How intimatelyshould a generalcontractor direct asubcontractor’s day-to-day work? Howeffective is yourgood faith settle-ment agreement?

Do prevailingwage laws apply toconstruction on aprivate tenant’sleased space, if apublic tenant leaseselsewhere on theproperty?

Want answers?Three recent Cali-fornia cases providethem, as follows.

Limiting General ContractorLiability For Workplace InjuriesTo Subcontractor Employees

In Millard v. Biosources, Inc., (2007) 156Cal. App. 4th 1338, an HVAC subcontrac-tor’s employee fell off worksite scaffoldingand sued the general contractor for person-al injury under the “Peculiar RiskDoctrine.” This common law doctrinecreates tort liability for anyone who hiresan independent contractor to performinherently dangerous work whereby a thirdparty gets hurt. The Millard court deniedthe employee’s claim for several reasons.First, the workers’ comp system adequatelyprotects the interests of injured employees.Expanding liability to the general contrac-tor would give the employee an unduewindfall relative to other injured employeeswho are limited to damages recoverableunder workers’ comp law. Moreover, itwould create the unfair result of imposinggreater liability on a non-negligent generalcontractor than on the subcontractor,whose negligence actually caused the

injury. The most important holding inMillard, however, is that negligence shouldnot be imposed upon a general contractorunless its “retained control” over worksitesafety conditions affirmatively contributesto the employee’s injuries.

Millard suggests that if a generalcontractor is actively involved in directinga subcontractor’s means and methods ofaccomplishing a job, liability could evolve.Thus, general contractors should limit thelegal reach of their worksite “control” andsolidify contract language making subcon-

tractors solely responsible for means andmethods. On-site managers and superin-tendents should be trained to overseesubcontractors, but refrain from micro-managing work.

Non-ComprehensiveGood Faith Settlements

In Willdan v. Sialic Contractors Corp.,(2007) 158 Cal. App. 4th 47, the City ofWest Hollywood (“City”), and the City’sengineering firm (“Engineer”) enteredinto a settlement with the City’s contractor(“Contractor”), resolving the Contractor’scost overrun claims based on inaccurateplans and specifications. The settlementagreement specifically excluded claims forlatent defects and did not cover any claimsbetween the City and the Engineer. TheCity later sued the Engineer for breach ofcontract, express and implied contractualindemnity, and negligence. The Engineercross-complained against the Contractor

for declaratory relief and indemnity. The trialcourt granted the Contractor’s motion for agood faith settlement determination underCode of Civil Procedure §§ 877 and 877.6.

On appeal, the Engineer argued that itsclaims against the Contractor should nothave been dismissed because the City’s claimswere based on latent defects, which wereexcluded from the settlement. The Contrac-tor countered that the trial court’s ruling wascorrect because the City had not brought anyclaims against the Contractor for construc-tion defects, but had only sued the Engineer

for breach of contract and negligent design.The appellate court rejected this argumentand reversed the good faith determination,reasoning that the City’s failure to bringconstruction defect claims against theContractor did not prohibit the Engineerfrom trying to prove that the City’s damageswere the result of latent defects for which theContractor was responsible.

Thus, even though the Contractor hadsettled with the City and the Engineer, it stillfound itself on the hook to potentiallyindemnify the Engineer against the City’slater claims because of exclusions built intothe settlement agreement. Willdan is a harshreminder to be wary of any claims left openwhen settling out of multi-party litigation.

Prevailing Wage Laws AppliedTo Shell Work On PrivateBuilding With Public Tenant

In Plumbers and Steamfitters Local 290 v.Duncan, (2007) 157

FEATURE

A Look at Recent California Case Law Impacting Contractors’ Businesses Contractors Should Heed Recent Decisions on LiabilityIssues, Good Faith Agreements, and Prevailing Wage Laws

WWW.AGC-CA.ORG

By Theresa C. Lopez and Rosemary K. Carson

The decision in Millard v. Biosources, Inc.,suggests that if a general contractor is

actively involved in directing a subcontrac-tor’s means and methods of accomplishing

a job, liability could evolve.

Theresa C. Lopez

Rosemary K. Carson

Associated General Contractors of California 1THE VOICE OF THE CONSTRUCTION INDUSTRY

continued on page 8

Cal. App. 4th 1083, a property owner leased63% of his building to Humboldt County.The owner created two contracts for renova-tion work, one for tenant improvements toHumboldt’s space, and one for shellimprovements to the entire building.Prevailing wages were not paid on thesecond contract, under the theory that over-arching shell improvements did not consti-tute a public works project subject to LaborCode section 1720 et. seq.

The court held that if more than 50% ofa property is leased to a public entity, anyconstruction to the property is consideredpublic work and prevailing wage laws apply,even if some construction is done onportions not leased to the public entity. Thiswas especially true in Plumbers and Steam-fitters, where shell improvements wereunquestionably essential to the operations ofall tenants, including Humboldt County.The fact that improvements may also havebenefited other, private tenants did notnegate the functional relationship betweenthe shell contract work and the county’sleased space.

The court left open, however, the possiblesituation where construction is done solely to

benefit a private lessee, citing, as an example,installation of a ground-floor coffee shop. Inthat instance, the court suggested that thepublic works doctrine would have no applica-bility since the construction would not func-tionally relate to the publicly leased space.

What Do These Cases Mean?First, if a general contractor microman-

ages the day-to-day operations of a subcon-tractor, it arguably controls that subcontrac-tor’s means and methods. This sort of“retained control” of the workplace can beinterpreted by courts as affirmativelycontributing to a workers’ injury and the

resulting liability. Second, parties must bevery careful when drafting exceptions tonon-global settlement agreements becausethose exceptions could impact a good faithsettlement determination down the road.Lastly, if a public tenant occupies more than50% of a private property, prevailing wagemust be paid for all construction workarguably tied to the public lessee’s opera-tions, even if construction is also performedon privately-leased space.

Theresa C. Lopez, Esq. and Rosemary K.Carson, Esq., are with Crowell & Moring LLP,Irvine.

Array of Legal Issues Impact IndustryThe California Constructor gives special thanks to the AGC Legal Advisory

Committee, whose members prepared articles on a host of legal issues that are impact-ing the construction industry and your business. Additional legal articles will befeatured in upcoming months in our Legal News column. Among those planned:

• “When Insurance and Indemnity Collide,” by Raymond E. Kong, Bell, Rosenberg &Hughes

• “Aerojet Case Alert,” by Patrick McKinney, Farella Braun & Martel• Additional articles are planned by LAC members on LEED/Green survey, the Harris

Construction case, prompt payment statutes, Mechanics Lien action, and more.

2 VOLUME 38, NUMBER 3 — MARCH 2008 THE VOICE OF THE CONSTRUCTION INDUSTRY