AB 1701 Has Passed – Developers and General Contractors Are Now Required to Double Pay for Labor Due to Their Subcontractors’ Failure to Pay
October 19, 2017 —
Clayton T. Tanaka – Newmeyer & Dillion LLPOn September 13, 2017, the California State Legislators passed a bill that would make developers and general contractors responsible for subcontractors who fail to pay their employees even though they already paid the subcontractors for the work. Assembly Bill 1701 (AB 1701), sponsored by unions who represent carpenters and other building trades, would require general contractors to “assume, and [be] liable for . . . unpaid wage, fringe or other benefit payment or contribution, including interest owed,” which subcontractors owe their employees. Despite vehement opposition from the California Building Industry Association and the Associated General Contractors of California, this bill has been submitted to the Governor and is expected to be signed into law.
NEW REQUIREMENTS
Once signed, this bill would impose the following requirements under Labor Code section 218.7:
- Applies to All Private Works Contracts That Are Entered Starting January 1, 2018.
For private works contracts entered on or after January 1, 2018, a “direct contractor” (i.e., prime contractor or contractor who has direct contractual relationship with an owner) must assume and be liable for any debt which its subcontractor or a lower tier subcontractor incurs “for [a] wage claimant’s performance of labor included in the subject of the contract between the direct contractor and the owner.” (Lab. Code, § 218.7, subds. (a)(1) and (e).)
- The Labor Commissioner and Joint Labor-Management Cooperation Committees May Bring Action to Recover Unpaid Wages on Behalf of Wage Claimants.
The California Labor Commissioner and joint Labor-Management Cooperation Committees established under the federal Labor Management Cooperation Act of 1978 (29 U.S.C. § 175a) (typically comprised of labor unions and management) may bring a civil action against the direct contractor for unpaid wages owed to a wage claimant. (Lab. Code, § 218.7, subds. (b)(1) and (3).) The Labor Commissioner may also bring its claims through administrative hearings (Labor Code section 98) or by citations (Labor Code section 1197.1). (Lab. Code, § 218.7, subd. (b)(1).)
- Third Parties That Are Owed Fringe or Other Benefit Payments or Contribution on Behalf of Wage Claimants (Labor Unions) May Bring Action.
Third parties who are owed fringe or other benefit payments or contributions on a wage claimant’s behalf (e.g., labor unions) may bring a civil action against the direct contractor for such unpaid benefit payments or contributions. (Lab. Code, § 218.7, subd. (b)(2).)
- It Does Not Confer Wage Claimants With Any Right to Sue Direct Contractors.
AB 1701 gives the Labor Commissioner, Labor-Management Cooperation Committees and the unions standing to bring an action against the direct contractor, but it does not confer any private right of action by the wage claimants against the direct contractor.
- Labor-Management Cooperation Committees and Labor Unions Shall Recover as Prevailing Plaintiffs Their Attorneys’ Fees and Costs, Including Expert Fees.
For actions brought by Labor-Management Cooperation Committees or labor unions, “[t]he court shall award a prevailing plaintiff in such an action its reasonable attorney’s fees and costs, including expert witness fees.” (Lab. Code, § 218.7, subds. (b)(2)-(3).)
- Direct Contractor’s Property May Be Attached to Pay for Judgment.
AB 1701 authorizes the attachment of direct contractor’s property to pay for any judgment that is entered pursuant to this section. (Lab. Code, § 218.7, subd. (c).)
- One-Year Statute of Limitation to Bring Action under This Section.
Actions brought pursuant to this section must be filed within one year of the earliest of: (1) recordation of a notice of completion of the direct contract; (2) recordation of a notice of cessation of the work covered by direct contract; or (3) actual completion of work covered by direct contract. (Lab. Code, § 218.7, subd. (d).)
- Rights to Receive Payroll Records and Project Award Information from Subcontractors and to Withdraw All Payments Owed for Their Failure to Comply.
Upon the direct contractor’s request, subcontractors and lower tier subcontractors must provide payroll records and project award information. (Lab. Code, § 218.7, subds. (f)(1)-(2).) Direct contractor may withhold as “disputed” all sums owed if a subcontractor does not timely provide the requested records and information without specifying what is untimely and such failure to comply does not excuse direct contractor from any liability under this section. (Lab. Code, § 218.7, subds. (f)( 3) and (i).)
