May 25, 2018
JD Supra
At the tail-end of the 2018 legislative session, the Maryland General Assembly passed Senate Bill 853, making construction general contractors jointly and severally liable for the failure of their subcontractors to pay their employees in compliance with Maryland’s wage and hour laws. This new law will become effective October 1, 2018. California recently passed a similar measure, AB 1701, which is applicable to construction contracts entered into in that state on or after January 1, 2018.
This controversial new Maryland law contains both a multiplier and an attorneys’ fees provision, dramatically increasing its impact. Under existing law, an employer that fails to pay an employee in accordance with Maryland’s wage and hour laws may be liable to the employee for up to three times the wages owed, plus reasonable attorneys’ fees and other costs. Until now, this liability has largely been confined to the direct employer-employee relationship. SB 853 expands the reach of Maryland’s wage and hour law, making a general contractor on a construction services project jointly and severally liable for a subcontractor’s failure to properly pay its employees. The term “construction services” is broadly defined to include “building, reconstructing, improving, enlarging, painting, altering, and repairing” in connection with real property. Notably, the liability imposed by this new law is not limited to first-tier subcontractors; rather, it expressly applies “regardless of whether the subcontractor is in a direct contractual relationship with the general contractor.” So, a general contractor is now liable for every wage and hour law violation occurring on a construction project, including those committed by subcontractors far down the construction chain. The time frame for this liability is also expansive. 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.
For balance, the new law requires subcontractors to indemnify the general contractor for “any wages, damages, interest, penalties, or attorney’s fees owed as a result of the subcontractor’s violation.” This protection, however, is only as strong as the subcontractor’s ability to pay such damages and costs. SB 853 increases the likelihood that employees will sue both the general contractor and their direct employer when they believe they have not been properly paid. Because general contractors are now a target for additional litigation, the potential costs subject to indemnification by subcontractors will be increased by the general contractor’s costs of defense. Additionally, because the general contractor will not always be the direct employer of the plaintiff bringing such a claim, it may not have in its possession the employee-related documents necessary to defend a claim, including a potentially fraudulent claim. Notably, the law outlines two express exceptions to indemnification: (1) when indemnification is provided for in a contract between the general contractor and the subcontractor; or (2) when a violation arose due to the general contractor’s failure to make timely payments to the subcontractor.
