New York Gov. Kathy Hochul on Labor Day signed into law legislation that makes general contractors on construction projects jointly liable for any unpaid wages owed to employees of their subcontractors. The law takes effect on January 4, 2022, and “shall apply to construction contracts entered into, renewed, modified or amended on or after such effective date.”

As discussed in our prior alert, this legislation amends the New York Labor Law (NYLL) to create potential liability for general contractors when their subcontractors fail to properly pay their employees.

The law, A.3350-A/S.2766-C, generally prohibits employees and subcontractors from waiving liability for unpaid wages, benefits, wage supplements and any other remedies (including attorneys’ fees and costs incurred by the employee in pursuing such unpaid wages) pursuant to NYLL Section 198.

Ultimately, if subcontractors cannot (or do not) pay their employees, general contractors will be liable for such nonpayment of wages. The law limits a general contractor’s exposure to three years of liability, which is less than the potential exposure under New York Labor Law. Typically, under the NYLL, employers are subject to a six-year statute of limitations for failure to pay wages.

Procedural Safeguards

The law contains some procedural safeguards that general contractors should consider incorporating in future contracts, such as:

• Requesting certified copies and inspecting subcontractors’ payroll records
• Withholding payments to a subcontractor if the subcontractor fails to comply with a contractor’s request for certified payroll records containing all lawfully required payroll information, including information about any fringe benefits paid to the subcontractor’s employees
• Withholding payments if the subcontractor – or a subcontractor’s subcontractor, as the case may be – fails to provide the following upon request:
  • the names of workers, including independent contractors
  • the name of the subcontractor’s subcontractor, if applicable
  • the contract start date
  • the duration of the work
  • when applicable, local unions with whom such contractor is a signatory contractor
  • the name, address and phone number of a contact for such subcontractor

While these “safeguards” do not aid a general contractor if the subcontractor’s employees assert that they worked off-the-clock or off-the-books, they do allow the general contractor to audit the subcontractors payroll records, thereby serving as a prophylactic against some wage and hour violations.

As such, general contractors should immediately review their contracts and relationships with subcontractors and consider the risks of paying subcontractors without assurances that those subcontractors have paid their employees properly.

For more information about this alert, please contact Glenn S. Grindlinger at ggrindlinger@foxrothschild.com or 212.905.2305 or any member of Fox Rothschild’s New York Labor & Employment Department. Visit us on the web at www.foxrothschild.com.