Construction Law Blog

In addition to telecommuting, which appears to be a good thing, the technology revolution has some downsides.  For example, the distraction involved with texting while driving.  We can now conduct business from almost anywhere, but there are certain times and locations where checking voice mail or email may present a danger to others.   Thus, the government regulates certain behavior.  According to recent statistics, texting while driving is a major cause of accidents, and has been made illegal in many states, including Washington.  Not to be left behind, through the Federal Acquisition Regulations (FARs), the federal government has joined in prohibiting texting and driving on federal projects.[i]

In accordance with FAR Subpart 23.11, federal government contractors must adopt and enforce a policy which bans employees from texting whenever an employee is: (1) driving a vehicle owned by the company; (2) driving a vehicle owned by the government; or (3) driving a privately owned vehicle when performing any work on behalf of the government.  This requirement, FAR Subpart 23.11, is incorporated into every government contract through FAR 52.223-18.  Specifically, if the value of the subcontract exceeds the "micro-purchase threshold" (presently $3,000), general contractors are required to incorporate ("flow down") this anti-texting provision to all of their subcontractors.

Further, federal contractors, to meet the requirements of FAR 52.223-18, must "conduct initiatives to educate their employees about the danger of texting while driving; these initiatives should be commensurate of the size of the business."  Large government contractors will be expected to engage in some type of training in addition to having a written policy and employee handout which covers this topic.  This anti-texting message can be incorporated into the orientation session for all new employees and updated when conducting periodic ethics training (also required by the government) (see previous Ahlers & Cressman PLLC blog Government Ethics).

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[i] Thank you to the “Federal Contracting Blog” (March 25, 2013) for bringing this issue to our attention. 

This is the first in a multi-post analysis regarding tax saving opportunities available in Washington to "Speculative Builders."  Prior to the economic downturn, the Seattle office of a large accounting firm promoted tax saving opportunities on Washington projects though formation of joint ventures structured to appear as a "Speculative Builder," a single entity with both the developer and construction contractor as members.  The objective was to avoid B&O Tax and Washington State Sales Tax on the portion of the construction "self-performed" by the Speculative Builder entity.  Under this program, a project specific entity was created with the developer entity holding a significant percentage interest and the construction contractor holding a small membership percentage in the entity.  This became the "Speculative Builder" entity. 

Not surprisingly, the Department of Revenue ("DOR") took the position that the Speculative Builder tax exemption was being abused, and as would be expected when tax revenue declined due to the economic downturn, challenged many of these structures.  This has resulted in tightened requirements that must be met in order to qualify as a Speculative Builder. 

This post explains what a Speculative Builder is, while subsequent articles will address steps the Washington legislature has taken to narrow the availability of speculative builder tax treatment and our analysis of the structure and terms that will be required in order to pass DOR scrutiny.

What is a Speculative Builder?

WAC 458-20-170 provides an exemption for Washington State Sales Tax and B&O Tax on a Speculative Builder's self-performed work, profit and overhead.  Key provisions of the code definition of a Speculative Builder follow:

      (2) Speculative builders.

      (a) As used herein the term "speculative builder" means one who constructs buildings for sale or rental upon real estate owned by him.  

* * *

      (e) Speculative builders must pay sales tax upon all materials purchased by them and on all charges made by their subcontractors.

* * *

      (f) Persons, including corporations, partnerships, sole proprietorships, and joint ventures, among others, who perform construction upon land owned by their corporate officers, shareholders, partners, owners, co-ventures, etc., are constructing upon land owned by others and are taxable as sellers under this rule, not as "speculative builders."

