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Have you asserted lien claims by third party co-employers of contract employees, like a professional employer organizations?

CaliforniaRight to Lien

My client provides third party contract employment of employees as a Professional Employer Organization (PEO), which employees are then leased by the PEO to subcontractors providing services for which mechanic's lien rights might arise. As such a subcontractor, does the PEO have independent lien rights (assuming the preliminary notice and other conditions to filing a mechanic’s’s lien are satisfied)?

1 reply

Feb 28, 2019

That's a great question. First, California grants lien rights pretty broadly. Under § 8400 of the CA Civil Code, lien rights are available to those who provide work authorized for a work of improvement, including but not limited to: (a) direct contractors, (b) subs, (c) suppliers, (d) equipment lessors, (e) laborers, and (f) design professionals. So, determining exactly what it means to "provide work" is typically the most important factor in determining whether a prospective claimant would have the right to lien, and secondarily, this can be clarified where the prospective claimant also fits into one of the categories described above, too. Defined in § 8048 of the CA Civil Code, "work" refers to "labor, service, equipment, or material provided to a work of improvement." So, it follows, then, that a party who has provided labor or services to the project would be entitled to lien - even where that party might not themselves be considered a laborer. Not to mention - it's not uncommon for a direct contractor to provide little or no actual labor themselves, but rather, coordinate and subcontract the work to be provided. In those cases, contractors are still granted lien rights. On the other side of that coin, the purpose of mechanics lien rights is to preserve the payment rights of parties whose work has gone into the improvement of real property. So, there’s an argument to be made that merely coordinating others’ labor and directing it to another party shouldn’t give rise to lien rights. In fact, there’s a relatively open question as to whether California construction managers are entitled to lien for that very reason – so there should also be some question as to whether coordination of labor could give rise to lien rights down the chain. But, as described in this article published by zlien: "The statutes provides that 'A person that provides work authorized for a work of improvement, including, but not limited to, the following persons…' can file a mechanics lien. Construction managers will latch onto the 'not limited to' language, since the statute doesn’t list them, and also argue that they provide 'work' to a work of improvement. Work, according to the California statute, is 'labor, service, equipment or material provided to a work of improvement.' The term 'service' is undefined. California appears to have a pretty broad statute in designating who has mechanics lien rights, and construction managers, especially after Fifth Day, likely fit in with rights to file mechanics lien claims." Thus, using that same logic, there's probably a fair chance that the providing of services and/or coordination of labor could give rise to lien rights, especially considering the broad nature of California's lien laws. As a final note, it's worth mentioning two things... First, by sending preliminary notices, collaborating and communicating, and generally leveraging the potential of making a lien claim, most prospective lien claimants are able to avoid having to actually file a mechanics lien. Even when a dispute escalates, utilizing a lien warning like a Notice of Intent to Lien will help to compel payment because no owner, contractor, or sub wants their job to be liened. The simple threat of a lien will put pressure on all of these parties to resolve the dispute, and often, that's enough to get paid without the need for a lien filing. Second, mechanics lien filings don't typically result in full-blown legal disputes. Meaning, where a claimant files a lien in good faith, under the belief they have the right to lien - whether or not that lien is ulimately enforceable typically won't make it to the determination of a court. Rather, lien filings very typically compel payment well before a dispute reaches that stage. Plus, where a lien has been filed in good faith, as the result of nonpayment for construction-related work, in an appropriate amout that relates to the nonpayment - such a lien would be unlikely to rise to the level of fraudulent, giving rise to potential liability for the lien claimant. Instead, even if the lien came under scrutiny by a court or came under challenge of some opposing party, a lien claimant will often be able to release their lien filing and pursue some other remedy for nonpayment with little incident. Here are some resources that should be helpful when exploring California mechanics liens as an option to recover payment: (1) California Lien & Notice FAQs + Statutes; (2) How to File a California Mechanics Lien; and (3) Mechanics Liens: Intentionally Fraudulent vs. Honest Mistakes.

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