New CA Law Imposes Direct Liability on Contractors For Wage Claims By Subcontractor's Employees

Assembly Bill 1701 (AB 1701) was signed into law on October 14, 2017, and applies to subcontracts on all private projects entered into on or after January 1, 2018. 

Under the language of AB 1701, general contractors are directly liable for “any debt owed to a wage claimant or third party on the wage claimant’s behalf, incurred by a subcontractor at any tier acting under, by, or for the direct contractor for the wage claimant’s performance of labor included in the subject of the contract between the direct contractor and the owner.” (Labor Code § 218.7(a)(1)). Thus if a subcontractor fails to pay its employees or union trust fund contributions, the general contractor will be required to make the payment directly, even if it has already paid the subcontractor in full.

Claims under AB 1701 may be brought by the wage claimant itself or by a third party owed fringe or other benefits (i.e. a labor union) on behalf of the wage claimant (Labor Code § 218.7(b)(2)).  The statute includes a one-sided attorney’s fee provision permitting the wage claimant to recover its attorney’s fees if it prevails, but not permit the general contractor to recover its fees if the wage claimant loses. (Labor Code § 218.7(b)(3)).

The statute creates a one-year statute of limitations for wage claims (Labor Code § 218.7(d)), but does not extend the statutory deadline for the general contractor to release retention to its subcontractors under Civil Code Section 8814.  As a consequence, in the absence of a known claim, retention must be release long before the statute of limitations for wage and/or union benefit claims expires. 

Notice of a claim must be submitted to the general contractor at least thirty (30) days prior to filing.  However, the notice is only required to describe the general nature of the claim and cannot be used to limit the amount of the claim or prevent the claimant from adding additional claimants to a subsequent lawsuit.  (Labor Code § 218.7(b)(3)).

Further, while AB 1701 authorizes general contractors to request payroll records from their subcontractors to ensure proper payments are being made, there is no safe-harbor for general contractors if the subcontractor refuses to provide the payroll records or if the payroll records provided are inaccurate.  (Labor Code § 218.7(f)(1)-(2))

For more information about the impact of this new legislation, contact Miller Morton Caillat & Nevis, LLP.