A person who constructs buildings for sale or rental on real estate owed by that person is a Speculative Builder.  WAC 458-20-170(2)(a).  Speculative Builders are the consumers of the materials and construction services they purchase.  WAC 458-20-170(2)(c).  While a Speculative Builder must pay sales tax on all materials purchased and all charges by subcontractors, it does not have to pay sales or use tax on its own labor and overhead.  The following diagrams illustrate this:

Traditional Owner-Contractor Transaction:

Owner Pays Retail Sales Tax on

Full Contract Value

↓ 

General Contractor Pays B&O Tax on

Full Contract Value

↓ 

Subcontractors and Suppliers

Speculative Builder Transaction:

Owner/Contractor

[No sales or use tax on its own labor or overhead]

 ↓ 

Subcontractors and Suppliers

[Sales tax is paid on all charges by Subcontractors and Suppliers]

If a Speculative Builder self-performs significant aspects of a project - concrete and steel for example - the tax savings on this self-performed scope can be significant and give a competitive advantage. The key is that the contractor is part of the owner entity, not a construction contractor to the owner entity.

The next article on this topic will explore RCW 82.32.655, enacted by the legislature effective May 1, 2010, known as the "tax avoidance" statute, which has significantly narrowed the ownership structure that DOR will deem to qualify as a Speculative Builder.

For Washington construction projects, two different statutes interact to determine whether a lawsuit is timely.  RCW 4.16.310 states that any cause of action that has not accrued within 6 years of substantial completion of the project is barred.  Based on relatively recent decisions of the Washington Supreme Court, accrual for purposes of RCW 4.16.310 has come to be contemporaneous with the claimant's becoming aware that there is a problem with the work.  This statute is known as the statute of repose.  Then, once the cause of action has accrued, RCW 4.16.040 gives the claimant another 6 years to bring suit.  This is called the statute of limitations. Taken together, for a problem a claimant discovers almost 6 years after substantial completion, a contractor is exposed to suit for a total of 12 years after substantial completion of the project.

In order to avoid this extended liability, contractors routinely insert a provision into their contracts stating that any cause of action relating to the work shall be deemed to have accrued upon substantial completion, thus doing away with the 6-year discovery period allowed by the statute of repose, and starting the clock on the 6 year statute of limitations.  The result is to reduce their exposure to a total of 6 years from the time they finish their work.

That is a good strategy for private projects, and it is one that the joint venture that built Safeco Field employed when it believed it was contracting with a non-state entity.  Unfortunately for the joint venture, three years ago, in a dispute over allegedly defective primer on structural steel used in the construction of that project, to the surprise of most observers, the court held that Safeco Field was a project "for the benefit of the state" under RCW 4.16.160, so that the 6-year statute of limitations for actions based on written contracts for non-state projects did not apply.

The joint venture went back to court and argued that even if the statute of limitations did not apply, because the Mariners did not discover the problem with the primer for more than 6 years after the stadium was substantially complete, the statute of repose barred the claim.  Late last month, the court disagreed, and held that the contractual provision stating that causes of action accrued upon substantial completion was enforceable, such that the statute of repose was satisfied.[i]

The result is that the contractor's attempt to contractually reduce its exposure from 12 years to 6 years ended up exposing it to claims relating to the project indefinitely.

The lesson is that it may be a good idea to make the accrual-upon-substantial completion language conditional on a finding that a project is not "for the benefit of the state" under RCW 4.16.160, and to include a provision that states that if it is found to be such a project, the statute of repose will apply as provided by RCW 4.16.310.  That seems to be the only way to guarantee a time limit on claims against a contractor on a project that a court may characterize in a surprising way after the fact.

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[i] Washington State Major League Baseball Stadium Public Facilities District v. Huber, Hunt & Nichols-Kiewit Construction Company, 2013 WL 363453, __ P.3d __ (2013).

In a recent Oregon case,[i] a builder contracted to construct a residence for $286,271.  The builder, however, had its contractor's license suspended by the Oregon Construction Contractor's Board (CCB) during performance of the contract because the builder's liability insurance lapsed. Fourteen-days later CCB reinstated the builder's license when it obtained replacement liability insurance, and, for six more months, the builder continued to construct the residence.

