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Texas Supreme Court Update: Getting Construction Labor Contracts Nailed Down–A Lesson for Texas Construction and Contract Attorneys

A recent decision by the Texas Supreme Court contains some very specific lessons for attorneys who represent temporary labor services who supply workers for Texas construction projects.

Temporary staffing agencies or temporary labor services have become a popular and often cost effective way for a property owner or contractor to supplement a work crew or even to staff an entire construction job. According to the U.S. Bureau of Labor Statistics, in 2005 there were 5.7 million temporary workers, or approximately 4% of the labor force in the United States, with the construction industry accounting for about 13% of that number. Such an arrangement has many advantages for the owner or contractor: the labor service recruits the workers, and is responsible for workers’ compensation and liability insurance, payroll and payroll taxes. The labor service simply presents an invoice for the use of the workers to the owner or contractor on a periodic (usually weekly) basis.It might seem obvious that workers from a temporary labor service should be considered as “labor” under the Texas mechanic’s lien statutes. Interestingly, however, this issue does not seem to have been decided by the Texas Supreme Court until recently. In Reliance National Indemnity Co., L&T Joint Venture and Lamar Construction Inc. v. Advance’d Temporaries, Inc., the Texas Supreme Court decided that a temporary staffing agency could indeed file a mechanic’s lien for unpaid labor invoices.

In this case, the general contractor and the surety on an apartment construction project in Corpus Christi, Texas, refused to pay the claim of a temporary labor agency (Advance’d) that had supplied labor to one of the subcontractors. The general contractor and surety argued that Advance’d did not actually furnish the labor to the apartment project because, in their view, the workers were really employees of the subcontractor, and not Advance’d. The Texas Supreme Court looked to the written contract signed by the subcontractor and Advance’d, noted that the parties had agreed in the contract that the workers were employees of Advance’d, even though the subcontractor directed their work, and decided that the Advance’d claim really was a claim for the furnishing of labor under the mechanic’s lien statutes.

What appeared to be important to the Supreme Court was not simply that the contract stated that the workers were employees of Advance’d, but that the contract contained a number of other terms that clearly showed that Advance’d retained control over the workers:

1. Advance’d was obligated to maintain workers’ compensation and liability insurance on the workers.
2. Advance’d offered a limited guarantee on the workers’ performance.
3. The contract prohibited the workers from operating any machinery, automotive equipment or working on ladders or      scaffolds without prior written consent of Advance’d.
4. Advance recruited the workers, qualified the legal status of each worker and did all related paperwork.
5. The subcontractor had to pay a fee of $2500.00 to Advance’d if the subcontractor hired any worker within three months      of the agreement.

A simple sentence in the contract between the temporary labor agency and the contractor that the workers are the agency’s employees may not be enough. A careful lawyer will spell out the areas of control, and therefore help insure that his or her client will be entitled to claim a mechanic’s lien if they don’t get paid.