The 12 days of California Labor & Employment Series – Day 7 "General Contractor Liability – Double Payment Potential"

It's the end of the year and while everyone is busy, employers in California should be aware of new laws and regulations that go into effect on January 1, 2018. In the spirit of the season, we are using the next "12 days of the holidays" to blog about one California law a day and that law's impact on California employers. On the seventh day of Christmas, my Labor and Employment attorney gave to me – seven swans a swimming and AB 1701.

General contractors and developers may have increased liability beginning on January 1, 2018 as it relates to subcontractors. With AB 1701, a general contractor making or taking a contract in the state for "the erection, construction, alteration, or repair of a building, structure, or other work" will assume, and be liable for specific debt owed to a wage claimant that was incurred by a subcontractor. This will apply to contracts made beginning January 1, 2018. The Division of Labor Standards Enforcement ("DLSE") has enforcement power over a general contractor and may bring an action against them for unpaid wages owed to a wage claimant. However, the law does not apply to an employee of the state or any political subdivision of the state. In addition, a third party who is owed a fringe or other benefit payment or contribution (labor unions, for example) may bring a civil action against the direct contractor for such unpaid benefit payments or contributions. There is no private right of the wage claimant to sue the general contractor. Note, a general contractor's liability shall be limited to unpaid wages, including any interest owed. 

To make matters worse for general contractors and developers, an attorney fee provision is included. If an action is brought by the Labor Management Cooperation Committee or labor unions, the court can require the general contractor or developer to pay the reasonable attorney's fees and costs, including expert witness fees, incurred during the action. And finally, AB 1701 authorizes the general contractors property to be attached to pay for a judgement. A third party must file its claim 1 year of the earliest of: (1) recordation of a notice of completion of the direct contract; (2) recordation of a notice of cessation of the work covered by the direct contract; or (3) actual completion of work covered by direct contract.

General contractors may request, and are entitled to receive, a subcontractor's payroll records and project award information upon request. A general contractor may withhold as "disputed" all sums owed if a subcontractor does not timely provide the requested records and information without specifying what is untimely and such failure to comply does not excuse general contractors from any liability. General contractors should also take note that they are not prevented from including indemnification language in their contracts with subcontractors for these type of claims.

Moving forward, general contractors in California will need to do more to ensure they do business with reputable subcontractors. Contract language should be updated, especially indemnification clauses. General contractors may also want to consider adding a provision that a subcontractor provide periodic statements of compliance with the law. Additionally, as AB 1701 is unclear as to whether wages extend to meal and rest periods, general contractors should draft their contracts accordingly. General contractors could also consider a monitoring program on the job site, if applicable. All in all, a general contractor will need to take a more active role with their subcontractors to avoid a claim under AB 1701.

If you have questions about AB 1701, contact Mellissa Schafer in Hinshaw's Los Angeles - Westside office or your regular Hinshaw lawyer.

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