04 Apr Construction general contractors and subcontractors jointly liable for unpaid wages
General contractors should protect themselves from new liabilities.
Legislation enacted in 2017 makes general contractors jointly liable with their subcontractors and any lower-tier subcontractors for any unpaid wage, fringe or other benefit payment or contribution owed to any wage claimant or third parties, including unions.1 Although the general contractor may be held liable for unpaid wages and benefits, including interest, their liability does not extend to any other penalties or liquidated damages.
The new law applies to any contracts entered into on or after January 1, 2018. It only applies to California construction contracts to erect, construct, alter, or repair a building, structure, or other private work.
The law allows general contractors to demand payroll information from subcontractors or lower-tier subcontractors to ensure that wages and benefits are being paid. If the subcontractor/lower-tier subcontractor fails to provide the information, the general contractor may withhold amounts to cover any potential wages and benefits.
The law is interesting in that it doesn’t allow employees to bring lawsuits against the general contractor to recover any unpaid wages. Rather, such recovery actions are limited to:
- The Labor Commissioner;
- A joint labor-management cooperation committee; or
- A “third party owed fringe or other benefit payments or contributions on a wage claimant’s behalf” (e.g., union).
Any such action may be brought within one year from the work’s completion or cessation.
While general contractors may be held liable, there is nothing in the law that prevents a general contractor from requiring indemnification from the subcontractor. Contractors should review their contracts to make sure indemnification clauses are included as well as specifying what records must be provided by when.