New York appears poised to enact a modified version of legislation that would create potential liability for general contractors when their subcontractors fail to properly pay their employees.
As noted in our prior alert, the legislation as originally drafted would impose liability for general contractors if their subcontractors violated the wage and hour provisions of the New York Labor Law (NYLL). A significantly amended version of the law is now on New York’s Senate floor calendar and is expected to be passed and signed by Gov. Andrew Cuomo.
The amended bill provides some clarity and procedural safeguards for contractors, but if it becomes law, it will nonetheless alter the relationship between general contractors and subcontractors in the construction industry. General contractors will need to steadfastly review their contracts and relationships with subcontractors to avoid wage violations for which contractors will be joint and severally liable.
As previously noted, New York Senate bill 2766 generally prohibits employees and subcontractors from waiving liability for unpaid wages, benefits, wage supplements, and any other remedies pursuant to NYLL Section 198 (including attorneys’ fees and costs incurred by the employee in pursuing such unpaid wages). The amended bill, 2766c, includes an exception, however, that contractors may contract with subcontractors to waive liability for unpaid wages, but such contracts cannot diminish the employee’s rights. This allows for contractors to protect themselves from automatic liability, but if subcontractors cannot (or do not) pay their employees, ultimately, contractors will be liable for such nonpayment of wages. The revisions also carve out an exception for unions who may waive the requirement through collective bargaining.
Despite creating potential exposure for general contractors, even where the contractor has no control over their subcontractor’s employees, the amended bill limits the contractor’s liability to three years. Typically, under the NYLL, employers are subject to a six-year statute of limitations for failure to pay wages. As such, the amended legislation cuts contractors’ potential exposure in half.
In addition to limiting the timeframe for exposure, the amended bill also provides contractors with some procedural safeguards to protect themselves further. The safeguards place the burden of subcontractor’s compliance on general contractors. The legislation would create a new provision to New York’s General Business Law to permit contractors to withhold payments to a subcontractor if the subcontractor fails to comply with a contractor’s request for certified payroll records containing all lawfully required payroll information, including information about any fringe benefits paid to the subcontractor’s employees.
The legislation also permits a contractor to withhold payments if the subcontractor or its subcontractor’s subcontractor, as the case may be, fails to provide the following information upon request:
- the names of workers, including independent contractors
- the name of the subcontractor’s subcontractor, if applicable
- the contract start date
- the duration of the work
- when applicable, local unions with whom such contractor is a signatory contractor
- the name, address and phone number of a contact for such subcontractor
Further, the legislation gives contractors the right to inspect subcontractors’ payroll records. In essence, New York is relying on general contractors to audit their subcontractor’s payroll records. Of course, these “safeguards” do not aid a contractor if the subcontractor’s employees assert that they worked off-the-clock or off-the-books as such purported wage and hour violations, by their very nature, are not reflected even if the subcontractor maintains proper payroll records.
The legislation continues to provide that the New York Department of Labor and New York Attorney General would enforce its requirements, but contractors will be relied upon to play a role in policing their subcontractors. Further, aggrieved individuals or their representatives could file suit against their employer-subcontractor and the general contractor in court.
Even after its most recent amendments, the legislation continues to place an enormous burden on general contractors to micromanage their subcontractors’ payroll procedures. General contractors should immediately review their agreements and relationships with subcontractors and begin requesting and reviewing their subcontractors’ certified payroll records before paying for services that may result in liability to the general contractor.