On October 14, 2017, California Governor Jerry Brown signed AB 1701.  This law imposes liability on general contractors for wage and fringe benefit liabilities of its subcontractors.  This law applies to all contracts entered into on or after January 1, 2018, that require a direct contractor for construction, alteration, or repair of a building.

Background

Existing law allows workers to bring actions for nonpayment of wages and fringe benefits.  The new law specifically expands the liabilities of direct contractors for nonpayment of wages and fringe benefits of its subcontractors.

Summary of New Law

A direct contractor that enters into a contract to construct, alter, or repair a structure on or after January 1, 2018 will assume liability for any debt owed to a wage claimant incurred by a subcontractor.  The direct contractor is only liable for wages or benefits included in the performance of labor under the subject contract.  The direct contractor’s liability does not extend to penalties or liquidated damages.  The law allows direct contractors to pursue claims against subcontractors who generate liability or request contribution from such subcontractors.

The law provides a right of action by a third party who is owed wages or fringe benefits.  Such individuals may bring a civil action against a direct contractor to enforce the above liability.  The law also awards a prevailing plaintiff their reasonable attorney fees and costs.  Direct contractors may request, and subcontractors must provide, payroll records such that they apprise direct contractor of the payment of wages and benefits to its employees.

California Employers Should

• Consider contacting counsel to determine whether indemnity, contribution, or contract provisions should be included in future construction contracts to address this additional liability.
• Train supervisors, managers, and human resource personnel about the additional liability and create a procedure to obtain information about a subcontractor’s payment to its employees.