- Rights to Receive Payroll Records and Project Award Information from Subcontractors and to Withdraw All Payments Owed for Their Failure to Comply.
Upon the direct contractor’s request, subcontractors and lower tier subcontractors must provide payroll records and project award information. (Lab. Code, § 218.7, subds. (f)(1)-(2).) Direct contractor may withhold as “disputed” all sums owed if a subcontractor does not timely provide the requested records and information without specifying what is untimely and such failure to comply does not excuse direct contractor from any liability under this section. (Lab. Code, § 218.7, subds. (f)( 3) and (i).)
- Further Legislative Efforts on Subdivision (h) Are Expected in 2018.
Subdivision (h), which states that “[t]he obligations and remedies provided in this section shall be in addition to any obligations and remedies otherwise provided by law . . .” (emphasis added) is potentially misleading since the author and sponsor of the bill have indicated that the bill is not intended to punish direct contractors with liquidated damages or penalties. As such, further legislative efforts on subdivision (h) are expected in 2018.
ADDITIONAL CONSIDERATIONS
While workers should be paid for the work they perform, AB 1701 would place undue burden on general contractors to monitor their subcontractors’ payroll, confirm that all wages and benefits are paid timely and withhold disputed payments from non-compliant subcontractors. General contractors would also need to caution against the chain reaction that could result from such withholding, including work stoppage, increased change order requests, and an overall increase in construction costs. Finally, general contractors would need to brace themselves for at least a year after project completion against any union or a Labor-Management Cooperation Committee actions armed with a prevailing party’s right to recover attorneys’ fees and expert fees, for previously unidentified subcontractor or sub-subcontractor workers.
STRATEGIES DEVELOPERS AND GENERAL CONTRACTORS SHOULD LOOK FOR
In anticipation of AB 1701 being signed into law and its potentially harsh effects, developers and general contractors are advised to consult their attorneys for a review and revision of their existing contracts, to develop plans for accessing and monitoring subcontractor payroll records, and to consider strategies for mitigating claims that may be brought against them, as follows:
- Execute all pending agreements
before January 1, 2018 to avoid the effects of AB 1701;
- Include an audit provision
requiring subcontractors and sub-subcontractors to provide payroll records (at minimum, information set forth in Labor Code section 226) and project award information, regularly and/or upon request, with specific deadlines for such production, as subdivision (f) does not specify what is untimely;
- Include defense and indemnity provisions
that would require subcontractors to defend and indemnify the general contractor for claims that are brought pursuant to this section arising from labor performed by employees for subcontractors and sub-subcontractors, and require subcontractors to include a similar provision in their own contracts with sub-subcontractors that would require lower tier subcontractors to also defend and indemnify the general contractor for claims arising from their respective employees’ work;
- Require subcontractors to provide a payment bond and/or a letter of credit
to satisfy claims that are made against the general contractor under this section;
- Require personal guarantees
from owners, partners or key subcontractor personnel;
- Include withholding and back-charge provisions
that would allow general contractors to withhold or charge back the subcontractors for disputed amounts, for claims brought against them, and for failure to comply with the audit, bond, and guarantee requirements.
- Consider implementing a system to confirm evidence of payments,
such as signed acknowledgment of payment by each subcontractor and sub-subcontractor employees and by third parties entitled to recover fringe and other benefit payments or contribution, possibly working with electronic billing software providers to implement such system.
Clay Tanaka is a partner in the Newport Beach office of Newmeyer & Dillion, focusing on construction, real estate, business and insurance disputes in both California and Nevada. As a licensed civil engineer, Clay has significant experience in design and construction of all types of construction projects, which he has effectively utilized in his litigation, trial and arbitration practice to obtain great results for his clients. For questions related to AB1701, please contact Clay Tanaka (clay.tanaka@ndlf.com) or Newport Beach Partner Mark Himmelstein (mark.himmelstein@ndlf.com).
