The 2015 Nevada Legislature appears to have brought common sense reform to one of the state’s most controversial statutes – NRS 608.150 – which made “original contractors” liable to its subcontractor employees (or labor unions and labor union trust funds to which they were signatory members) for any unpaid wages and benefits owed to those employees. State and federal courts had interpreted this statute to also make the “original contractor” liable for any contractually mandated interest, penalty, attorney’s fees or other court costs the recalcitrant subcontractor incurred for the late payments. With the 2015 Nevada Legislature’s unanimous passage of Senate Bill 223 (“SB223”), the historical enforcement of NRS 608.150’s most draconian provisions may have come to an end.
SB223 (originally drafted by Snell & Wilmer Partner, Leon F. Mead II, and sponsored by the Associated General Contractors, Las Vegas Chapter and the Nevada Contractors Association) eliminates the ambiguous NRS 608.150 reference to “original contractor.” This term had no other use in Nevada statutory law, and allowed those attempting to enforce NRS 608.150 to assert that any person or entity that entered into a contract with a specialty trade contractor was “acting in the capacity of a contractor” and therefore responsible for any debt incurred by the trade contractor for labor on a project.
Examples offered in SB223 committee hearings included the use of NRS 608.150 to extract $500 from an individual homeowner who had hired a tile setting subcontractor for a $1,100 home improvement project. While the vast majority of claims under NRS 608.150 involved significantly more substantial issues, this example made clear to the Nevada legislature that the time for reform had come. More routine but just as onerous examples included the practice of benefit trust fund lawyers recording mechanics liens against projects for undisclosed amounts, the refusal of trust funds to provide final lien releases in exchange for payments, and the detrimental effects on general contractors of allowing such claims to be brought up to four years after a construction project was complete – leaving no ability to withhold or collect funds from the applicable trade subcontractor during the course of construction, when the general contractor had the best opportunity to ensure the wages and benefits were timely paid. General contractors were offered almost no defense or protection from either state or federal courts adjudicating such claims.
SB223, effective October 1, 2015, the operative term “original contractor” is replaced by the term “prime contractor” as defined in NRS 108.22164, which provides:
“Prime contractor” means:
1. A person who contracts with an owner or a lessee of property to provide work, materials or equipment to be used for the improvement of the property or in the construction, alteration or repair of a work of improvement; or
2. A person who is an owner of the property, is licensed as a general contractor pursuant to chapter 624 of NRS and provides work, materials or equipment to be used for the improvement of the property or in the construction, alteration or repair of a work of improvement.
By this definition, an owner who merely hires a trade subcontractor to perform routine maintenance or make single work type repairs to his property is excluded from liability for the trade contractor’s unpaid labor debt. In this situation, the “prime contractor” is actually the trade subcontractor performing the work. Only when the property owner is also a licensed general contractor and provides labor, material or equipment to the work of improvement can he have liability under NRS 608.150.
When a general contractor is liable under NRS 608.150, SB223 limits that liability to the actual amount that its underlying trade subcontractor failed to pay for its labor; that is, actual wages and benefits owed. The general contractor is not liable for any penalty, including attorney’s fees, interest, liquidated damages or other costs that the trade subcontractor owes as a result of its failure to timely pay. This means that a union benefit trust fund can no longer seek recovery from the general contractor of its attorney’s fees incurred seeking compliance from the trade subcontractor under NRS 608.150.
Perhaps even more importantly for general contractors who have faced claims for unpaid subcontractor benefits, SB223 states a defined benefit union trust fund or other similar organization can no longer claim to be exempt from the obligation to provide a Notice of Right to Lien (aka preliminary notice) under NRS 108.245 in order to claim a mechanics lien for unpaid benefits. The administrator of such a trust must also inform the general contractor of a potential claim for unpaid wages or benefits when such wages or benefits have been unpaid for 60 days, and that notice must be given within 15 days of that due date. That notice must be sent by email, telephone and either personal delivery or certified mail, return receipt requested; and must include the amount owed, the name and address of the subcontractor and make a demand for payment of the unpaid funds. If that notice is not provided, the prime contractor is not obligated for the applicable trade contractor’s unpaid wage and benefit liabilities.
Finally, SB223 limits the applicable statute of limitations for unpaid benefits to one year after the date the unpaid employee should have received the benefits owed. This is a substantial reduction from the previous statute of limitations that gave up to four years after wages or benefits were left unpaid for a benefit trust fund to audit its subcontractors and seek compensation from the applicable general contractor. While this will not completely eliminate NRS 608.150 claims arising after a construction project is substantially complete, limiting such claims to one year after the wage was owed will give general contractors a better opportunity to recover from the trade subcontractor than the previous four year statute of limitations provided.
The goal of SB223 was to increase wage and benefit payment compliance by requiring the benefit trust funds and other NRS 608.150 claimants to bring the lack of payment by trade subcontractors to the attention of the general contractor during the construction of the project. It is expected that not only will wage and benefit payment compliance increase but is also hoped that a substantial decrease in the number of lawsuits necessary to recover such claims results as well.
