March 21, 2013
The advent of a new year marks the introduction of new state legislation that impacts business and commercial transactions, sometimes in significant ways. A few newly enacted statutes that change existing laws and ways of doing business within the state are highlighted below.
On January 1, 2013, Senate Bill 474 came into effect. Under this new law, a construction contract is void if it requires a subcontractor to insure, indemnify, or defend a general contractor, construction manager, or other subcontractor from its own active negligence or willful misconduct, design defects, or claims that do not arise out of the subcontractor's own work. This law effectively eliminates "Type I," or active negligence, indemnity clauses in construction contracts. The law does not affect "Type II," or passive negligence, indemnity clauses, nor does it apply to design professionals.
Also effective on January 1, 2013, Assembly Bill 1396 requires all employee commission agreements to be set forth in writing and to explain the method by which commissions will be computed and paid. For purposes of this law, "commissions" are defined as compensation paid to any person in connection with the sale of the employer's property or services and based proportionately on the amount or value thereof. However, commissions do not include short-term productivity bonuses or bonus and profit-sharing plans unless such payments are based on the employer's promise to pay a fixed percentage of sales or profits as compensation for work.
Effective April 1, 2013, a new Mechanic's Lien Statute, codified at N.C. Gen. Stat. §§ 44A-7 to -24.14, will come into effect. The new statutory scheme is largely patterned after Virginia's Mechanic's Lien Statute and will apply to all construction projects except those having a value of less than $30,000 or involving improvements to existing residential dwellings. Among other things, the new statute requires potential lien claimants to notify an owner identified as a "lien agent" prior to filing a mechanic's lien on real property. In a change from North Carolina's former law, notice to the lien agent will be required to preserve the lien claimant's priority over a bona fide purchaser or mortgage lender.
In addition, a separate piece of legislation, HB 1052, effective January 1, 2013, amends the Mechanic's Lien Statute by expressly stating that a lien on funds "arises, attaches, and is effective immediately upon the first furnishing of labor, materials, or rental equipment at the site of the improvement." This amendment was passed to effectively overrule bankruptcy court determinations that a lien on funds was not effective at such an early period and serves to protect a subcontractor in the event of a general contractor's declaration of bankruptcy.
Within the employment setting, an increasing number of states are taking action to protect employee privacy rights in social media. In 2012, six states—California, Delaware, Illinois, Maryland, Michigan, and New Jersey—enacted legislation that prohibits employers from requesting or requiring an applicant or employee to disclose a username or password for a social media account such as Facebook or Twitter. As of January 28, 2013, several other states have introduced legislation to protect an individual's right to social media privacy in the educational or employment setting. These states include Colorado, Hawaii, Kansas, Massachusetts, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New York, North Dakota, Oregon, Texas, Vermont, and Washington.
It should also be noted that other bills currently under consideration by state legislatures could potentially change the law in certain business settings. Some of the more noteworthy bills are listed below.
AB 5: California employers would be prohibited from discriminating against an applicant or employee due to his or her condition of being homeless, lack of a permanent mailing address, or current income level.
SB 51: A noncompetition agreement between an individual and a former employer would be rendered unenforceable if the individual is unemployed and has applied for, and is found eligible to receive, unemployment benefits. If passed, the law would take effect on October 1, 2013 and would apply only to noncompete agreements executed on or after that date.
VirginiaHB 1913: If a license is required for a contractor to perform work and the contractor does not have a valid license or certificate issued by the board of contractors, the contractor cannot record a valid mechanic's lien.