In the latest issue of The Wright Toolbox:

• Is A Fire A Cardinal Change? – read now
• When A Well Written Harassment Policy Is Not Enough – read now

Is A Fire A Cardinal Change?

Many federal government contracts permit the government to unilaterally modify the contract without seeking the consent of the contractor or its surety, provided the contractor would have expected such a change to fall within the government’s authority. In the event the government makes such a change, the contractor’s remedy is typically to seek an equitable adjustment.
What if the government goes too far and changes the contract in ways the contractor would not have expected? The “cardinal change” theory has developed to address just such a situation, and provides that a contractor may be discharged if the government changes the contract so drastically that the contractor’s work is materially different than what it originally bargained for.
In IES Commercial, Inc. v. Manhattan Torcon a Joint Venture (D. Md. Sept. 26, 2018), the electrical subcontractor on a large federal project at Fort Detrick, Maryland argued that a fire amounted to a cardinal change, because the fire changed the subcontractor’s (IES) work on the project from new construction to disaster recovery and reconstruction, which IES had not expected. Judge Bennett, of the U.S. District Court for the District of Maryland, disagreed. He held that a cardinal change only occurs when it is the government that imposes the additional obligation. In this case, a fire, not the government, caused the change in work.
Further, Judge Bennett noted that the parties had entered into a subsequent construction agreement for the fire-related damages. The cardinal change doctrine occurs when the government unilaterally imposes the obligation, not when the parties agree upon additional work. Finally, he noted, however, that IES was not left without any rights because IES still had its breach of contract claims against Manhattan Torcon remaining.
The cardinal change can be useful to fight back against government-imposed changes, but it is not unlimited in scope. To constitute a cardinal change, it must be, at a minimum, unilaterally imposed by the government and must fundamentally alter the contractor’s expected performance.

When A Well Written Harassment Policy Is Not Enough

In a recent decision, the Third Circuit Court of Appeal permitted an employee’s claims to proceed against her employer despite the fact that the employer had policies requiring the reporting of harassment which the employee did not follow and there was no evidence that the employer had direct knowledge of the alleged harassment.
This is a significant deviation from established precedent, known as the Faragher-Ellerth defense, where employers were protected from employee’s claims of sexual harassment if the employer had exercised care to avoid and eliminate harassment but the employee had failed to act with reasonable care to take advantage of the employer’s protections. If an employee failed to follow an employer’s policy and report harassment and the employer did not otherwise have knowledge of the harassment, the employer would not be held liable for harassment. In Minarksy v. Susquehanna County, the Third Circuit substantially changed and added a new element to the legal analysis – if the employee did not report, Courts may now ask whether the employee’s silence was objectively reasonable.
In its opinion, the Third Circuit set forth an extended footnote placing this significant change in context. The Court noted that in many of the allegations in the #MeToo movement, victims asserted a plausible fear of serious adverse consequences had they spoken up at the time that the conduct occurred. The Court stated that the theory underlying the defense, namely that reporting harassment will stop it, may not be accurate. Instead, victims routinely anticipate negative consequences or fear that the harassers will face no reprimand; thus, more often than not, victims choose not to report the harassment.
Employers need to take note because simply claiming the circumstances were unreported may no longer be enough to avoid liability. Employers need to look for “frequent fliers” who are alleged to have harassed someone and need to ensure past incidents or allegations of harassment were handled appropriately. Employers also need to be proactive in training employees on recognizing harassment, on promoting anti-harassment policies, and ensuring employees that anti-retaliation rules are actually communicated and are actually being followed. Even after an investigation is completed, employers should with employees who have reported harassment to ensure that no retaliation has occurred.

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