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Starting January 1, direct contractors face expanded liability

Direct contractors in California will soon be liable for unpaid wages by their subcontractors.

California Assembly Bill 1701 has been signed into law by Governor Jerry Brown and will take effect January 1, 2018, as the National Law Review reports. The new law significantly expands the wage liability of direct contractors and is designed to ensure that workers have remedies in case of wage-theft by an unscrupulous subcontractor. The bill was highly contentious, with labor unions arguing it would help crack down on shady subcontractors while construction industry lobbyists argued it would lead to an increase in construction costs. Below is a look at what is in the new law.

Law holds direct contractors liable

The new law, which adds section 218.7 to the Labor Code, allows workers on a construction project to seek payment for their wages, fringe benefits, and other benefits from a direct contractor if those payments have not been met by the subcontractor. In other words, if a subcontractor does not pay its workers, the workers can seek payment from the direct contractor.

The unpaid workers cannot hold the direct contractor liable for anything more than the unpaid wages and fringe and other benefits, meaning that the direct contractor cannot be assessed penalties or damages for unpaid wages by a subcontractor.

Significantly, unpaid workers themselves will not have the right to bring a claim against a direct contractor on their own. Rather, those claims must be brought forward on the unpaid worker’s behalf by the California Labor Commissioner, a labor-management cooperation committee, or a union. The law only applies to contracts that are entered into either on or after January 1, 2018.

Controversy about expanded liability

As the Sacramento Bee reports, the bill was extremely controversial and both labor unions and the construction industry campaigned heavily for and against it respectively. Labor unions argued that holding direct contractors liable for the unpaid wages of those who worked for subcontractors would both ensure that workers got paid and would give direct contractors incentive to make sure they were working with a reputable subcontractor. Construction industry lobbyists, on the other hand, argued that the bill would drive up the cost of labor on construction projects.

To help allay the concerns of direct contractors, the Labor Code has also been amended to allow direct contractors to request employees’ wage statements, payroll records, and award information from subcontractors. If the subcontractor fails to provide such information, then the direct contractor can withhold payment from the subcontractor.

Construction contract law

The above changes to the Labor Code are important for both direct contractors and subcontractors to familiarize themselves with. For anybody who is involved in a construction dispute, it is important to reach out to an attorney who is experienced in California construction law. Disputes can prove costly and time consuming, which is why those involved, whether they be contractors, subcontractors, or private property owners, need an attorney who can help them resolve the dispute in a quick, efficient, and satisfactory manner.