Third Party Wins Case Against the USG as a Third Party Beneficiary.

Posted on April 18, 2011 by Gavin Craig

It is very unusual for a third party to a contract to be able to enforce the terms of a contract. The first hurdle is that the parties must have specifically intended that the third party benefit from the contract. Usually claims of a third-party beneficiary are defeated at this point because there is no language in the contract to show specific intent to benefit the third party.

Claims against the Government are equally as difficult, if not more so. So the recent case of FloorPro Inc. v. United States is unusual. The facts of the case are simple enough. GM&W was awarded a government contract install new floor coatings in some warehouse bays. GM&W sub-contracted with FloorPro and the latter was to be paid about ninety percent of the contract price -- $37,500 out of $42,000. FloorPro completed the work but was not paid. FloorPro complained to the Government contracting officer.

The Government then made an agreement with the parties that provided that a joint check was to be issued to both FloorPro and GM&W. In consideration for the amendment GM&W released the government from any claims. So far so good for FloorPro.

However, the government being the government made a mistake and issued the check to GM&W, who presumable cashed it promptly and of course did not pay FloorPro. FloorPro brought an action against the Government claiming that it was aThird-Party Beneficiary of the contract modification.

The court agreed. The contract modification was specifically intended to benefit FloorPro. While it is unusual to find a successful third party claimant to contract funds, in this case the result is certainly fair and predictable. The parties clearly intended to benefit FloorPro. Since the the law is clear on when a 3rd party can succeed with a claim, and the facts clearly show that FloorPro was the intended beneficiary, why would the government fight the claim instead of negotiating a settlement. This was not a large claim, and the government made the mistake.
 

Thanks to the Contracts Prof Blog for reporting this unusual case. 

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Can I Make All My Employees Managers To Avoid Overtime Pay; and Other Myths. Two Ways to Make Long Term Bad Decisions.

Posted on April 5, 2011 by Gavin Craig

The Minnesota Labor and Employment law Blog has an interesting article on another large company failing to pay it’s employees for overtime work as required by the law. The company in this instance was Levi Strauss and Company. The end result cost them well over a million dollars and of course their incurred attorney fees. Most of these cases are arguments over classifications – is an employee exempt, or not. Companies have been found to classify employees as managers, even though they don’t manage much, to avoid the overtime requirement.

Several years ago a contractor approached me and asked if he could make all of his employees independent contractors, thereby avoiding the requirement to pay the employers portion of social security. His competitors, he told me, were all doing it. This is another bad idea that will eventually subject a company, and owners, to significant costs and penalties.

Companies are sometimes operating under significant cost pressures, and they are looking for ways to reduce costs. However, ignoring the law is not the solution to a cost problem. While a company ignoring the law might gain a slight cost advantage in the short run, the cost in the end is bound to be much higher.

In the Levi Strauss case, since the employer failed to pay the required overtime (at least they agreed to make payment to the tune of over a million dollars,) the employer will also have a significant payment due the government for their portion of the social security payment.

While I have not seen this case yet, I am sure that there are companies that are treating employees as independent contractors and failing to pay the employees the required overtime wages, and the employer is also failing to pay the employers portion of the social security payments. These employers are just as likely to be caught by the government as by an unhappy employee or ex-employee.

Follow the law, and life is easier in the long run. When in doubt, ask an attorney to review the situation and provide advise. It’s far less expensive to get good legal advice than to defend these charges in court. Thanks to the Minnesota Labor and Employment Law Blog for their article on Levi Strauss.
 

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