New Virginia Construction Statute: General Contractors Can Be Liable to Pay Subcontractor’s Employee Wages

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Last month, Virginia’s General Assembly enacted a new law that makes contractors on large construction projects liable for unpaid wages owed to their subcontractors’ employees. Senate Bill 838, codified at Virginia Code § 11-4.6 and § 40.1-29 has four major effects:

  1. It makes the general contractor—and all tiers of subcontractors working on the project—contractually liable to pay their subcontractor’s (at any tier) employees’ wages;
  2. It requires that such payments equal or exceed those required by applicable statutes, such as Virginia’s Minimum Wage Act and the federal Fair Labor Standards Act (“FLSA”);
  3. It deems contractors to be the employers of their subcontractors’ employees for purposes of Virginia Code § 40.1-29, which imposes criminal liability and civil penalties for failing to pay employees’ wages when due; and
  4. It gives all employees several procedural advantages, allowing them to sue jointly or as a class action, imposing liquidated damages equal to the wage amounts owed, awarding reasonable attorney’s fees, and—in cases of willful violations—imposing treble damages.

The statute, which governs contracts entered into after July 1, 2020, applies to construction projects valued at $500,000 or more. It does not, however, apply to single-family residential construction projects.

Senate Bill 838 could lead to a wave of new employment claims against contractors and other employers. The provisions allowing employees to file jointly or as a class, awarding attorney’s fees and liquidated damages, and subjecting willful violators to treble damages will make such lawsuits more attractive to plaintiff’s lawyers. Although these tools have long been available in federal court (in FLSA lawsuits), the new statute now provides them in state court, where summary judgment is far more difficult to obtain, and it now allows subcontractor’s employees to seek such relief against general contractors, who may have deeper pockets.

Sophisticated general contractors and subcontractors may seek to guard against this new liability by (1) making pre-qualification requirements more rigorous, (2) requiring subcontractors and suppliers to post their own payment bonds, (3) expanding contractual indemnity language, (4) requiring additional warranties and representations in monthly pay applications, (5) increasing employment practices liability insurance coverage, (6) limiting the use of unproven or fledging subcontractors, and/or (7) issuing joint checks to subcontractors and employees in extreme circumstances.

We will continue to monitor how this statute affects both the dynamics between general contractors and subcontractors and the broader landscape of Virginia’s construction industry.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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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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