In the event of a breach of a contract by a contractor where the contractor fails to complete the work or abandons the work, the prime remedy a buyer has is to claim breach and pursue damages for the “cost of cover”. In construction that is the cost of having another contractor come in and complete the work.
When you require a performance bonds or financial performance guarantee you may not need to go to court to recover your damages. If there breach of performance you make a claim against the
bond issuer or guarantor. The bond issuer or guarantor can contract the work out and pay to have it completed if it may be completed within the cost of the bond or guarantee. If the cost of completion is more that that amount, they would simply pay the amount of the bond or guarantee to the buyer. At that point the buyer who would then be able to contract to have the work completed.
The collecting on the bond or guarantee doesn't excuse the original contractor. If there is additional cost over what you recovered under the bond or guarantee, you can then exercise your remedy under law directly against the contractor to collect any remaining damages to complete the work so you may recover your full "costs of cover".
The real advantage of having a performance bond or financial performance guarantee is instead of having to invest your money to complete the work and then wait for the recovery of damages that you may never collect, the response from the bond issuer or guarantor is immediate. The one disadvantage is bonds or third party guarantees add to your cost of construction. The second disadvantage is you now are dealing with a party whose sole goal is to minimize their costs.
If you deal with a high quality supplier that has significant assets it may make sense to not require a performance bond or guarantee as there is a high probability they will complete the work as they know if they don’t, they will be liable for the additional costs of re-procurement, any liquidated damages and that is likely to be more than what it would cost them to complete the work. If you deal with a contractor or supplier that isn’t as financially stable or a joint-venture company that was formed to do the work and may have limited assets on its own, you probably should require a performance bond or require that the two companies that make up the joint provide a form of parent guarantee in proportion to their share in the joint-venture company. Unless you have a parent or company guarantee, in determining whether a subsidiary of a company is financially stable, you can only look to the assets of that subsidiary.
Tuesday, April 24, 2012
Non-poaching provisions
A lawsuit has been brought against Apple, Google and several other San Francisco area technology firms alleging they colluded to avoid hiring employees of the other companies and the net result was to thwart competition for those employees thereby artificially keeping their salaries down. It is argued that each maintained a "blacklist" of companies they couldn't hire from which would be a form of restraint to movement of employees. I thought this would be it a good time to discuss “non-poaching” clauses.
Non-poaching clauses are common in many service related contracts and with temporary labor agreements. In “poaching” you are hiring an employee of a company that you do business. Non-poaching clauses are legal and my opinion is this case will have no effect on "poaching clauses" in contracts. In a poaching situation the companies agree that they will not recruit each other’s employees. It does not prevent individuals from pursuing employment on their own with the other company.
In many of these section you may have
1.Agreement that both parties will not recruit any individual that worked as part of the contracted activity.
2.A period of time in which the recruitment is prohibited.
3.Either an outright restriction against hiring the individuals during that period or a specified damage to be paid if the employee solicited work on their own is independently hired without any recruitment.
The narrower the non-poaching definition, the less likely there would be any problems from such a clause. For example restricting the hiring of all employees of a company may be more problematic than limiting it to only those employees that worked as part of that contracted activity. With that narrower definition it’s much easier to manage and would be less expensive, as damages would only apply to hiring of those specific individuals.
In the Apple, Google situation the facts are different. There probably was no written agreement. The restriction (if they existed) did not apply to specific individuals that performed work for the other company. The argument is that they applied to all employees of the other firms. Instead of the worker being able to seek work at any company other than the one they had previously done work for, the argument in the case was this group of companies were by their agreement deliberately not hiring individuals from these other companies to prevent each other from poaching the other companies employees. The argument is the restriction (if it existed) constituted a restraint of trade artificially keeping the employees salaries low.
Courts will enforce what the parties agreed as long as it isn't illegal. Standard non-poaching provisions have been held to be legal. The courts will look at the circumstance and facts in the lawsuit against Apple, Google and others to determine if there was a conspiracy and whether the conduct was legal.
Non-poaching clauses are common in many service related contracts and with temporary labor agreements. In “poaching” you are hiring an employee of a company that you do business. Non-poaching clauses are legal and my opinion is this case will have no effect on "poaching clauses" in contracts. In a poaching situation the companies agree that they will not recruit each other’s employees. It does not prevent individuals from pursuing employment on their own with the other company.
In many of these section you may have
1.Agreement that both parties will not recruit any individual that worked as part of the contracted activity.
2.A period of time in which the recruitment is prohibited.
3.Either an outright restriction against hiring the individuals during that period or a specified damage to be paid if the employee solicited work on their own is independently hired without any recruitment.
The narrower the non-poaching definition, the less likely there would be any problems from such a clause. For example restricting the hiring of all employees of a company may be more problematic than limiting it to only those employees that worked as part of that contracted activity. With that narrower definition it’s much easier to manage and would be less expensive, as damages would only apply to hiring of those specific individuals.
In the Apple, Google situation the facts are different. There probably was no written agreement. The restriction (if they existed) did not apply to specific individuals that performed work for the other company. The argument is that they applied to all employees of the other firms. Instead of the worker being able to seek work at any company other than the one they had previously done work for, the argument in the case was this group of companies were by their agreement deliberately not hiring individuals from these other companies to prevent each other from poaching the other companies employees. The argument is the restriction (if it existed) constituted a restraint of trade artificially keeping the employees salaries low.
Courts will enforce what the parties agreed as long as it isn't illegal. Standard non-poaching provisions have been held to be legal. The courts will look at the circumstance and facts in the lawsuit against Apple, Google and others to determine if there was a conspiracy and whether the conduct was legal.
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