Illinois Joins Trend Making General Contractors Liable for Paying Subcontractors’ Workers

Posted by National Alliance for Fair Contracting on

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.

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Column: Wage theft scourge is a massive bank robbery every day (MA)

Posted by National Alliance for Fair Contracting on

By Frank Callahan/Guest Columnist
Posted Feb 23, 2020 at 6:18 PM

The Great Brink’s Robbery, which has been upheld as the most notorious theft in the history of Boston, happened 70 years ago last month.

The brazen daytime heist, in which 11 robbers broke in and stole $2.8 million (about $30 million in 2020 money) from the Brink’s security company in the North End on Jan. 17, 1950, was at the time the largest robbery in U.S. history and dubbed “the crime of the century.” The crime prompted changes to the way companies approached security for both employees and assets. Police, politicians and the public were all focused on making sure lessons were learned and improvements were implemented.

Unfortunately, decision makers today haven’t been acting with the same degree of urgency to an equally onerous theft in our backyard. Wage theft – the practice of stealing money earned by workers – is a $700 million annual problem in Massachusetts. That’s almost $2 million a day being stolen out of the pockets of hardworking men and women, all Massachusetts taxpayers.

It is hurting the workers, who struggle from paycheck to paycheck. It hurts communities, which see its core small businesses suffer because residents have less spending power. And it hurts the entire commonwealth, whose economy suffers, leaving less revenue for crucial services like public safety, education and transportation.

Wage theft may not be as shocking as the Brink’s job, in which gang members picked locks, bound and gagged workers and dispersed into the night. Rather, today’s crooks are more likely to be wearing suits and looking their victims right in the eye while reaching around and picking the wallet from their back pocket. They’re unscrupulous contractors and subcontractors who promise to pay carpenters, pipefitters, sheet metal workers, custodians and countless other laborers agreed-upon wages and then short-change them after the work has already been done.

Frequently, there is little recourse. Maura Healey, the Massachusetts attorney general, has committed to cracking down on wage theft in the commonwealth. It’s not fair to ask Healey and her staff to take on this fight with one hand tied behind their backs.
Thankfully, there is a potential fix. There are two wage theft bills pending before the Legislature on Beacon Hill that would take this scourge head on.

Massachusetts’ Building Trades unions are urging lawmakers to pass legislation to provide Healey with greater enforcement authority. That includes enabling her office to penalize lead contractors for wage theft violations committed by their subcontractors. It would also empower the Attorney General’s office to shut down work sites until the violations are corrected.

And this legislation would pay for itself. More enforcement will lead to more recovery. In Fiscal Year 2019, the AG’s office recovered $5.8 million in restitution for these hardworking men and women – less than 1 percent of what was stolen. It stands to reason that more enforcement will return more money.

There are some champions in the Legislature who have recognized the importance of combating wage theft. Sen. Sal DiDomenico of Everett and Rep. Dan Donohue of Worcester have sponsored bills to battle wage theft and lent their support to ensuring the hardworking people of Massachusetts get paid the money they earn. Both of these bills have more than half of the Legislature signed on as co-sponsors.

Seven decades after the Brink’s robbery, people still recall not only the crime but the response to it to make sure it doesn’t happen again. That’s what we should be doing on the wage theft front, as well.

Frank Callahan is the president of the Massachusetts. Building Trades Council.

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Court: General contractor can be cited for subcontractor violations (LA)

Posted by National Alliance for Fair Contracting on

By Kim Slowey
Dec. 19, 2018

Dive Brief:

  • A U.S. Appeals Court judge for the 5th Circuit in New Orleans has ruled that OSHA can cite general contractors – even if their employees are not affected – for subcontractor safety violations. The ruling came after Labor Secretary Alexander Acosta requested that the 5th Circuit review an OSHA administrative court decision that said a general contractor could only be cited for safety threats to its own employees.
  • In 2017, a Denver Occupational Safety and Health (OSH) Commission administrative judge ruled that Hensel Phelps could not be cited by the agency for safety hazards created by one of its subcontractors on a project in Austin, Texas. However, the 5th Circuit said more recent rulings have rendered the case law on which the administrative judge based his decision “obsolete” and said that Hensel Phelps could be held responsible for safety on the multi-employer site as a “controlling employer.”
  • According to court documents, Hensel Phelps hired subcontractor Haynes-Eaglin-Waters (HEW) for a library construction project, and HEW, in turn, hired CVI Development as a sub-subcontractor to perform demolition, excavation and other work. Hensel Phelps and HEW project staff allegedly directed CVI to work in an unsafe excavation area. An OSHA inspector cited both Hensel Phelps and CVI for safety violations. The OSH Commission will now review the matter again, taking the 5th Circuit’s decision into consideration.

Dive Insight:

While workers might have once been expected simply to accept the risks of working on a dangerous construction site as part of their job, contractors, as well as state and local authorities, have made safety a priority. And authorities have become more willing to pursue criminal charges against contractors when their disregard results in injury or death.

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