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Is a contractor responsible for unpaid subcontractor wages?

It seems straightforward: You are hired as a contractor for a project in California, you enlist the services of a subcontractor to complete the project, the work is finished and you move on to the next job. However, what happens if the employees hired by your subcontractor bring up claims of not being paid all that was promised to them? If your subcontractors fail to properly compensate their employees for the work they have done, can you find yourself in hot water over unpaid wages or improperly disbursed benefits? It is quite possible.

According to the Legislative Assembly Bill No. 1701, which was approved on October 14th, 2017, the direct contractor is liable for debts stemming from wages owed not only to its own employees and the employees of subcontractors, but also for the workforce employed by any level of lower subcontractors that are used on the project. This includes contracts for the "erection, construction, alteration, or repair of a building, structure, or other private work." The direct contractor must ensure that these employees receive their wages in full, benefits and contributions promised to them and even interest that is owed.

Contractors can, however, lessen their risk by addressing the issue in the contracts they enter into before the work begins. For instance, a contractor can include a provision that states the subcontractor will indemnify and take on costs associated with wage and benefit disputes and can make a requirement that the subcontractor has payment bonds. Contracts can also include clear protocols for confirming payment to workers and outline deadlines for when the subcontractors must provide records regarding payroll. Keep in mind, though, that it is still the responsibility of the direct contractor to ensure proper protocols are being met.

This post is meant for informative purposes only and should not be used in place of professional legal counsel.

 

 

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