Ultimately, after construction was complete, the builder claimed that the homeowners had not paid for the construction services and filed a lawsuit for breach of contract, quantum meruit, and account stated.   The homeowners responded by filing a counterclaim against the builder for breach of contract, negligence, indemnity, and unlawful trade practices, asserting as an affirmative defense that under Oregon Revised Statute ORS 701.131(1)(b), the builder was barred from commencing an action against them because it had failed to maintain its contractor's license continuously throughout  performance of the contract.  ORS 701.131 provides in relevant part:

(1)   … a contractor may not . . . commence an arbitration or a court action for compensation for the performance of any work or for the breach of any contract for work that is subject to this chapter unless contractor had a valid license issued by the board [CCB] . . .

* * *

b. Continuously while performing the work for which compensation is sought.

(emphasis added).

The homeowners moved for partial summary judgment against the builder on grounds that ORS 701.131(1)(b) barred the builder's lawsuit. The builder opposed the motion contending that the homeowners were developers so, therefore, they fell within an exception of ORS 701.131(2)(c), which does not protect residential developers who seek to escape payment simply because the contractor's license lapsed.

The trial court granted the homeowners' motion for partial summary judgment and dismissed the builder's claims against the homeowners, finding they were not residential developers. On appeal, the appellate court reviewed the history and purpose of the developer exception (ORS 701.131(2)(c)). The court in reviewing the legislative history, determined that the exception was inserted into the statute to benefit consumers (not contractors).  By lifting the bar to allow unlicensed contractors to bring third-party claims against others whose action had caused or contributed to construction defects, the provision was intended to allow contractors to recover funds from other responsible parties, and to thereby better ensure that affected consumers were made whole. The court concluded that the exception (ORS 701.131(2)(c)) applied only to construction defect proceedings - not actions for compensation like the builder's action.  Accordingly, the court found that the trial court properly dismissed the builder's claims.

Comment: Washington's registration statute RCW 18.27.080 is more contractor friendly than Oregon's.  Washington only requires that the contractor be duly registered at the time of contracting for the performance of the work.  As long as the contractor is properly licensed and bonded (registered) at the time of entering into the contract, even if the contractor's license lapses during performance, the contractor may pursue an action to recover unpaid amounts.  This case is an example of how different states treat the licensing issue.  In Oregon, the failure of the contractor to maintain its contractor's license continuously throughout performance resulted in a forfeiture of its claim against the homeowner, irrespective of the merits of the amount due and owing to the builder.

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[i] Pincetich v. Nolan, 252 Or.App. 42, 285 P.3d 759 (2012). 

Readers of our Blog will find of interest three construction related bills that had their first public hearings last week.  A link to each bill is provided below.

The first two bills were heard in the House Labor and Workforce Development Committee, the third bill was heard in the Senate Committee on Law and Justice:

1.  HB1025-Extending the Application of Prevailing Wage Requirements.  http://apps.leg.wa.gov/documents/billdocs/2013-14/Pdf/Bills/House%20Bills/1025.pdf.

HB1025 would extend the application for prevailing wage requirements by extending the definition of “public work” to include all publicly subsidized work, construction, alterations, repairs or improvements other than ordinary maintenance if subsidized by the public.  The bill provides that: 

(5) "Public work" has the same meaning as in RCW 39.04.010, except for purposes of this chapter, "public work" also includes all publicly subsidized work, construction, alterations, repairs, or improvements other than ordinary maintenance. Work is subsidized by the public if:

(a)      One or more parties to the contract received or will receive a qualifying tax preference;

(b)      One or more parties to the contract received or will receive a loan from the state or any county, municipality, or political subdivision;

(c)      The work occurs on land that a party to the contract leases from the state or any county, municipality, or political subdivision; or

(d)      The work occurs on land that a party to the contract purchased from the state or any county, municipality, or political subdivision for less than fair market value as determined by the state, county, municipality, or political subdivision at the time of the sale.

This broad definition of what constitutes “public work” would result in a significant expansion of prevailing wage requirements in our state to projects in which a public entity is not even a party to the contract.  This would result in significant cost escalation on the projects captured by this expanded definition.  I expect substantial opposition to this bill. 

