Furnishing Labor and Performing Labor Are Different
An Oklahoma Court of Appeals has determined mechanic’s lien rights don’t extend to a party furnishing labor, because under Oklahoma statute, furnishing labor and performing labor are not synonymous.
Protecting Lien Rights in Oklahoma
When you are furnishing to a private project in Oklahoma, you secure your right to file a mechanic’s lien by serving a prelien notice upon the owner and prime contractor within 75 days from last furnishing materials or service. The prelien notice may not be required if you are contracting directly with the owner, if the lien claim is less than $10,000, if the lien claim is for retainage only, or if the project is a non-owner-occupied residential project.
If you need to file a lien and you contracted with the contractor or the subcontractor, you should file the lien within 90 days from last furnishing. However, if you contracted with the owner, the lien deadline is within 4 months of last furnishing.
Oklahoma Court of Appeals States Furnishing Labor & Performing Labor Aren’t the Same
- General Contractor: Stava Building Corporation (Stava)
- Subcontractor: McDermott Electric, LLC (McDermott)
- Sub-Sub and/or Supplier: Advanced Resource Solutions, LLC (ARS)
The Chain of Events
Stava hired McDermott as an electrical subcontractor for the construction on the Luther-Walmart project. McDermott contracted with ARS, a temporary staffing agency, and ARS provided temporary laborers. The contract between McDermott and ARS was “laborers for commercial construction on an open account.”
ARS provided laborers to McDermott on this open account, for the construction on the Luther-Walmart project, for several months. When McDermott failed to pay over $100,000 in outstanding invoices, ARS filed a mechanic’s lien. After the lien was filed, Stava filed a bond to discharge the lien from the property.
After Stava posted the bond, the question of whether ARS held a valid lien claim came up. Stava argued that Oklahoma’s lien statute states the lien claimant “must have performed labor” to have a valid claim. This is an excerpt of Stava’s argument from the court decision:
“ARS was a professional employer organization (PEO) and did not “perform labor” as required under the lien statutes. Therefore, ARS, a supplier or provider of labor, was not within the class of persons entitled to assert a mechanic’s lien in Oklahoma.”
Of course, ARS disagreed, claiming it is a “…temporary staffing company, as it was the direct employer of the licensed journeymen and apprentice electricians that worked on the Walmart Project. Thus, it was the employer that furnished labor within the meaning of the lien statutes and therefore a proper lien claimant.”
The Court Says
“ARS merely furnished labor, licensed apprentice and journeymen electricians to McDermott, who then actually labored. Furnishing labor is not the same as performing labor.”
Unfortunately for ARS, the Court of Appeals determined ARS is not within the class of parties entitled to mechanic’s lien rights. Why? Because technically, ARS wasn’t the party performing the labor, ARS provided people who performed the labor.
Is this a distinction without a difference?
No, as it turns out, the Court of Appeals decision indicates that statute may have afforded ARS lien rights if it were a contractor instead of a subcontractor. In other words, the statute specifically includes ‘performs’ labor or ‘furnishes’ labor under the statute for contractors, whereas the statute for subcontractors only includes ‘performs’ labor, not ‘furnishes’ labor.
“In the present case, under the contractor statute, § 141, any person who performs labor or furnishes labor, materials, or equipment under a contract to make improvements to real property shall have a lien on the real property for the value of that labor, materials, or equipment. However, under the subcontractor statute, § 143, the Legislature choose to limit potential lien claimants to those who actually perform labor or furnish materials or equipment. The Legislature did not include those who furnish labor.”
Did ARS Have Other Options? UCCs Maybe?
After reviewing this case, I spoke with Cindy Bordelon, NCS’ in-house UCC expert and manager. We discussed the details of the case and I asked Cindy whether ARS could have filed a UCC when it initially contracted with McDermott.
“Yes! Based on the case information, ARS provided the laborers on an open account, essentially extending credit. Article 9 allows the securing of an ‘Account’ which is defined by 9-106 as ‘any right to payment for goods sold or leased, or for services rendered.’ With a signed security agreement granting the security interest, ARS could have filed a UCC on McDermott.”
Even though ARS says they provided the laborers for a specific project, the Luther-Walmart?
“Certainly. Actually, since it appears ARS provided the laborers on an open account, McDermott could have used the laborers on any project, and a valid UCC filing could have protected ARS.”
If you furnish labor (i.e. temporary staffing) or if you furnish materials & are too remote for lien rights, you may want to consider implementing UCCs.