Unpaid Wages & General Contractors

If you’re a general contractor in Maryland, you’ll want to pay close attention to this blog. In case you missed it: in October 2018 the Maryland General Assembly passed the General Contractor Liability for Unpaid Wages Act. Why’s that important to general contractors? Read on to find out.

The General Contractor Liability for Unpaid Wages Act:

            In an action brought under subsection (a) of this section, a general contractor on a project for construction services is jointly and severally liable for a violation of this subtitle that is committed by a subcontractor, regardless of whether a subcontractor is in a direct contractional relationship with the general contractor.

Okay. And that means…what?

            Basically, what this new law boils down to is if a court finds that a subcontractor failed to pay owed wages to an employee (under certain circumstances, of course), then the general contractor may be liable to cover damages, attorney fees and other such costs. The act gives an employee of the subcontractor, who was not paid in accordance with Maryland wage and hour laws, the right to pursue the general contractor even if there is no direct contractual agreement between the general contractor and the subcontractor’s employee.

For example, say you’re the general contractor (GC) on a home renovation and you hire out a subcontractor to lay the flooring in the house. The flooring subcontractor has a team of employees who all signed an agreement prior to the start of the job. But upon completion of the job, the subcontractor fails to pay his team. In accordance with this new act, you (the GC) could now be responsible for paying the employees of the subcontractor (even if you already paid the subcontractor). Additionally, if the court finds that the withheld wages were not part of a legal agreement (handshakes don’t count), the GC may be liable to pay up to three times the wage plus attorney fees and costs.

What can I do as a GC?

There’s no doubt that this change in law makes general contractor work even more expensive. In addition to all other tasks typically associated with being a general contractor, GC’s now must be policemen for their subcontractor’s employees, ensuring timely payment of wages. This could lead to higher administrative costs on the end of the GC; which would then have a trickle-down effect, eventually find those added costs being tacked on to the consumer’s bill.

It’s not all on the GC’s shoulders, though. The act also includes a provision that the GC be compensated by the subcontractor for these additional costs. That is, unless, the nonpayment issues arose because the GC failed to pay his or her subcontractor in a timely manner.

There’s a number of risk-mitigation strategies that a GC could adopt as a way to safeguard him or herself against a claim such as this from the employee of a subcontractor. Including regular payroll audits, including indemnity and audit clauses in all of the contracts, requiring insurance and certification of all payroll payments from your subcontractors- to name a few.

If you’re a general contractor and need help re-writing your contracts or find yourself being sued by an employee of one of your subcontractors, we can help! The Employment Law attorneys at Ferrante, Dill & Hisle LLC have experience working on both the employer and employee side of contract disputes, giving us a unique perspective on each employment law case we take on. Give us a call today at (410) 535-6100 or send us an email at info@ferrantedill.com.