs increase,
• Expected increases in the frequency of workplace injuries and claims,
• A rise in claims adjusting costs,
• Wage increases (part of workers’ comp includes replacement of a portion of wages via temporary and permanent disability payments), and
• Expected future costs of COVID-19 workers’ compensation claims.

 

Since the pandemic started, insurers have been barred from considering COVID-19 workers’ comp claims when calculating an employer’s claims history.
But that exemption will come to an end on Sept. 1. So, the WCIRB is including a 0.5 percentage point provision for the projected costs of future COVID-19 claims in the coming year.

The effects of wage hikes are also expected to increase claims costs. Payouts for lost wages while sick workers recuperate are expected to rise more than 11% by 2024.
Medical costs per claim are projected to increase about 6.5% from $29,896 as of Dec. 31, 2021, to $31,847 at year-end 2024.

The next step

The WCIRB has submitted the proposal to the Department of Insurance, which will hold a hearing on June 14, during which actuaries representing employers and labor will make counterproposals, which are usually lower than the bureau’s. After that, the state insurance commissioner can approve the proposal or reject it and order his own rate increase or decrease. Last year the WCIRB proposed a 2.7% hike, and Lara rejected it and instead ordered a decrease of 3.3%.

And remember: A number of factors go into calculating your insurance rate,
including your industry, your history of claims and your geographic location.