California Mechanic’s Lien–New General Contractor Liability for Unpaid Wages
The California Labor Commissioner and the Employment Development Department are voracious in protecting employee rights, especially as to unpaid wages and benefits. And there are a number of employment lawyers who are ready to spring and bring lawsuits. If you are a California general contractor, you will obviously be making sure all wages and benefits are paid. What if one of your subcontractors does not make such payments? Incredibly, under a new law effective January 1, 2018, the GC is liable for a subcontractor’s failure to make such payments. This is now contained in California Labor Code Section 218.7.
The new law states the general contractor is jointly liable with the subcontractor for unpaid wages and benefits, plus any accrued interest. However, the GC is not liable for penalties or liquidated damages. Attorney’s fees are only allowed if there is a union contract.
Note also that employees, when they sue, typically make California claims for missed meal breaks, rest breaks, the failure to itemize wage statements, over time and related issues. Thankfully, the GC under this legislation is not liable for those types of claims.
The other good news is the employees do not have a direct cause of action against the GC, only California Labor Commissioner. Typically, the commissioner, because their office is understaffed and busy, only brings lawsuits if there is a large amount of unpaid wages.
As a GC, you also have the right to request copies of your subs wage statements for employees and all information as to their projects. Even more significantly, a GC may withhold as a disputed item a progress draw or retention if the sub fails to timely provide payroll or project information.
Unfortunately, if a general contractor is forced to make these penalties, that cannot be included in any future California mechanic’s lien.