New law makes contractors liable for bad subcontractors

California recently passed a bill making general contractors liable for unpaid wages by subcontractors.

Assembly Bill 1701 was recently passed by both the California Senate and Assembly and is widely expected to be signed into law by Gov. Brown. The proposed law affects the liability rights of general contractors. If passed, the law will mean that in cases where workers employed by a subcontractor are owed wages or fringe benefits, those unpaid workers will be able to make a claim against the general contractor even if they did not work for the contractor directly. The new law has proven highly controversial, with supporters claiming it protects workers while opponents claim it will drive up construction costs and exacerbate the state's housing shortage.

What AB 1701 does

If signed into law, AB 1701 will apply to private contracts that go into force on or after January 1, 2018. It will make general contractors liable for the unpaid wages and fringe benefits, including interest, of those working for a subcontractor. The general contractor will not be liable, however, for penalties or liquidated damages. The general contractor is liable for the unpaid wages and benefits of subcontractors at any tier.

Claims can be brought against the general contractor on the wage claimant's behalf either by the labor union, the California Labor Commissioner, or Joint Labor-Management Cooperation Committee. Wage claimants themselves cannot make a private claim against the general contractor and claims are subject to a one-year statute of limitations.

What the controversy is about

AB 1701 has proven highly controversial, with labor unions and construction industry lobbyists campaigning strongly for or against it respectively. Unions argued that holding general contractors liable for unpaid wages by subcontractors helps protect employees from unscrupulous subcontractors and subcontractors that go bankrupt. The law also allows contractors to inspect the payroll data of subcontractors to ensure that subcontractors are complying with their wage and benefit obligations.

Opponents of AB 1701, however, claimed that the proposed law would hold innocent businesses responsible for the actions of less scrupulous businesses. The law applies even to wage claimants who are not directly employed by the general contractor. The extra liability, opponents of the law claimed, would result in labor and construction costs rising just when California needs to do more to address its housing shortage.

Construction law advice

As the above article shows, construction law in California can be particularly complicated and disputes involving contracts are not uncommon. That's why when such disputes do arise it is necessary to reach out to a law firm that is well versed in construction law. An experienced firm can help contractors, subcontractors, property owners, and other parties understand what rights they may have under the law and how to go about resolving their cases in a timely and effective manner.