2.  HB1026-Requiring Use of Resident Workers on Public Works.  http://apps.leg.wa.gov/documents/billdocs/2013-14/Pdf/Bills/House%20Bills/1026.pdf.

HB1026 would require specifications for every public works contract to contain a provision requiring that at least 75% of the labor hours be performed by Washington residents.  The language of this bill states that residents of states bordering Washington may be considered Washington residents if the border state does not restrict the right of a Washington resident to be employed on public works project in that state.  The full text of this bill can be found in the link above.

3.  SB5031-Damages to Real Property Resulting from Construction, Alteration, or Repair on Adjacent Property.  http://apps.leg.wa.gov/documents/billdocs/2013-14/Pdf/Bills/Senate%20Bills/5031.pdf.

SB5031 would overrule the Washington Supreme Court decision in Vern J. Oja & Assoc. v. Washington Park Towers, Inc., 89 Wn.2d 72, 569 P.2d 1141 (1977), which held that  claims for damages to real property resulting from construction activities on adjacent property do not accrue until the construction project is complete.  In its place, a two year limitations period would be established so that a lawsuit for damage to real property resulting from construction on adjacent property must be commenced within two (2) years after the damaged property owner first discovered or reasonably should have discovered the damage. 

Our understanding is that the proponent of this bill is Sound Transit, which is seeking to limit exposure for damage its projects cause to adjacent property to this two (2) year limitation period from the date the damage is discovered or should have been discovered. 

We will supplement this post to advise how these bills progress through committee.

The Washington Supreme Court in Department of Transportation v. James River Insurance Company, on January 17, 2013, held that RCW 48.18.200(1)(b) barred arbitration of an insurance coverage dispute.

James River issued two insurance policies to the Contractor on a WSDOT highway project.  These policies provided coverage for certain liability relating to the Contractor's work on the project for WSDOT.  The Contractor requested that James River add WSDOT as an insured under the policies, which was done.

A traffic accident occurred at or near Contractor's highway project.  The representatives of those persons killed or injured in the accident filed suit in King County Superior Court against WSDOT.  The plaintiffs later amended their Complaint to include the Contractor as a defendant.  WSDOT sent a letter to Contractor tendering its request for a defense in response to the suit under the insurance policies.  Contractor forwarded the tender to James River.  James River accepted WSDOT's tender under a reservation of all rights under the policies.  James River also informed WSDOT that the policies contained a mandatory arbitration provision, and demanded arbitration of the parties' coverage dispute.

James River attempted to initiate arbitration pursuant to the arbitration provision.  WSDOT objected and filed a declaratory judgment action against James River, seeking a declaration that the arbitration provision was void.

The matter came on before the trial court on Cross-Motions for Summary Judgment, and the Court entered an Order granting WSDOT's Motion that the arbitration provision was barred by RCW 48.18.200, and that the statute was not preempted by the Federal Arbitration Act based on the McCarran-Ferguson Act, a Federal law.

On direct review to the Supreme Court, the Court unanimously affirmed the trial court.

RCW 48.18.200(1)(b) provides:

(1)               No insurance contract delivered or issued for delivery in this state and covering subjects located, resident, or to be performed in this state shall contain any condition, stipulation, or agreement…

*   *   *

(b)        depriving the courts of this state of the jurisdiction of action against the insurer…

The Court found that the meaning of this statute was properly determined from looking at the entire phrase:  "jurisdiction of action against the insurer."  The court found that this phrase demonstrates the legislature's intent to protect the right of policyholders to bring an original "action against the insurer" in the courts of this state.

The Supreme Court went on and found that the McCarran-Ferguson Act shields RCW 48.18.200(1)(b) from Federal preemption by the Federal Arbitration Act.  The McCarran-Ferguson Act provides in pertinent part:

No act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance… unless such Act specifically relates to the business of insurance:  Provided, That, [the federal anti-trust statutes] shall be applicable to the business of insurance to the extent that such business is not regulated by State law.

