June 14, 2022
JD Supra
On June 10, 2022, Governor J.B. Pritzker signed into law two related bills, HB 5412 and HB 4600, sent to him the previous month by the Illinois legislature that will hold a primary contractor (one who has a contract with an owner) liable for the unpaid wages and other amounts owed to employees of subcontractors, of any tier, on Illinois private construction projects. The bills, enacted as, Public Acts 102-1076, and 102-1065 (the “Acts”), will supplement the existing remedies in the Illinois Wage Payment and Collection Act (“WPCA”) for contracts made on or after July 1, 2022. Primary contractors already have liability for employee wages owed by their subcontractors on public projects covered by the Federal Davis Bacon Act, and the same responsibility is owed under the prevailing wage acts of many states, including Illinois. Primary contractors may also have liability for subcontractors’ wages on private projects pursuant to some states’ mechanics lien acts (including Illinois), as well as obligations contained in union collective bargaining agreements to which a primary contractor may be signatory. However, these amendments to the WPCA represent a significant departure from the well-established legal concept known as privity of contract, which provides that a contractor, with few noted exceptions, is not liable for obligations (including debts to workers) of its independent contractors, such as subcontractors on construction projects. This law will impose far-reaching and unpredictable liability for primary contractors in Illinois and, as a result, some construction industry experts foresee fundamental changes in the role of subcontractors on Illinois private construction projects. This article will discuss the new law as well as important exceptions within it. …
The enactments would expand a primary contractor’s liability to include debts due a subcontractor’s employee for “unpaid wages or fringe or other benefit payments or contributions, including interest owed, penalties assessed by the Department, and reasonable attorneys’ fees, but shall not extend to liquidated damages.” HB 5412, § 13.5 (c). Actions against a primary contractor may be brought by the unpaid wage earner or others on behalf of the wage earner, including the Illinois Department of Labor, which has the authority to impose civil penalties and seek criminal sanctions against liable parties for failure to pay compensation to employees. Under the WPCA, a liable party must pay, in addition to other amounts, attorneys’ fees incurred by the employee, interest, and an additional sixty percent (60%) per year for as long as the debt is unpaid. If a court interprets the 60% per year imposed by Section 14 of the WPCA to be liquidated damages, then a primary contractor would not be liable for that amount because liquidated damages are exempted. Further, though the liability imposed on a primary contractor under the new law includes “penalties assessed by the Department” of Labor, it does not expressly authorize criminal sanctions, which may be imposed under the WPCA against recalcitrant direct employers found guilty of not paying a wage earner.
The intent of some other provisions likewise is uncertain. For example, Section 13.5 (b) of HB 5412 includes this language: “A property owner who acts as a primary contractor related to the erection, construction, alteration, or repair of his or her primary residence shall be exempt from liability under this Section.” Since a primary contractor is defined as a party who has a contract with a property owner, it is difficult to imagine what was intended by the foregoing exemption, especially because the amendments impose no liability on owners. Also, it is unclear whether the following is intended to impose liability on the first-tier subcontractor, or on the subcontractor who fails to pay its employee, which could be a lower-tier subcontractor. Section 13.5 (d) of HB 5412 provides, in part:
Except as otherwise provided in a contract between the primary contractor and the subcontractor, the subcontractor shall indemnify the primary contractor for any wages, fringe or other benefit payments or contributions, damages, interest, penalties, or attorney’s fees owed as a result of the subcontractor’s failure to pay wages or fringe or other benefit payments or contributions as provided in this Section, unless the subcontractor’s failure to pay was due to the primary contractor’s failure to pay moneys due to the subcontractor in accordance with the terms of their contractual relationship.