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Maryland Senate Bill 853 – General Contractors Now Liable for Ensuring Payment to Subcontractor Employees

As of October 1, 2018, General Contractors operating on construction services projects in Maryland are now potentially subject to additional liability under the “General Contractor Liability for Unpaid Wage Act” introduced through Maryland Senate Bill 853 (the “Act”).  Specifically, a general contractor may be jointly and severally liable for subcontractors’ failure to properly pay employees.  To make matters more complex, this applies to subcontractors who are not even in direct contractual privity with the general contractor and can arguably extend infinitely down the sub-subcontracting chain.

Indeed, general contractors may now be liable for ensuring that every down-the-chain subcontractor on a project properly pays their employees in a manner consistent with Maryland wage and hour laws.

This controversial law also contains both a multiplier and an attorneys’ fees provision.  Specifically, if a subcontractor fails to pay an employee in accordance with Maryland’s wage and hour laws, both the employee’s direct employer and the general contractor may be liable to the employee for up to three times the wages owed, plus reasonable attorney fees and costs.  A claimant may make a claim against both the general contractor and the non-paying party as soon as two weeks after a violation occurs, and as late as three years after the occurrence.

In an attempt to balance the scales, the new law requires subcontractors who fail to properly pay their employees to indemnify the general contractor for “any wages, damages, interest, penalties, or attorney fees owed as a result of the subcontractor’s violation;” however, this indemnity protection is only as strong as the subcontractor’s ability to pay such damages and costs.  The exception to the requirement for subcontractors to indemnify general contractors occurs either when: (1) indemnification is already provided for in a contract between the general contractor and the subcontractor; or (2) the violation arose due to the general contractor’s failure to make timely payments to the subcontractor.

The full repercussions of this new law are yet to be determined, but ambiguity in the Act raises several questions.  First, the Act imposes no obligation on the subcontractors to provide the general contractor full access to all payroll and supporting records that would be needed to defend a claim, including a potentially fraudulent claim.  Second, the Act fails to specify whether an employee-claimant need even be staffed on the same project as the general contractor, or whether merely being an employee to the subcontractor who has staffed other employees on the project will suffice.  These questions will likely be clarified through litigation.

 

Steps you can take:

In response to the Act, both general contractors and subcontractors should review their contract provisions with counsel, general contractors may consider requiring subcontractors to obtain a bond or insurance to protect against wage claims by a subcontractor’s employees, and consider adding contract provisions to allow for review of their subcontractors’ pay practices, records, and history of wage claims and lawsuits for at minimum three years following final payment.  General contractors should further consider requiring a subcontractor’s principal or officer to sign certified payrolls, thereby attesting that employees were paid properly.