We now know that Congress did not recklessly drive the economy off the fiscal cliff like the ending in the movie of "Thelma and Louise." Nevertheless, we are in for more wrangling, swagger and blustering while Congress and the President try not to bump their heads on the debt ceiling, a debate in store for all of us next month. In the meantime, experts have now analyzed the deal Congress made with the President and it looks like households making between $200,000-$500,000 per year save the most in comparison to where they would have been had we careened off the cliff.

Also attached for your reading enjoyment is a post our blog editor had chambered but inadvertently did not get out before the fiscal cliff deal was made. (The Fiscal Cliff’s Impact On Construction) The article discusses the impact to the construction industry had the logjam in Congress not been broken.  Referenced is an interesting article by Prof. Stipanowich, who draws comparisons to Lincoln and his ability to pass the 13th Amendment and President Barack Obama and his ability to negotiate a deal with Congress.

Fundamentally striking the deal on the "sequestration," as the fiscal cliff is known in congressional terms (sequestration refers to automatic spending cuts), means that the President and Congress gave us all a tax hike. Expiring payroll tax lowers everybody's after-tax income by at least one percent. There are three major tax issues which add up to modest tax increases for the bottom 99% and much greater tax increases for the top 1% of the taxpayers.

• Five-Year Extension Of The Stimulus Tax Credits.  The 2009 stimulus package expanded three tax credits, the Earned Income Tax Credit, the Child Tax Credit and the American Opportunity Tax Credit. The fiscal cliff deal extended all of these tax credits for an additional five years. Under these credits households can receive tax refunds even if their tax liability is zero.  To get this credit, households must have paid some taxes to begin with.

• Expiration Of The Payroll Tax Cut Holiday.  In the past two years, the worker's half of the payroll tax had been cut two percentage points from 6.2% to 4.2%. That tax break is now over and therefore everybody will take home less money in 2013 than in 2012, though  the impact will not be as big for households making $200,000 and over because payroll taxes are only paid on the first $110,100 of income.

• Top Marginal Rate For Incomes Over $400/$450,000 Returns To 39.6%. The top marginal rate for singles earning over $400,000 or couples earning over $450,000 went back up to 39.6%. This is a marginal rate, which means the more income you have above the threshold, the harder the higher rate hits you. As far as capital gains are concerned, capital gains rate rose from 15% to 23.8% for individuals making $400,000 or more and for joint filers making $450,000 or more.

The big winners are what are affectionately known as "HENRYs" (High - Earner - Not - Rich - Yet).  Those households making between $200,000 and $500,000 a year, will mostly avoid marginal tax increases because the threshold for higher rates was set at $400,000/$450 000 instead of the $200,000/$250,000 President Obama originally wanted.

http://www.theatlantic.com/business/print/2013/01/these-2-tax-charts-tell-you-exactly-who-won-the-fiscal-cliff-deal/266744/

We have discussed the fiscal cliff in a previous post [Second Presidential Debate] this post explores what the effect of an  impasse in Congress will be on the construction industry (when the economy tumbles over the fiscal cliff).[1]

The Fiscal Cliff:

During Summer 2011, Congress and President Obama debated the merits of increasing the debt ceiling for the federal government and how to trim the nation's spiraling annual budget deficits.  Although they eventually decided to increase the debt ceiling, Congress and the President essentially postponed major action on deficient reduction.  Instead, the "Budget Control Act" of 2011 was passed, which recommended measures for reducing the federal deficient by at least $1.2 trillion between fiscal years (FY) 2012 and 2021.  The committee's recommendation was to be the subject of a congressional up or down vote.  The members of the committee, however, were unable to agree on recommendations by the required deadline of December 2011, and so far this year, Congress has failed to resolve the question of how to reduce the deficit in accordance with the Budget Control Act mandate.

Unless Congress and the White House enact a plan by the end of the calendar year of 2012 to achieve the required deficit reduction target of $1.2 trillion, significant budget cuts will occur automatically.  Known as "sequestration" in legislative terminology, the cuts will reduce federal spending by roughly $109 billion annually over the next 9 years, an amount that is to be split equally between defense and non-defense spending.  Scheduled for January 2, 2013, the first round of such reductions looms large, threatening federal agencies with the imminent specter of automatic across-the-board cuts (denominated the "fiscal cliff").