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Clayton T. Tanaka, Newmeyer & Dillion LLPMr. Tanaka may be contacted at
clay.tanaka@ndlf.com
Suing a Local Government in Land Use Cases – Part 1 – Substantive Due Process
February 16, 2017 —
Wally Zimolong – Supplemental ConditionsBecause of my personal political persuasions (pro-freedom) and success in litigating cases against the government and other media about those cases businesses frequently approach me about bringing claims against local governments and agencies for interfering with their Constitutional rights. Actions by local government agencies that could give rise to a Constitutional violation include: treating a developer’s project differently than a similar project, revoking a previously issued zoning or building permit, disqualifying a contractor from bidding on a government contract, retaliating against a business owner for speaking out against the local agency or one of its members, or unnecessarily delaying the issuance of a permit. The Constitutional rights most typically implicated in these cases are those guaranteed by the 5th and 14th Amendments to the United States Constitution. However, the 1st Amendment is also frequently implicated.
Suing a local government agency for violating your Constitutional rights is not easy. However, the federal statute under which the cases are brought, 42 U.S.C. Section 1983, provides for the award of a successful plaintiff’s attorneys fees. This is true even if the Judge or jury awards a mere $1 is damages. Moreover, sometimes there can be a strategic value in the litigation.
This is the first in a series of blog posts exploring claims available to businesses harassed by local government agencies and officials and the challenges inherent in successfully bringing those claims. We will start with a claim for a substantive due process violation.
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Wally Zimolong, Zimolong LLCMr. Zimolong may be contacted at
wally@zimolonglaw.com
Harmon Tower Opponents to Try Mediation
June 28, 2013 —
CDJ STAFFThere are plenty of issues on the table in the fight between CityCenter and Tutor Perini over the Harmon Tower project in Las Vegas. Some of them might be solved at a mediator’s table instead of reaching the courtroom.
Both sides will be participating in a six-day negotiation with an outside mediator. Their hope is that the projected two-year jury trial can be reduced to only one year. The judge in the case remains skeptical. “It ain’t happening. I know you all,” was Clark County District Judge Elizabeth’s Gonzalez’s comment.
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Nevada Judge says Class Analysis Not Needed in Construction Defect Case
October 22, 2014 —
Beverley BevenFlorez-CDJ STAFFAccording to the National Law Journal, “The Nevada Supreme Court has ruled it neither arbitrary nor capricious for a trial judge to decline to perform a class-action analysis in a lawsuit filed by a homeowners’ association against a general contractor over alleged defects.”
Justice Michael Douglas stated, as quoted by the National Law Journal, “The district court was not required to conduct that analysis at this point in the litigation because nothing in the record indicates that the association sought to proceed as a class action.”
The general contractor argued that the construction defect law did “not apply because the development’s units were no longer new residences once they were rented as apartments.” However, the justices declared “that the association can pursue its lawsuit for construction defects in common elements owned by multiple units as long as one unit is a new residence.”
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The Connecticut Appellate Court Decides That Construction Contractor Was Not Obligated To Continue Accelerated Schedule to Mitigate Its Damages Following Late Delivery of Materials by Supplier
April 11, 2022 —
Robert M. Barrack - Gordon & ReesIn United Concrete Prods. v. NJR Constr., LLC, 207 Conn. App. 551, 263 A.3d 823 (2021), the Connecticut Appellate Court has issued a decision that should be of interest to the Connecticut construction industry and the construction bar. The lawsuit arose out of the late delivery of materials on a construction project, which is a frequent problem on construction projects. In United Concrete Products, the defendant general contractor, NJR Construction, LLC (“NJR”) was retained by the State of Connecticut Department of Transportation (“DOT”) to replace a bridge over the Hockanum River (“Project”). Id. at 555-58 (2021). The Prime Contract provided that NJR with an eight-week time-frame to perform the work, at which time the road would be closed to traffic. Id. The Prime Contract also provided for a bonus of $3,000 for each day the road was opened to traffic prior to the eight week deadline of August 8, 2016, and for liquidated damages of $3,000 for each day the road remained closed beyond the deadline. Id.
NJR subsequently entered into a purchase order (“Subcontract”) with the plaintiff, United Concrete Products, Inc. (“United”), whereby United agreed to provide certain concrete components for the Project, including ten pre-stressed concrete beams. Id. The Subcontract required that United deliver the concrete beams by June 7, 2016, but, NJR did not actually schedule the delivery until June 29, 2016. Id. Nevertheless, even with that schedule NJR could have reopened the road by July 19, 2016, which would have allowed it to receive the full $60,000 incentive bonus. However, United did not deliver the concrete beams until July 26, 2016, which caused NJR to lose the incentive bonus, be assessed liquidated damages by the DOT, and to incur additional delay damages. Id. After deducting the amount of $179,500 in damages that it incurred due to United’s late delivery of the beams, NJR paid United the balance of $66,074.75. Id.
