I do a lot of prevailing wage defense, both of general contractors and subcontractors on construction projects. A difficult, very nuanced, very gray area of the law. One danger that lurks not that far under the surface is, for a general contractor (GC), if one of their subs does not pay prevailing wage and the agency, state or federal, decides to go “upstream’ against the GC.

Well, a new statute in New York has just made that infinitely easier for a Department of Labor. What the law does is to basically negate the concept of joint employment as may apply to a GC and its subs and almost makes it a matter of strict liability. In September 2021, the State passed a law which is meant to assist construction workers getting their wages by asserting liability against a contractor when a subcontractor fails to pay properly. Significantly, there is no analysis of whether these employers would be deemed a joint employer.

The law takes effect on January 4, 2022. It transfers liability to “contractors,” a term broadly defined. It also broadly defines a “construction contract.” It does establish a shorter limitations period, i.e. three years, rather than the New York regular six-year statute. It also allows contractors to bring lawsuits against the subcontractor to recover wages paid to the subcontractor’s employees.

In the Justification for the statute, the Legislature noted that the goals are to guarantee that “construction workers are quickly able to collect unpaid wages” and to “create[e] an incentive for the construction industry to better self-police itself in turn.” It allows the contractor to require submission of certified payroll records and other information to help the contractor assess whether the subcontractor is complying with the prevailing wage laws.

The Takeaway

What can a contractor do to protect itself? It can require, in any contract with its subcontractors, for them to submit the certified payrolls on a weekly basis, with proof, such as payroll records, that the proper wages/fringe benefits were paid. The contractor can also insert an indemnification provision into these contracts, but I guess that is only as good as the particular subcontractor is solvent. A contractor might insist on proof of solvency or ability to pay prior to entering into the contract in the first place, but that might not prove practical.

Start by being aware this overreaching law exists…

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