How Changes to NY’s Wage Theft Laws Affect Contractors and Subcontractors

Effective January 4, 2022, New York’s amended wage theft laws enable a subcontractor’s employees to obtain judgments for unpaid wages directly against a contractor that hired their employer. The New York laws aim to provide subcontractors’ employees a more viable avenue for recovery by giving them access to the contractor, which is often financially stronger than a subcontractor. Additionally, this will encourage contractors to be more hands-on in managing their subcontractors and ensuring compliance with wage laws. Construction contractors and subcontractors have much to learn and consider when doing business under the revised law; from the duties imposed to unanswered questions, parties would be prudent to reexamine their contracts and operations keeping some key points in mind.
 

N.Y. Lab. Law § 198-e Construction Industry Wage Theft

The most significant change is that the statute now requires a contractor to assume liability for any wage claim incurred by a subcontractor “at any tier” acting for the contractor or its subcontractors, noting that the contractor shall be considered jointly and severally liable for any “unpaid wages, benefits, wage supplements, and any other remedies of section 198.” These actions may be brought by an employee, a union, another representative acting on the employee’s behalf, or the attorney general.

The statute adds that no agreement or release to waive this liability is valid unless it is done through “a collective bargaining agreement with a bona fide building and construction trade labor organization,” and the waiver explicitly references the statute. It also states that a contractor “shall not evade, or commit any act that negates, the requirements of this section.” However, the statute does not “prohibit a contractor or subcontractor from establishing by contract or enforcing any other lawful remedies against a subcontractor it hires for liability created by violation of this section, provided that such contract or arrangement does not diminish the right of employees to bring an action under the provisions of this section.”

N.Y. Gen. Bus. Law § 756-f. Wage Theft Prevention and Enforcement

The revised law also includes reporting duties for a subcontractor, requiring, upon a contractor’s request, that it provide certified payroll records for all of its employees on the project, as well as the following additional information, whenever applicable:

  1. The names of all of a subcontractor’s employees, and those of any sub-subcontractors working on the project, including the names of all those designated as independent contractors;
  2. The name of each sub-subcontractor;
  3. The anticipated contract start date of each sub-subcontractor;
  4. The scheduled duration of work of each sub-subcontractor;
  5. The name of the local union(s) with whom the subcontractor and each sub-subcontractor is a signatory contractor; and
  6. The name, address and phone number of a contact for each sub-subcontractor.

If a subcontractor fails to timely comply with a request for this information, the contractor may withhold payments owed to the subcontractor. The law also applies to subcontractors in their relationship with their sub-subcontractors.

What We Do and Do Not Know About This Law

The law is unambiguous as to many of the requirements noted above. Contractors working on New York projects are liable for their subcontractors not paying wages. This makes it critical to use subcontractors that are trustworthy and financially stable. However, we currently do not know whether this law is meant to apply to every subcontractor down the chain. For example, if a sub-subcontractor does not pay its employee, this law makes it clear that the contractor and sub-subcontractor are jointly and severally liable for the employee’s claim. However, it does not make clear whether the first-tier subcontractor will also be jointly and severally liable. In practice, the subcontractor will likely be pulled into the action through contractual indemnification, since the statute allows contractors to include contract provisions in its subcontract that require a subcontractor to indemnify the contractor for damages that arise out of violation of this provisions.

Steps Contractors and Subcontractors Should Take

As a contractor, you should make sure all of your subcontract agreements contain provisions that require indemnification from a subcontractor and all of its sub-subcontractors for violation of this statute. This is particularly important since the statute does not allow the contractor to demand a release or waiver of the statute’s requirements unless it is done through “a collective bargaining agreement with a bona fide building and construction trade labor organization.” Contractors should also include provisions requiring that, upon signing the contract, and monthly throughout the project, the subcontractor and its sub-subcontractors provide the contractor with all payroll records and information required by N.Y. Gen. Bus. Law § 756-f. The statute states that they must provide this information to contractors, but only upon request. Accordingly, contractors should ensure that subcontractors provide the required information prior to the performance of any work, and supplement the information as circumstances change. Additionally, since the law permits withholding payment to the subcontractor to pay its employees, you should require that subcontractors submit monthly payroll records to you so you can ensure that every employee on the job is being paid.

As a subcontractor, you must be prepared to regularly and timely produce all payroll records and information to contractors upon request. You are still required to provide this information upon request, even if it is not mentioned in the subcontract agreement, so collecting and producing it should become a part of your regular payment submission practices. You should also ensure that your sub-subcontract agreements contain indemnification language that is similar to what we have suggested for contractors above. Since it is still uncertain as to exactly whether everyone in the chain of subcontractors will be liable under the statute, protecting yourself proactively through your contracts is vital.

Conclusion

If you are a contractor or subcontractor operating in New York, these changes have dramatic implications on the scope of your liability related to employee wage claims. It is important to revise your contract forms and talk to your lawyer about how this law will affect you.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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