Effect On Construction/Infrastructure: 

The Office of Management and Budget (OMB) estimates that defense discretionary funding and non-defense discretionary funding subject to cuts will be reduced by 9.4% and 8.2% respectively.  As for mandatory funding, defense programs will be subject to a reduction of 10% while non-defense programs will be cut 7.6 %.

Among the federal programs involving infrastructure, most are classified by OMB as non-defense spending, meaning that they would be subject to slightly smaller reductions (7.6%) in terms of percentage than defense programs (10%).  Environmental clean-up efforts conducted by the U.S. Department of Energy at defense sites would be treated as a defense program and, therefore, would be subject to a cut of $472 million or 9.4%. 

Most federal programs, including most infrastructure programs, are funded by what is known as "appropriated budget authority," meaning funding authorized by Congress and provided by the traditional appropriations process.  By contrast, a smaller number of programs, including certain key highway and mass transit programs, are funded by what is known as "contract authority."  Programs funded by contract authority (with obligation limitations) are exempt from sequestration according to the American Association of State Highway and Transportation Officials (ASHTO).  This distinction means that certain elements of discretionary funding for surface transportation would not be cut under sequestration.  For example, federal aid for highways and mass transit financed through the Highway Trust Fund would be spared from sequestration because these are contract authority programs that receive annual obligation limitations.  The Highway Trust Fund, however, will not go unscathed under sequestration and will be subject to a cut of 7.6%, resulting in a reduction of $471 million next year.  Meanwhile, other surface transportation programs funded by appropriated budget authority, including funding for high speed rail, Amtrack and Federal Transportation Administration's New Starts grants program, will be cut by 8.2%.

Aviation funding faces similar reductions.  The agency's operations budget will likely be reduced by $377 billion according to the OMB report, and further reductions are in line for the U.S. Environmental Protection Agency.  For example, the Clean Water State Revolving Fund and Drinking Water State Revolving Fund will be cut by 8.2% ($293 million), the Super Fund program will lose $119 million, and the U.S. Army Corps of Engineers will see their programs cut by $326 million (construction and maintenance). 

The effect sequestration will have on the Country's infrastructure will be significant, long lasting and drastic on public works (initially) and industry-wide (eventually).  OMB has called on Congress to prevent the planned cuts before they take effect: "the destructive across-the-board cuts required by the sequestration are not a substitute for a responsible deficit reduction plan."  The bi-partisan Policy Center, a think tank based in Washington D.C., in a September 14, 2012, news release stated, "We strongly hope that the OMB report reveals the ham-handed and indiscriminate sequester cuts for what they are: indefensible and irresponsible way to make budget changes.  The message to policy makers is clear: urgent action is needed to replace the looming disfunction of sequestration with a balanced plan to address the deficit and the nation's perilous fiscal trajectory."

Comment:  It seems unimaginable that our politicians would be unable to compromise on an issue of such importance to this nation.  Professor Stipanowich has written an interesting article on the parallels of the challenges faced by Lincoln in passing the 13th Amendment through a sharply divided Congress to those faced by Obama in averting the Fiscal Cliff disaster.  Leadership, resolve, and compromise are essential to the proper working of our political process.  Professor Stipanowich's observations are particularly poignant after viewing the Spielberg movie "Lincoln."

 [1]  This post is based on an ASCE Civil Engineering November 2012 article entitled “Budget Cuts Loom for Infrastructure Programs Unless Congress Acts.”

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Fiscal cliff negotiations: Lessons from Lincoln

Thomas J. Stipanowich is William H. Webster Chair in Dispute Resolution, professor of law at Pepperdine University School of Law and academic director of the Straus Institute for Dispute Resolution. He is currently writing a book titled "The Lincoln Way: The Evolution of a Master of Conflict."

