My Company Is A Contractor In The Construction Industry In New York. Is My Company Liable For The Subcontractor’s Failure To Pay Wages To Its Workers?

This article addresses:

• The joint and several liability of general contactors in the construction industry in New York for their subcontractors’ failure to pay wages to the subcontractors’ workers 

• Information which general contractors in the construction industry in New York may demand from subcontractors

• Measures which general contractors may take to mitigate wage-and-hour liability and risk.

Yes. As a general contractor in the construction industry in New York, your company is strictly liable for subcontractors’ failure to pay wages to workers.

On September 6, 2021, New York State Governor Kathy Hochul signed legislation, codified as N.Y. Labor Law § 198-e, that, effective January 4, 2022, makes general contractors in the construction industry jointly and severally liable for wages, benefits, or wage supplements owed to employees of the general contractor’s subcontractors. Joint employer status is automatically conferred on the general contractor for the purpose of recovering any unpaid wages.

What is the scope of general contractors’ vicarious liability for unpaid wages under New York Labor Law § 198-e?

Under this statute, any contractor entering into a construction contract assumes liability for any wages or debt owed to a worker “incurred by a subcontractor at any tier acting under, by, or for the contractor or its subcontractors for the [worker’s] performance of labor.” In other words, the general contractor is liable for wages not paid to construction workers by the general contractor’s subcontractors at any tier.

My company is a general contractor in the construction industry in New York. What lawsuits for unpaid wages may my company’s subcontractors’ workers bring against my company?

Construction workers may bring a civil or administrative action to recover unpaid wages, liquidated damages, and attorney’s fees from the general contractors, as long as the proceeding to recover the wages is initiated within three years after the purported nonpayment of wages. Further, such a wage claim may also be brought by the employee’s collective bargaining agent, the New York State Department of Labor, and/or the New York State Attorney General.

Can a general contractor in the construction industry in New York seek indemnification from the subcontractor?

Yes, the general contractor may bring an action against a subcontractor for indemnification of the debts owed. However, if the subcontractor is insolvent or judgment-proof, the general contractor may not have any practical recourse.

What information may general contractors in the construction industry in New York demand from subcontractors?

General contractors in the construction industry may demand that their subcontractors provide certified copies of all payroll records required by the New York Labor Law (the “NYLL”) and the regulations implementing the NYLL. Subcontractors must also provide, upon request from a general contractor:

• The names of all workers of the subcontractor on the project, including the names of all those characterized as independent contractors
• When applicable, the name of the contractor’s subcontractor with whom the subcontractor is under contract
• The anticipated contract start date
• The scheduled duration of work
• When applicable, local unions with whom the subcontractor is a signatory contractor
• The name, address, and phone number of a contact for the subcontractor

What are the consequences for construction subcontractors in New York that do not timely provide the requested information?

General contractors may lawfully withhold payments to any subcontractor unable or unwilling to timely provide this information about employees on a particular project.

When does New York Labor Law § 198-e apply?

As stated, this statute took effect on January 4, 2022. The statute applies to new construction contracts entered into, as well as to existing construction contracts that are extended, revised, or amended, on or after this effective date.

Can the joint wage-and-hour liability of general contractors in the construction industry in New York be waived?

Generally speaking, no. More specifically, a general contractor’s liability cannot be waived, except through a collective bargaining agreement (a “CBA”) with a bona fide union, which CBA specifically references New York Labor Law § 198-e. The law applies to all non-union contracts without exception.

What measures can general contractors, prime contractors, and other upstream contractors in the construction industry in New York take to mitigate liability and risk under the statute?

To mitigate the risk of vicarious wage-and-hour liability, general contractors, prime contractors, and other upstream contractors in the construction industry in New York should avoid subcontracting with any entity whose willingness or ability to fulfill its wage obligations is at all suspect. 

General contractors should thoroughly vet subcontractors before entering into contracts, including their financial stability and history of timely wage payments to employees.

General contractors should both audit and institute indemnification measures. They should develop far-reaching indemnification provisions that include reimbursement of attorney’s fees, a duty to defend, and even civil penalties. 

General contractors may also want to consider other means of allocating risk, such as requiring payment bonds for subcontractors. Such payment bonds will ensure stable, timely payroll administration should the subcontractor be unable to make payments.

So, too, general contractors, prime contractors, and other upstream contractors in the construction industry in New York should retain experienced employment counsel to ensure contracts and policies are compliant with wage-and-hour laws and regulations, as well as to address any disputes or claims that may arise.

If your company needs assistance or guidance on a labor or employment law issue and your company is located in the New York City metro area, call New York City Employment Attorney David S. Rich at (347) 941-0760.