December 1, 2022

McKenzielee Blog

Wicked Clever House Experts

Construction firms search for legal loopholes to federal contractor vaccine mandate

4 min read

Although OSHA has suspended the implementation of its emergency temporary standard requiring vaccines for employees at businesses with 100 or more employees, construction companies that do work for the federal government are facing another set of vaccination requirements.

These firms have until Jan 4. to get workers vaccinated. Conservative-led states have challenged this federal contractor mandate, but they face an uphill battle, according to Bloomberg. 

Already facing severe challenges in staffing jobs, there is a fear that these federal contractor vaccine requirements could further thin their ranks and potentially force some firms to pass on work.

Just look at the most recent earnings report from Watsonville, California-based Granite Construction. The company narrowed its guidance for its earnings by half a percentage point on the low and high end of its range to 6{011941dee92f7e161bd8a30615b46c669052522d707db6b18bff3298986a0426} to 7{011941dee92f7e161bd8a30615b46c669052522d707db6b18bff3298986a0426} for the full year. On the company’s earnings call, CFO Lisa Curtis said considerations that may affect that amended range included weather and “potential impacts from any regulations or mandates related to the pandemic.”

In some cases, these mandates are pushing workers to smaller firms.

For some construction firms, spinning off separate LLCs could look like an appealing way around the vaccine mandates. Federal guidelines will require that “employees in workplaces where individuals work on, or in connection with, a government contract or subcontract,” need to be vaccinated, Carrie Hoffman, an attorney with Foley & Lardner in Dallas, told the Society for Human Resource Management.

To get around this, both developers and construction attorneys have told Construction Dive that contractors doing government work have considered creating separate LLCs to set apart unvaccinated workers that don’t directly touch the government job. 

“I suppose it’s logical for these same companies to try to avoid vaccine mandates when clients and contractors demand them, and there’s an ongoing labor shortage,” said Charles Krugel, a management-side labor attorney in Chicago. “Consequently, these construction companies are probably worried that vaccine mandates will only decrease their ability to hire otherwise qualified construction workers.” 

But before construction companies begin to navigate the red tape that comes with setting up a separate LLC, Carol Sigmond, a partner in the construction practice group at law firm Greenspoon Marder LLP, has a prediction: It’s probably not going to work.

“You’re going to have to prove to the government that the [spin-off] construction company gets absolutely no financial support or any type of consideration from the home office,” Sigmond said. 

Guidance from the General Services Administration’s Safer Federal Workforce website also points to an uphill battle to spin-off companies to avoid vaccination mandates. The GSA said that business concerns, organizations or individuals are affiliates of each other if one controls or has the power to control the other or a third party controls or can control both. It considers interlocking management or ownership, interests among family members, shared facilities and equipment or common use of employees as indications of control.

Carol Sigmond

Courtesy of Greenspoon Marder, LLP


“An employee of a corporate affiliate of a covered contractor is considered a covered contractor employee if the employee performs work at a covered contractor workplace,” according to the GSA.

Interlocking business entities

The concept of construction companies starting new entities is nothing new. They’ve launched spinoff LLCs to try to get around the insurance requirements of the Affordable Care Act, according to Sigmond. Krugel said they’ve also created entities to get around union agreements, like project labor agreements and jobs requiring prevailing wage rates.

As companies have sought ways to create new entities, different agencies, including OSHA and the National Labor Relations Board, have applied tests to determine whether a business is truly independent. The difficulty passing these thresholds is one reason Sigmond thinks LLCs set up to avoid vaccine mandates for contractors will have a difficult path.

“You pick your poison,” Sigmond said. “They [the results] are all going to be the same. It’s going to be hard for any organization of any significant size to pull it off.”

Regardless of whether a contractor is doing work for the government or a client that doesn’t have a vaccination mandate, Krugel said it still must provide a safe working environment. 

“If there’s a COVID outbreak on a jobsite that’s traced to a company that’s not using vaccinated employees, there may be increased liability for that company,” Krugel said. “Any halfway intelligent lawyer, labor union or government agency investigating such an outbreak will look to the officers and owners of that company for liability. It won’t matter if those officers or owners are part of a separate company that mandates COVID vaccinations.”