Our president wishes to be seen as emulating our 16th chief executive, and now by happy accident Steven Spielberg's opus "Lincoln" has opened amid a super-heated political struggle over the future of our national economy that may define success or failure for Barack Obama and Congress. Since the film focuses on Lincoln's effort to end slavery by pushing the 13th Amendment through a sharply divided Congress, the urge to distill lessons from that experience is irresistible. If our political leaders examine Lincoln's career and his approach to conflict, several guiding principles emerge:

1. Few things are truly non-negotiable. Studies in human behavior teach that public commitments like the "no-new-tax" pledge Republicans made to Grover Norquist or the promises by Democrats not to touch "entitlements" raise barriers to compromise. This "commitment bias," reinforced by Fox News, MSNBC and other national media reinforcing the perceptions of their respective audiences, has undermined efforts to address our economic crisis. Lincoln grasped that effective solutions require flexibility and pragmatism - keeping options open and minimizing "non-negotiable" zones. Lincoln viewed two key priorities as non-negotiable: the preservation of the Union and preventing the expansion of slavery. Everything else was negotiable. Even the timing of and terms surrounding the abolition of slavery - an institution he detested - were ultimately dictated by events and political opportunity.

2. Collaborate to address the common enemy. Expert negotiators like Lincoln pay close attention to the values, needs and interests that lie underneath negotiating positions, as well as the consequences of not reaching a bargain. A moderate, Lincoln somehow managed to maintain a coalition that included "radical" abolitionists and border state conservatives in the face of civil rebellion; despite differences, they shared a common interest in preserving the Union and defeating the Confederate foe. Today, Republican and Democratic politicians alike are confronted with dire economic - and political - consequences if a mutually acceptable scheme cannot be hammered out before the Jan. 1 deadline. Both parties must work together to solve their common problem.

3. Focus on problem-solving, not on demonizing opponents. Today's political debate is suffused with highly personalized rhetoric; reasoned argument is displaced by assaults on the motives and character of political opponents. As president, Lincoln was vilified not just in the South, but by many in the North who questioned his intelligence, integrity and loyalty. Yet Lincoln avoided nursing grudges or retaliating. He claimed, "I have not willingly planted a thorn in any man's bosom." Lincoln's ability to rise above partisan invective and focus on real was a critical element in his ultimate political success.

4. Look for trade-offs. Political trade-offs are the indispensable lubricant of politics. From his early days in the Illinois legislature, Lincoln showed his mastery of political horse-trading, or "logrolling." By identifying and responding to the needs of his colleagues and opponents, Lincoln could enlist their help attaining his own legislative priorities - like moving the Illinois state capital to his home town of Springfield. The pattern was refined and repeated throughout his career, culminating in the passage of the 13th Amendment. If the looming fiscal cliff is to be avoided, key trade-offs involving tax reform and reductions in government expenditures will be essential.

Since the film focuses on Lincoln's effort to end slavery by pushing the 13th Amendment through a sharply divided Congress, the urge to distill lessons from that experience is irresistible.

5. Seek creative avenues to a solution. While Americans will feel relief through resolution of current fiscal issues, many will experience higher costs or reduced benefits. Meanwhile, there will be great beating of chests from both wings. In addition to profound political courage on the part of our leaders, some creativity of approach may be necessary. Lincoln knew the value of using third parties in avoiding impasse, and personally stepped in to mediate legal disputes involving his own clients when the situation called for it. Widely regarded and capable third parties who are not actively engaged in the current fight might be crucial to facilitating a deal to avoid the fiscal cliff. Obvious candidates are former Sen. Alan Simpson and Erskine Bowles, the co-chairs of the National Commission on Fiscal Responsibility and Reform. Another is America's "Mediator General," Kenneth Feinberg, who successfully administered the 9/11 Victims Fund allocation and compensation for victims of the BP Oil Spill.

The fiscal cliff looms large on the near horizon, but only because Lincoln's lessons have not yet been embraced.

