Starting July 1, 2020 General Contractors are “Employers” for All Workers on Their Jobsite

I have discussed the impactful legislation to the Virginia construction industry in prior posts here at Construction Law Musings.  One of those statutes that will take effect on July 1, 2020 will fundamentally change the relationships between general contractors and their subcontractors and suppliers.

Senate Bill 838 does the following on construction projects with a value of $500,000 or greater that are not single family residential construction projects:

• Makes the general contractor, and all tiers of subcontractors on a particular project contractually liable to pay their subcontractors’ (at any tier) employees wages.
• Requires that the payments are equal or exceed those required by other statutes.
• Deems contractors to be the employers of their subcontractors’ employees for purposes of Va. Code Section 40.1-29 that imposes criminal and civil penalties for failure to pay wages when due, and
• Grants employees a private right of action for any violations, including the right to a class or joint action, award of liquidated damages, reasonable attorney fees and possible treble damages for “knowing” violations by the contractor.

What does this mean? It adds a new liability for contractors for the failures of thier subcontractors and suppliers, entities over which contractors have no control aside from contractual provisions, to pay their employees.  It further encourages employees to bring these actions with its possible treble damages, class action rights and attorney fees provisions.  In short, it adds a whole lot more of a burden on contractors in Virginia to screen their subcontractors of every tier and all suppliers to those subcontractors, to assure that they are both willng and able to pay their employees and to keep tabs on all payments in the payment stream of a project.

If there is any good news in this new bill for general contractors, it is that the statute requires a subcontractor to indemnify the contractor for any damages paid by the contractor due to subcontractors failure to pay its own employees.  An exception to this requirement is where the non-payment of wages is due to the contractor’s failure to pay its subcontractor as required.  Of course, one reason for a subcontractor failing to pay wages it the subcontractors inability to due so because of financial difficulties due to anything from financial mismanagement to problems on other projects.  If that subcontractor simply can’t pay the wages, it certainly would have a difficult time paying any indemnification obligations.

What can you as a contractor in Virginia do to mitigate this risk?  Aside from working with a Virginia construction attorney to understand the various possible results of this new obligation, your contract will be key.  Among other steps you can take you should: take pre-qualification and indentification of subcontractors and suppliers on your project a priority;  possibly require subcontractors to provide their own payment bonds; expand the contractual indemnity language to explicitly encompass payment of wages; require more explicit language relating to the payment of wages in your lien wavers and payment applications; and, look into expansions of your insurance coverages to protect against potential claims.

While the above list is far from exhaustive, and the true implications of this legislative change have yet to be seen, all contractors in Virginia should be aware of these new obligations.

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