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Robert M. Barrack, Gordon Rees Scully Mansukhani, LLPMr. Barrack may be contacted at
rbarrack@grsm.com
Terminator’s Trench Rehab Drives L.A. Land Prices Crazy
June 26, 2014 —
John Gittelsohn and Alan Ohnsman – BloombergBen Stapleton frames the shot with his hands like a movie director, sharing his vision of a junkyard he’s trying to sell for $3.5 million. He sees artist workspaces, retail shops and apartments with Los Angeles skyline views, steps from a riverfront oasis.
Right now the river of his dreams is the concrete flood channel where an 18-wheeler chased Arnold Schwarzenegger on a Harley in “Terminator 2: Judgment Day,” one of the movies that used the 200-foot-wide (60-meter) ditch to depict industrial bleakness. A U.S. Army Corps of Engineers plan to return the Los Angeles River to a more natural state would cost $1 billion and has speculators circling even before the funding’s in place.
“The private money is already moving,” said Stapleton, a vice president at commercial real-estate brokerage Jones Lang LaSalle Inc. (JLL) “They’re looking for opportunities. It’s the private money that’s going to make the vision happen.”
Mr. Gittelsohn may be contacted at johngitt@bloomberg.net; Mr. Ohnsman may be contacted at aohnsman@bloomberg.net
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John Gittelsohn and Alan Ohnsman, Bloomberg
Florida District Court Finds That “Unrelated” Design Errors Sufficient to Trigger “Related Claims” Provision in Architects & Engineers Policy
March 02, 2020 —
Jason Taylor - Traub LiebermanMost professional liability polices include some form of a “related claims” provision that generally provides where two or more claims or wrongful acts are causally or logically related, they will be deemed to constitute a single claim. Importantly, these provisions typically provide that those “claims” are then deemed to have been “first made” at the time the first claim or act was committed for purposes of the policy’s claims-made and reporting requirements. Understandably, these provisions provide insurers and insureds with some clarity over the number and timing of claims that could involve multiple errors or omissions, and potentially aggregate all related claims or acts into a single policy period. While reasonable in principle, application of such provisions, especially involving large scale design and construction projects, is not always so easy.
Nova Southeastern University, Inc. v. Continental Cas. Co., 18-cv-61842 (S.D. Fla. Dec. 27, 2019), involved such an insurance coverage dispute with a design project gone wrong. DeRose Design Consultants, Inc. (“DeRose”) was hired as a structural engineer to design “ice tanks” to store and chill water for an energy efficient air conditioning facility constructed on the campus of Nova Southeastern University (“NSU”). An early water test on one of the tanks determined the walls of the ice tank deflected, leaked, and cracked when the tank was filled with water. DeRose later discovered that the problems with the ice tank were caused by a structural design error.
The first errors were discovered in early 2009, and reported under DeRose’s professional liability policy with Evanston. DeRose then created a remedial design to repair the tanks, which involved strengthening repairs. Additional leaking and an early indication of corrosion involving the Remedial Design arose as early as October 25, 2009. Several field investigation reports were prepared in 2011 and 2012 confirming these issues with the Remedial Design. A third report in February 2012, however, identified a new error involving the concrete slab under the ice tanks also designed by DeRose. The third report concluded that the concreate slab was overstressed and could not handle the loads of the ice tanks. The report also concluded, however, that the design defects in the concrete slab were “unrelated” to the original design defect of the ice tank walls or Remedial Design.
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Jason Taylor, Traub LiebermanMr. Taylor may be contacted at
jtaylor@tlsslaw.com
After Restoring Power in North Carolina, Contractor Faces Many Claims
August 10, 2017 —
Jim Parsons - Engineering News-RecordHaving successfully helped to restore power to two North Carolina barrier islands, PCL Civil Constructors now faces the fallout from a July 27 construction incident that forced a week-long evacuation of 60,000 visitors, putting a potential multimillion-dollar dent in the region’s tourism-dependent economy.
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Jim Parsons, ENRENR may be contacted at
ENR.com@bnpmedia.com
