As of October 1, 2018, General Contractors operating on construction services projects in Maryland are now potentially subject to additional liability under the “General Contractor Liability for Unpaid Wage Act” introduced through Maryland Senate Bill 853 (the “Act”). Specifically, a general contractor may be jointly and severally liable for subcontractors’ failure to properly pay employees. To make matters more complex, this applies to subcontractors who are not even in direct contractual privity with the general contractor and can arguably extend infinitely down the sub-subcontracting chain.
Indeed, general contractors may now be liable for ensuring that every down-the-chain subcontractor on a project properly pays their employees in a manner consistent with Maryland wage and hour laws.
This controversial law also contains both a multiplier and an attorneys’ fees provision. Specifically, if a subcontractor fails to pay an employee in accordance with Maryland’s wage and hour laws, both the employee’s direct employer and the general contractor may be liable to the employee for up to three times the wages owed, plus reasonable attorney fees and costs. A claimant may make a claim against both the general contractor and the non-paying party as soon as two weeks after a violation occurs, and as late as three years after the occurrence.
In an attempt to balance the scales, the new law requires subcontractors who fail to properly pay their employees to indemnify the general contractor for “any wages, damages, interest, penalties, or attorney fees owed as a result of the subcontractor’s violation;” however, this indemnity protection is only as strong as the subcontractor’s ability to pay such damages and costs. The exception to the requirement for subcontractors to indemnify general contractors occurs either when: (1) indemnification is already provided for in a contract between the general contractor and the subcontractor; or (2) the violation arose due to the general contractor’s failure to make timely payments to the subcontractor.
The full repercussions of this new law are yet to be determined, but ambiguity in the Act raises several questions. First, the Act imposes no obligation on the subcontractors to provide the general contractor full access to all payroll and supporting records that would be needed to defend a claim, including a potentially fraudulent claim. Second, the Act fails to specify whether an employee-claimant need even be staffed on the same project as the general contractor, or whether merely being an employee to the subcontractor who has staffed other employees on the project will suffice. These questions will likely be clarified through litigation.
Steps you can take:
In response to the Act, both general contractors and subcontractors should review their contract provisions with counsel, general contractors may consider requiring subcontractors to obtain a bond or insurance to protect against wage claims by a subcontractor’s employees, and consider adding contract provisions to allow for review of their subcontractors’ pay practices, records, and history of wage claims and lawsuits for at minimum three years following final payment. General contractors should further consider requiring a subcontractor’s principal or officer to sign certified payrolls, thereby attesting that employees were paid properly.
On August 30, 2017, Representative Aaron Bernstine (R., Beaver, Butler, and Lawrence Counties) introduced House Bill 1751, which seeks to create a public notice requirement for public works project labor agreements (PLAs). The proposed law would require the contracting public agency to post notice of a PLA on its website at least 20 days prior to the solicitation of bids on a public project that the PLA will apply to. The Bill also proposes to nullify a PLA when notice is not provided. The Bill is currently being considered by the House Committee on Labor and Industry.
Babst Calland will continue to monitor HB 1751 as well as other proposed legislation that may impact the construction industry and post updates on this Blog whenever they become available.
On May 18, 2017, Representative David S. Maloney, Sr. (R., Berks County) introduced House Bill 1387, which seeks to amend Pennsylvania’s Contractor and Subcontractor Payment Act (CASPA). The changes include the inserting language amending CASPA to state the following:
- A contractor or subcontractor may not contractually waive CASPA rights;
- Failure to provide written notice of a deficiency item results in a waiver of the right to withhold for the deficiency and requires payment of the invoice in full;
- If withholding for a deficiency item, payment for all non-deficient work must still be made;
- If a party receiving an invoice alleges the invoice contains an error, the party must pay the correct invoice amount on the date payment would otherwise be due;
- A party seeking release of retention may post a maintenance bond for 120% the amount retained to obtain release of retention;
- Withholding retention for longer than 30 days after “final acceptance of the work” will qualify as an improper withholding unless the appropriate notice requirements are followed;
- Withholding requirements also apply to subcontractors’ sub-subcontracts with lower-tier subcontractors; and
- Compliance with the notice requirements for withholding based upon deficiencies is necessary for the withholding to “not be deemed to have been wrongfully withheld.”
Babst Calland will continue to monitor HB 1387 as well as other proposed legislation that may impact the construction industry and post updates on this Blog whenever they become available.
Representative Dan Truitt, a Republican serving part of Chester County, Pennsylvania, recently proposed as House Bill 430 legislation that seeks to amend the Pennsylvania’s Mechanics’ Lien Law of 1963 (i.e. the current and applicable mechanics’ lien law, hereinafter referred to as the “Lien Law”) to add “architect, engineer, or other licensed design professional” to the definitions of “contractor” and “subcontractor” that have mechanics’ lien rights.
Under the Lien Law, a mechanics’ lien may only be maintained for payment of debts due by the owner to a “contractor” or by a “contractor” to any of his “subcontractors”. 49 P.S. § 1301. As of the date of this blog post, the definitions section of the Lien Law defines “contractor” to include “an architect or engineer who, by contract with the owner, express or implied, in addition to the preparation of drawings, specifications and contract documents also superintends or supervises any such erection, construction, alteration or repair.” 49 P.S. § 1201. The definitions section also states that the term “subcontractor” does not include “an architect or engineer who contracts with a contractor or subcontractor….” Id.
Thus, under the current law, architects only have mechanics’ lien rights if they supervise or “superintend” onsite work for the construction project. By amending the definitions of “contractor” and “subcontractor” to expressly include architects, engineers and other design professionals, House Bill 430 stands to remove the requirement that design professionals must perform onsite work to have mechanics’ lien rights, thereby significantly expanding what were previously very limited mechanics’ lien rights for design professionals.
House Bill 430 is currently before the House’s Labor and Industry committee. Babst Calland will continue to monitor the Bill’s status and will post updates on this blog when applicable, so check back often.