What contractors can do to keep from getting hit with L&I’s retroactive ‘matrix violations’
Tue Dec 3, 2019
This article originally appeared in the Seattle Daily Journal of Commerce on November 21, 2019.
By ERIC FORNER and RYAN GILCHRIST
This article is the second of a two-part series addressing the state Department of Labor and Industries’ use of retroactive “matrix violations.” In part one, published on Nov. 14, we explained that L&I punishes contractors for unwitnessed violations of L&I regulations by issuing fines — some totaling hundreds of thousands of dollars — for alleged violations.
For those needing a refresher, part one detailed L&I’s increasing use of matrix violations to retroactively penalize contractors for alleged violations of L&I regulations, which L&I did not actually witness.
Under this citation scheme, investigators for departments under the purview of L&I (e.g., the state electrical board) witness a violation committed by a contractor. The investigator then brings this violation to the contractor’s attention and issues a citation. As part of the citation and investigation, L&I makes a broad document request to the contractor for its past work records, threatening a subpoena of the documents if the contractor does not comply.
The contractor, under threat of subpoena, complies with L&I’s request and provides the documents. L&I issues a citation for the witnessed violation, the contractor pays the citation, brings its company into compliance with the applicable L&I regulation as necessary, and understandably believes the matter is then resolved.
Months may go by without any word from L&I, and then without any additional notice, L&I issues the contractor a massive citation. This citation uses a matrix violation, which essentially identifies and penalizes the contractor for previously performed jobs that the L&I inspector assumes violated L&I regulations.
L&I’s matrix violation is issued without notice to the contractor, based solely off the documents provided by the contractor without L&I actually witnessing any of the alleged violations, and retroactively penalizes contractors — even if the contractor is in full compliance with the relevant codes at the present.
WHAT YOU CAN DO
This part of the series focuses on what contractors can do to protect themselves from being issued a matrix violation and options for those contractors who find themselves faced with defending against a matrix violation under L&I’s penalty scheme.
The best way for contractors to avoid being subject to L&I’s retroactive penalty scheme is to make sure your company is performing work in compliance with all L&I rules and regulations, paying particular attention to rules and regulations that could give rise to a matrix violation.
The most common violations that lead to issuance of matrix violations are performing unlicensed work — whether it is improper license or certification issues with the business or the individual employee performing the work. This type of violation lends itself to a matrix violation, as L&I witnesses the unlicensed work once, requests the contractor’s records, and then assumes that all work of the same type leading up to the date of the witnessed violation was also unlicensed.
In Washington, contractors are not the only parties at risk; for example, third-party dispatch services that subcontract with contractors to provide services have also fallen victim to these schemes. Prudent contractors and businesses performing work in areas governed by L&I will work with counsel to ensure they are properly licensed and in full compliance with L&I regulations.
While L&I can be a helpful resource for new contractors prior to beginning work, or for existing contractors seeking to come into compliance after a citation has been issued, we caution companies that L&I can use information provided to it to ensure future compliance as evidence of previously performed non-compliant work.
Unfortunately, with the difficulty in deciphering the complex regulations, it is unrealistic to expect all companies working in fields covered by L&I to comply at all times with every relevant law and regulation. Even those contractors taking a conservative approach to compliance can find themselves cited by L&I for alleged violations and face the difficult decision of appealing L&I’s citation(s) — incurring significant legal fees in the process — or simply paying the fine and admitting the violation.
As a result, contractors must be aware of the penal scheme employed by L&I and take steps to minimize their risk.
COMPLIANCE CAN BE DIFFICULT
Because complete compliance at all times can be difficult, contractors should understand L&I’s obligations in bringing actions to penalize contractors. If a contractor receives a request for documents from L&I in connection with an investigation, it should immediately take steps to determine whether compliance with that request is necessary and, if so, the scope of the required response.
L&I’s power to demand documents via a subpoena is limited. For example, under the electrical code, L&I is only able to subpoena documents when there is reason to believe a violation of the electrical code has occurred. The subpoena must (1) describe the possible violation, (2) cite to the applicable law, and (3) explain how the information being sought reasonably relates to the possible violation.
A contractor can fight the validity of a subpoena issued by L&I and potentially prevent the collection of documents that L&I intends to use against it for a possible future citation. While every case is different, and contractors are urged to consult with an attorney prior to responding to L&I, contractors should not be intimidated by L&I and should not voluntarily provide information without first considering whether it is prudent and legally required to do so.
Businesses who do turn over records, even on the advice of counsel, still have some recourse to fight the violation. Washington law permits parties penalized by L&I to file an appeal within 20 days of receipt of the citation. This appeal is heard by an administrative law judge with the Office of Administrative Hearings.
The appeal process is similar to the standard litigation process: the appellant/contractor files an appeal, articulating the basis of that appeal, the parties (with the assistance of an administrative law judge) set a schedule for discovery motions and the hearing, and the parties move forward pursuant to that schedule. Cases are usually tried before the OAH administrative law judge within six months of the appeal, but the complexity of the dispute and schedule of the parties may shorten or lengthen this timing.
EXCEEDING MAXIMUM PENALTY
If a party appeals L&I’s citation, the grounds for appeal will be specific to its case. However, it is possible that matrix violations can be generally appealed on the basis that they exceed the statutory maximum penalty L&I is authorized to issue for a single violation, which varies depending on the applicable regulations.
Laws regulating L&I’s authority cap the maximum penalty that may be issued for a single violation, and these matrix violations, categorized as a single continuing violation, routinely exceed this maximum authorized penalty amount. In some cases the penalty is more than 20 times greater than the statutory maximum authorized for a single violation.
Additionally, L&I’s retroactive matrix violations cite contractors for violations that L&I did not actually witness and which the contractor had no contemporaneous notice it was committing. L&I’s failure to actually witness the alleged violations and lack of timely notice bring about significant due process concerns, which is an additional argument contractors may use to fight the matrix violations.
It is important to note that the success rate of these arguments is unknown. Based on our office’s experience, matrix violation citation appeals are not typically taken all the way to a hearing by a contractor. L&I has shown a proclivity to settle these matters at some discount (depending on the strength of the case and viability of a contractor being able to pay), and it is often in a contractor’s best interest to do so.
Based on anecdotal evidence over the past few years, it does not appear that these matrix violations are going away anytime soon. Contractors need to be aware of these risks and need to ensure they are in compliance with L&I rules and regulations. Advice from legal counsel can help protect a contractor from many of these risks and can help contractors weigh the costs and benefits of pursuing an appeal.