For contracts entered into on or after January 1, 2018, general contractors will be held jointly liable for their subcontractors’ unpaid employee wages, fringe benefit or other benefit payments or contributions based on an Assembly Bill signed by Governor Brown. Such joint liability is now codified in California Labor Code section 218.7.
The law is limited. It does not apply to individuals performing work for the State or other governmental subdivisions. It also does not provide for a private right of action. Only the Labor Commissioner is given authority to enforce the law.
The Commissioner may seek unpaid wages and benefits from the general contractor through an administrative hearing, a citation or a civil suit, while joint labor-management cooperation committees and labor unions may recover damages solely through civil suits and only they may recover attorney’s fees and costs. The statute of limitations for bringing a claim is one year, which begins to run when the completion of the direct contract is recorded, when cessation of work on the direct contract is recorded or when the actual work covered by the direct contract is completed, whichever is earlier.
The new law also implements record-production requirements to assist in the auditing of subcontractors’ wage and benefits compliance. At the request of a direct contractor, a subcontractor must produce payroll records with sufficient information to determine whether the subcontractor is fulfilling its obligation to pay employee wages, fringe benefits and other benefits. Also upon request, the subcontractor must provide contract-specific information, such as the project name; the subcontractor’s name and address; identification of the entity for whom the subcontractor is directly working; the anticipated start date, duration and estimated journeymen and apprentice hours of the subcontract; and contact information for its own subcontractors on the project. A subcontractor’s failure to provide the requested information does not eliminate the direct contractor’s joint liability but does entitle the direct contractor to withhold payment of sums owed to the subcontractor as “disputed” until the requested information is provided.
What does this mean? General contractors will, in essence, become guarantors of payments by subcontractors to their employees. Therefore, it is essential that general contractors meet with their legal counsel to draft and institute procedures to assure all subcontractors’ employees are fully paid and receive all benefits to which they are entitled from the subcontractors in order to avoid double payment, penalties and Labor Code violations.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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