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
Federal Court Denies Summary Judgment in Leaky Condo Conversion
August 04, 2011 —
CDJ STAFFIn the US District Court for Illinois, Judge William Hibber has rejected the request for summary judgment sought by the developers of a condominium building in the case of Nautilus Ins. Co. v. 1735 W. Diversey, LLC (the insureds). The insureds renovated a building at 1735 W. Diversey, Chicago, converting it into condominiums. After the project was completed and all units sold, and a condominium association form, one of the owners found that unit suffered leaks during rainstorms. The condo board hired a firm, CRI, to investigate the cause of the leakage. CRI found “water infiltration through the exterior brick masonry walls, build-up of efflorescence on the interior surfaces of the masonry, and periodic spalling of portions of the brick masonry.”
The redevelopment firm had purchased coverage from Nautilus. “Shortly after the Board filed its first complaint, the Insureds tendered the mater to Nautilus and requested that it indemnify and defend them from the Board's underlying claims. Nautilus, however, rejected the Insureds’ tender and denied coverage under both insurance policies.” Nautilus stated that the water leakage did not constitute an occurrence under the policies. The court cited these policies in which an occurrence is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The Illinois courts have determined that construction defects are not accidents.
The court concluded that the insured did not bring forth claims within the coverage of the policies and denied the motion for summary judgment.
Read the court’s decision…
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Miller Act CLAIMS: Finding Protections and Preserving Your Rights
November 29, 2021 —
Diana Lyn Curtis McGraw - ConsensusDocsThe Miller Act (the “Act”), which requires the prime contractor to furnish a performance bond and a payment bond to the government, protects “all persons supplying labor and materials carrying out the work provided for in the contract.”[1] Despite its broad language, courts have limited the parties who may actually assert a claim under the Act. This article introduces general background of the Act, identifies subcontractors who may qualify for protections under the Act, and suggests ways to preserve the rights as prime contractors.
Brief Background of the Miller Act
Under the Miller Act, there are two types of bonds the prime contractor furnishes to the government in a federal construction contract of more than $100,000[2]
1. Performance Bond
A performance bond protects the United States and guarantees the completion of the project in accordance with the contract’s terms and conditions.[3] This bond must be with a surety that is satisfactory to the officer awarding the contract and in the amount the officer considers adequate for government protection.[4] If a contractor abandons a project or fails to perform, the bond itself will cover the government’s cost of substitute performance. Thus, the performance bond disincentivizes contractors from abandoning projects and provides the government with reassurance that an abandonment will not create delays or additional expenses.
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Diana Lyn Curtis McGraw, Fox Rothschild LLPMs. McGraw may be contacted at
dmcgraw@foxrothschild.com
WCC and BHA Raised Thousands for Children’s Cancer Research at 25th West Coast Casualty CD Seminar
May 24, 2018 —
Beverley BevenFlorez-CDJ STAFFThis year’s annual West Coast Casualty Construction Defect Seminar was once again, a huge success. On May 16-18, 2018 attendees from the legal, insurance, builder, contractor, subcontractor and numerous other industries came from across the United States and several foreign countries to discuss current trends, learn about new laws and regulations affecting the construction defect industry, and meet up with colleagues.
Bert L. Howe & Associates, Inc.’s (BHA) Has a Nice Swing Golf Challenge raised $3,500.00 split evenly between the three deserving charities supported by West Coast Casualty:
Hawaii’s Children’s Cancer Foundation ,
St. Jude Children’s Research Hospital, and
Shriners Hospital for Children.
The West Coast Casualty Construction Defect Seminar has been promoting charitable work for the past twenty-five years. Each year, they promote different charities, and provide multiple ways for individuals and companies to contribute. Whether it’s Buy a Banner, Tennis Shoe Thursday, or Flip Flop Friday, industry members are given opportunities to support worthwhile causes.
WCC also supports charitable organizations through every award that they present each year. Donations are made in the winner’s name: For Jerrold S. Oliver Award of Excellence awardees,
Habitat for Humanity as well as a local California and Nevada charity; For Legend of an Era Award, the designated charity of West Coast Casualty’s Construction Defect Seminar; and for The Larry Syhre Commitment to Service Award, a donation to The Larry Syhre Foundation.
BHA hopes to see you at the next West Coast Casualty Construction Defect Seminar in 2019!
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Cutting the Salt Out: Tips for Avoiding Union Salting Charges
January 10, 2018 —
Wally Zimolong - Zimolong LLCThe strategy to avoid union salts is rather simple. But, simplicity does not mean easy. The process requires discipline. A salt is a paid union organizer that attempts to gain employment with a non-union employer for the purpose of either (a) organizing the employers workforce or (b) bringing a costly unfair labor practice charge for discriminatory hiring practices.
A “covert salt” is someone who conceals his union affiliation in order to gain employment with a non-union employer for the purpose of starting a union organizing campaign. Actually, conceal is an understatement. Covert salts actively lie to gain employment with a non-union employer. Covert salts apply for jobs under false names, social security numbers, and use bogus resumes.
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Wally Zimolong, Zimolong LLCMr. Zimolong may be contacted at
wally@zimolonglaw.com
Want to Build Affordable Housing in the Heart of Paris? Make It Chic.
November 01, 2022 —
Marie Patino & Kriston Capps - BloombergThe project at 12 Rue Jean-Bart is a modest one, just eight units of affordable housing on a narrow lot in Paris near the Luxembourg Gardens. The social housing project nevertheless caused a stir with neighbors in the 6th arrondissement, one of the city’s more affluent areas.
When local politicians backing the project came to visit the building during its construction, neighbors shouted from windows across the street that it was a shame to build social housing here, according to Jean-Christophe Quinton, the Paris-based architect who designed the small in-fill development.
Local resistance was a persistent feature of the project throughout its three-year-long construction, Quinton says; the building regularly faced harsh scrutiny in local newspaper Le Parisien.
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Marie Patino, Bloomberg and
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Duty to Defend Bodily Injury Evolving Over Many Policy Periods Prorated in Louisiana
November 17, 2016 —
Tred R. Eyerly – Insurance Law HawaiiThe Louisiana Supreme Court held that the duty to defend in long latency disease cases should be prorated between the insurer and insured when the policies cover for only a portion of the time in which the exposure occurred. Arceneaux v. Amstar Corp., 2016 La. LEXIS 1675 (La. Sept. 7, 2016).
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
Reasonableness of Liquidated Damages Determined at Time of Contract (or, You Can’t Look Back Again)
October 05, 2020 —
Christopher G. Hill - Construction Law MusingsI’ve discussed the continuing litigation between White Oak Power Constructors v. Mitsubishi Hitachi Power Systems Americas, Inc. previously here at Construction Law Musings because the case was another reminder that your construction contract terms matter and will be interpreted strictly here in the Commonwealth of Virginia. The prior opinion in this case from the Eastern District of Virginia court the Court considered the applicability of a liquidated damages provision. In the latest opinion from the Court (PDF) the Court looked at when and how any liquidated damages would be calculated. In its June 22, 2020 opinion, the Court put the issue as follows:
White Oak’s motion for partial summary judgment presents a narrow issue: whether courts may consider the damages actually sustained by a party as a result of a contract breach when deciding if liquidated damages required by a contract “grossly exceed” a party’s actual damages.
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The Law Office of Christopher G. HillMr. Hill may be contacted at
chrisghill@constructionlawva.com
