Effective January 1, 2018, California Assembly Bill 1701 (AB 1701) makes general contractors liable for subcontractors’ unpaid wages. While the individual, subcontractor employee will not be able to enforce AB 1701 and will have to rely on the California Labor Commissioner and unions, section 281.7 places a substantial burden on general contractors:
218.7 (a) (1) "For contracts entered into on or after January 1, 2018, a direct contractor making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other private work, shall assume, and is 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.
(2) The direct contractor’s liability under this section shall extend only to any unpaid wage, fringe or other benefit payment or contribution, including interest owed but shall not extend to penalties or liquidated damages.”
Section 1 of 218.7 reads, “An action brought pursuant to this section shall be filed within one year of the earliest of the following: (1) Recordation of the notice of completion of the direct contract, pursuant to Section 8182 of the Civil Code. (2) Recordation of a notice of cessation of the work covered by the direct contract, pursuant to Section 8188 of the Civil Code. (3) Actual completion of the work covered by the direct contract."
However, Section 2, Paragraph 3 seemingly allows a direct contractor to contractually hold subcontractors liable for not paying the sub’s employees.
3) "A direct contractor or any other person shall not evade, or commit any act that negates, the requirements of this section. This section does not prohibit a direct contractor or subcontractor at any tier from establishing by contract or enforcing any otherwise lawful remedies against a subcontractor it hires for liability created by the nonpayment of wages, fringe or other benefit payments, or contributions by that subcontractor or by a subcontractor at any tier working under that subcontractor."
California AB 1701 underscores the importance of working with reliable and reputable subcontractors; as well as ensuring all construction contract reviews are conducted with legal counsel.
The bill was opposed by the California Building Industry and the Associated General Contractors of California. AB 1701 is available for your review here.
CA AB 1701: Amend Subcontract Agreements Quickly or Face the Exposure