If you are a general contractor or subcontractor working in the state of California you have probably heard of the contract liability law that went into effect in 2018. Julie A. Su, the California Labor Secretary sums up the law by stating “Up-the-chain general contractors are now responsible for wage theft committed by their subcontractors on all construction projects in the state.” “General Contractors who choose subcontractors that do not pay wages owed will pay a hefty price”.
The Department of Industrial Relations in California issued a news release On May 29th which discussed citations totaling $597,933 in unpaid wages and penalties to Universal Structural Building Corp. of Chatsworth. This was after it came to their attention that 62 construction workers were never paid for weeks of work on two projects in Hollywood and Ventura.
The release went on to say “The Labor and Commissioner’s Office will use all the tools at its disposal to return these stolen wages-including the placement of liens on these properties which will have a hold until the labor these workers poured into these projects is paid in full.”
The article further highlights the importance of the mechanic’s lien, “According to the California Constitution, this tool has guaranteed the right of construction workers since 1879 to obtain a court-ordered sale of property that they have worked on in order to recover unpaid wages, even if hired by a subcontractor.”
Another important tool, that this particular release does not mention is a surety bond. A Performance and Payment bond, specifically the payment bond guarantees that subcontractors will be paid on a construction job. Chrystal Hedges, partner at Constructors Bonding, Inc., a surety management firm with corporate headquarters in Phoenix AZ comments: “Our firm works with hundreds of contractors, not only in California but all over the country. Surety bonds are essential in assisting in these situations and our firm has seen their benefits time and time again, going back to 1981. If you are a subcontractor, I suggest you ask the general contractor whether they are posting a Performance and Payment bond. If they are, you now know you have a large insurance company guaranteeing not only their performance, but that they will pay you, if they do not pay, you have recourse by filing a claim on their payment bond. If you are a general contractor, we suggest you require your critical path subs to post bonds to ensure they are also paying their subcontractors and vendors to mitigate these situations. All of us at CBI are here to answer any questions regarding this, and are happy to assist any contractor in obtaining a performance and payment bond.”
There are of course guidelines on how to file mechanics liens, as well as payment claims on payment bonds. For example construction workers should exercise their lien rights within 90 days of the work being completed or they may loose the right to file. There are many lien service companies out there that can assist you with this, or you can always ask a construction attorney that understands the lien laws in your state. If you’re looking to file a claim on the general contractors payment bond, or one of the critical path subs payment bonds, there are a few routes you can take;
- All bonds are filed with the obligee (the beneficiary or the one who requires the bond). The general contractor’s bond would be filed with the owner. You can ask for a copy, if its a private job, they may not provide you a copy but you can always ask the owner. This will tell you the bond company to file the claim with. Ask your bonding agent for advise on how to handle.
- The subcontract bond would be filed with the general contractor and you can complete the same process after you obtain a copy of the bond or find out the bonding company named on the bond.
- Each bond company has their own process and requirements, so once you file the claim with them, their individual steps will be provided to you to assist you in the process.
Overall, specifically in the state of California, clearly wage theft has been an issue and they are working to rectify each situation and to put certain penalties in place to avoid future infractions. However, while this “up-the-chain” law currently only applies to CA, every contractor should be aware of their rights and tools (i.e. mechanics liens, bonds) to assist them if they are not being paid for completed work.
*Thank you to the Department of Industrial Relations for much of the content in this article.