Do staffing companies who provide laborers to contractors and subs have mechanics lien rights in Oklahoma? After a recent appellate court decision, it’s clear that will depend on the contract.
Mechanics lien rights for Oklahoma staffing companies
We’ll get to the decision shortly, but let’s cut to the chase: Not all staffing companies who provide labor are entitled to mechanics lien rights. However, that will often come down to exactly how the work is contracted.
If a staffing company is working under an open account, providing labor, as needed, to a subcontractor, lien rights won’t be available for that company. To be sure, the individual workers may still be entitled to lien. But, for the company to be entitled to lien rights, it will need to prove it’s a subcontractor. And, unless the contract for work is specific to a given project, mechanics lien rights probably won’t arise.
Need to file an Oklahoma mechanics lien?
Advanced Resource Solutions, LLC. v. Stava Building Corporation
Stava Building Corporation was acting as general contractor on a Walmart project, and they hired McDermott as Stava’s electrical contractor. To perform its work, McDermott used laborer provided by Advanced Resource Solutions (“ARS”). Importantly, ARS had been hired by McDermott on an open account – their agreement wasn’t exclusively for the Walmart project.
McDermott fell behind on its payments to ARS, owing over $115,000, though Stava was making full payments. As a result, ARS filed a mechanics lien against the Walmart project, claiming a lien as a laborer. Stava quickly bonded off the filed lien. In turn, ARS filed suit against the surety bond to enforce its claim. Stava challenged the ARS claim, arguing that ARS itself hadn’t performed any labor on the project and had no standing to lien.
The courts ultimately sided with Stava. They found that ARS may have furnished labor, but it had not performed labor – so, ARS could not file a mechanics lien as a laborer under § 143 of Oklahoma’s lien statute. Further, and potentially much more importantly, the court found that ARS could not be considered a subcontractor because its contract with McDermott was not for the completion of specific work.
Oklahoma staffing companies won’t have mechanics lien rights when supplying labor under open account
This decision came from an Oklahoma appellate court. So, it can be upended by legislation, and it’s possible that the case could be appealed to the state’s supreme court. But, at least for now, a staffing company would have to be considered a “subcontractor” on a given project for mechanics lien rights to arise. That means their contract would need to refer to specific work that will be completed for a specific project – and open account contracts won’t be lienable.
To quote the court: “The contract does not refer to a particular project.Rather, ARS is supplying McDermott with laborers on an open account. Thus, ARS has not entered into a contract to perform any act with regard to the Walmart Project. Accordingly, ARS is not a subcontractor under § 143 and is not a proper lien claimant under the state statutes.” (Emphasis added).
More info on Oklahoma lien rights:
How can staffing companies make sure they have mechanics lien rights in Oklahoma?
There are some steps a staffing company can take to make sure their contribution to a project is protected. Let’s look at two major ones that come to mind.
1. Contract or specific jobs and scopes of work, not on open account
This one might not be particularly feasible. However, if there’s a separate contract for each project the staffing company supplies laborers to, then there’s a better chance a staffing co. would be considered a subcontractor on the job. And, if considered a subcontractor, the staffing company would likely be entitled to lien rights under § 143.
Further, if the contract can be narrowed even further to protect a specific scope of work, it’d be even easier to argue that the company is a sub. Granted, this begins to undermine the convenience of staffing companies to begin with.
2. Have laborer assign their right to file a mechanics lien
This option is a little more of a roundabout solution. Generally, mechanics lien claimants are entitled to assign their mechanics lien after its filed. The general rule goes that a mechanics lien can be assigned, but the right to file a mechanics lien cannot. But, under § 143 of the Oklahoma mechanics lien statute, an individual laborer is entitled to file a mechanics lien for the value of the work they provide.
That means, conceivably, a laborer who’s working for a staffing company could file a mechanics lien if their employer isn’t being paid for the work (and, as a result, the laborer isn’t being paid either). That laborer, after their lien is filed, could then assign their mechanics lien right to their employer, the staffing company.
Of course, even if this arrangement were executed, the lien would likely only be available for the value of the actual work provided by the laborer. So, even if all the laborers assigned their rights to the employer, the employer would still be on the hook for overhead costs (which it could potentially go after their customer for).
How to avoid needing an Oklahoma mechanics lien altogether
Sending a preliminary notice will help avoid payment issues before they even arise. Admittedly, it doesn’t help that Oklahoma calls its preliminary notice a “pre-lien” notice right there in the statute. But that title is devious. Preliminary notices inform the general contractor and the property owner of who all is providing work to their project. By having that information, these higher-tiered parties can better ensure everyone’s getting paid. More on that here: Why You Should Send Preliminary Notice Even If It’s Not Required.
Not to mention – contractors and owners, more than anybody, want to ensure their project is free of liens. So, if they know there are laborers on the project who are outsourced from a staffing company, they’ll likely want to collect lien waivers from those laborers. And, since would-be lien claimants often refuse to provide waivers when going unpaid, that’d provide yet another opportunity to get in front of a payment issue before it gets out of control.
Finally, escalating the issue of nonpayment slowly throughout the life of the project can help to avoid one big blowup later on – like a lien filing. By using documents like invoice reminders and demand letters, it’s easier to have productive payment talks before the matter snowballs out of control. If necessary, progressing to a Notice of Intent to Lien and sending that document to the prime contractor and owner can do the trick. And, if they’re already of the claimant’s work on their project and are familiar with who hired them, it’s easier to find the source of the issue and make things right.