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Important Changes to New York Labor Law: Contractors Liable for Wage Violations of Subcontractors

January 14, 2022

Recent changes to New York Labor Law (NYLL) and General Business Law (GBL) extend liability to construction contractors for wage violations committed by subcontractors at any level of a project, with few exceptions.

NYLL Generally
In general, the NYLL contains significant worker protections and provides for recovery for workers who are not properly compensated. Workers must be paid at or above the minimum wage, receive overtime if they are covered under New York’s overtime provisions, and be provided with certain breaks and sick leave. Workers also must receive wage notices upon hire and wage statements with every payment.

Damages available under section 198 for violations of the NYLL include:

  • Recovery of unpaid wages (up to 300% of unpaid wages for willful violations)
  • Penalties for failing to provide requisite wage notices and statements
  • Attorneys’ fees.

Many contractors already take steps to ensure that their own employees are paid in accordance with the NYLL and provide them with the requisite wage notices and statements. However, as discussed below, contractors now must ensure not only their own compliance with the NYLL but also the compliance of subcontractors at all levels on their projects.

Overview of Recent Changes
The revisions to section 198-e of the NYLL provide that contractors will be held jointly and severally liable for subcontractors’ failure to pay proper wages as defined under the NYLL. This means that, for example, even if the primary contractor had no direct involvement in a subcontractor’s failure to pay overtime wages, the primary contractor may be liable for up to three times the value of lost wages for such violations.

The law applies to contracts entered into, renewed, modified or amended with property owners on or after January 4, 2022. Keep in mind that any amendment or revision to applicable construction contracts, even changes unrelated to the use of subcontractors or wages, may trigger liability for contractors.

In light of these recent changes to the law, contractors should not only endeavor to maintain clear records of their employees’ pay but also ensure that wage-and-hour records of subcontractors are maintained.

In connection with the changes to the NYLL, the GBL (section 756-f) now requires subcontractors, at a contractor’s request, to provide certified payroll records containing:

  • Information regarding wages and benefits paid to workers
  • Names of all subcontractors’ workers on the project (including independent contractors)
  • The name of the subcontractor with whom a sub-subcontractor is in contract
  • Anticipated contract start date and duration of work
  • Local unions with which the subcontractor has contracts
  • Name, address and telephone number at which the subcontractor can be reached.

To the extent data obtained from subcontractors contains personal identifiers such as Social Security Numbers, contractors should ensure that such identifiers are not communicated to the general public. A contractor or subcontractor can withhold payments owed to a subcontractor who fails to comply with a request for such information.

Applicability and Guidance
The changes to section 198-e of the NYLL apply only to the construction industry. The law defines a construction contract as a written or oral agreement for the following, with respect to any building, structure or improvement:

  • Construction
  • Reconstruction
  • Alteration
  • Maintenance
  • Moving
  • Demolition
  • Excavation of land.

The law specifically exempts public works contracts, home improvement contracts for owner-occupied dwellings, and home construction contracts for one- or two-family homes, unless the contract results in the annual construction of more than 10 such units on the same project site. Notably, under this section, a subcontractor may include an entity that has no direct privity of contract with the contractor (“privity” says contracts are binding only on the parties to a contract and that no third party can enforce the contract or be sued under it). Accordingly, it is essential for contractors to familiarize themselves with all levels of subcontractors that may be working on their projects, including those hired by their subcontractors.

With these new provisions now in place, contractors should take the following precautions to monitor their subcontractors in order to avoid potential liability:

  • Contractors should request employee wage information from all subcontractors who work on a project, including those who are contracted by subcontractors, as permitted by GBL section 756-f.

  • Contractors may consider withholding payment from subcontractors who fail to provide wage information for each employee on the job site, and consider such compliance issues in selecting subcontractors for future projects.

  • Contractors and subcontractors should document all requests to their subcontractors for employee information, as well as any responses received. Contracts with subcontractors should state clearly that subcontractors must provide all relevant employee wage information outlined in GBL section 756-f.

  • Contractors should include in all contracts with subcontractors provisions that the subcontractor will indemnify the contractor for all damages under section 198-e of the NYLL, including for attorneys’ fees and costs, stemming from the subcontractor’s failure to comply with the NYLL. Contractors should consider amending existing contracts with subcontractors to include such provisions, as any revision to the underlying construction contract after January 4, 2022, triggers the application of the new provision. (Note that the law prohibits contracts that prevent employees from exercising their rights to collect lost wages, but contractors may enter into indemnification agreements with subcontractors.)

  • Contractors should work with reliable subcontractors who can demonstrate compliance with the NYLL, keeping in mind that a less-expensive vendor that is underpaying its workers may engender a costly lawsuit years after the project’s completion.

  • Contractors should monitor closely their subcontractors and require that their subcontractors notify them immediately if any work on the project is further subcontracted.

  • Contractors should retain their subcontractors’ records even beyond the completion of a construction project, and for a minimum of three years, the applicable statute of limitations for claims made pursuant to section 198-e of the NYLL. By maintaining the subcontractor’s records, the contractor can defend itself against potential liability.
It remains to be seen whether the New York State Legislature will consider similar legislation affecting other industries. For now, however, clients operating as general contractors need to exercise extra vigilance to ensure that all workers on a project, even those they do not directly employ, are paid proper wages in accordance with the NYLL.

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