Thomas J. Stipanowich is William H. Webster Chair in Dispute Resolution, professor of law at Pepperdine University School of Law and academic director of the Straus Institute for Dispute Resolution. He is currently writing a book titled "The Lincoln Way: The Evolution of a Master of Conflict."

On November 5, 2012, voters approved Initiative 502 (I-502) which legalized marijuana use in Washington State.  Under I-502, which goes into effect December 6, 2012, adults age 21 and over in Washington State can no longer be arrested under state law for possessing either 1 oz. of useable marijuana, 16 oz. of marijuana-infused product in solid form, or 72 oz. of marijuana-infused product in liquid form.  I-502 does not change Washington State employment law, which allows for a drug-free workplace and for employee drug testing.  In fact, I-502 does not provide any protection for employees who use marijuana.

Marijuana remains illegal under federal law, and is classified as a Schedule I controlled substance under the Controlled Substances Act (CSA), 21 U.S.C. § 801-971.

In Roe v. Teletech Customer Care Mgmt.,[i] the Washington Supreme Court held that Washington's Medical Use of Marijuana Act (MUMA) did not provide a private cause of action for employees discharged for violating an employer's anti-drug policy, even if the employee lawfully used marijuana pursuant to MUMA.  The court reasoned that since marijuana remains illegal under federal law, employers in Washington are not required to permit illegal activity in the workplace.   

In an article published on November 17, 2012, the Seattle Times[ii] reported that the City of Seattle informed its employees that the city was maintaining its drug-free workplace policy because it receives federal funding, and federal law still bans marijuana, I-502 notwithstanding.  The same logic applies to contractors who perform work on federally funded projects.

Based on the reasoning in Teletech, employers may maintain drug-free workplace policies which prohibit employees from using marijuana, or other illegal substances even if those substances are legal under state law.  Most state government employees will still not be permitted to use marijuana regardless of I-502 decriminalizing certain amounts of marijuana usage.  Private sector employers should update their drug-free workplace policies to inform their employees that use of any illegal substances under state and federal law is cause for termination I-502 notwithstanding, particularly for projects funded by the federal government.

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[i] 171 Wn.2d 736, 257 P.3d 586 (2011).

[ii] http://seattletimes.com/html/localnews/2019705128_marijuanawork18m.html?prmid=4939

The Seattle City Council is considering legislation, CB 117583, which could alter the way in which employers in construction (and other industries) are allowed to use criminal background information when making hiring decisions. The legislation seeks to make it an "unfair employment practice within the City for any:"

Employer to engage in the following prohibited employment practices by reason of an applicant's or employee's record of arrests or criminal convictions or pending criminal charges.

1. 1. No employer shall discharge, refuse to hire, or carry out a tangible adverse employment action because of
2. a)      an employee's or applicant's arrest record; or

b)      an employee's or applicant's criminal conviction record, unless there is a direct relationship between the conviction record and the employment sought or held; or

c)      a pending criminal charge against an applicant or employee, unless there is a direct relationship between the circumstances of the pending criminal charge and the employment sought or held.

2. No employer shall obtain or consider information about an applicant's arrest or criminal conviction record or pending criminal charge, or request a job applicant to supply such information, until after the employer has given the applicant a conditional offer of employment.

The mission of the ordinance is to "increase job assistance through reducing criminal recidivism and enhancing positive reentries to society by prohibiting certain adverse employment actions against individuals who have been arrested, convicted, or charged with a crime."  Although the intent of the ordinance is understandably supported by some in the Seattle community and members of the Council, the effects on the construction industry cannot be ignored.  Most often, if not always, construction projects have a schedule and set completion date.  Thus, the delays associated with (1) being able to conduct a criminal background check until a conditional offer of employment has been made and (2) not being able to discharge or refuse to hire an employee or applicant until a pending criminal charge is adjudicated can cause a tremendous strain on contractors staying on schedule for a bid or job in Seattle.  The alternative, of course, would be to take a chance on any liability associated with hiring an individual without the criminal background check.

The proposed legislation is still "in committee" at this time.