NY Law Now Holds GCs Liable for Subcontractors’ Labor Law and Wage Obligations

On September 9, 2021, Governor Hochul signed into law a new wage protection statute which added a new section to the New York Labor Law. Section 198(e) holds construction contractors liable for all claims under Labor Law Section 198 for unpaid wages, benefits and wage supplements of employees of all of their subcontractors. The definitions of construction contracts, contractors, subcontractors and owners covered by this new law are very broad. However, the law excludes from the definition of “construction contracts” some smaller residential contracts, such as:

1. home improvement contracts with the owner of an occupied dwelling; and
2. construction contracts for one- or two-family dwelling units, except where such contract or contracts involve the construction of more than 10 units at one project site.

The liability extends to wage claims for minimum wage, overtime, liquidated damages, attorneys’ fees and penalties for statutory claims.

Prior to this law, a general contractor would not be responsible for its subcontractor’s wage practices or liability to their employees unless it was found to be a “joint” employer, which, under applicable case law, is a difficult burden to meet. Now, contractors face strict liability for claims associated with the subcontractor’s payroll practices, and it applies to all levels of subcontractors. The limitation period for claims against the general contractor will be three years, while the general limitation for wage claims is six years.

This new wage law also adds a new section 756(f) to the New York General Business Law. The new section authorizes construction contractors to withhold payments owed to subcontractors who fail to pay their construction workers or who fail to comply with the law or requests by contractors for payroll information and records required by the law (i.e., certified payroll records and other records regarding names of employees, payments of wages and benefits and dates of work). This provision will allow general contractors to impose significant contract, audit, payment and indemnity provisions on subcontractors in an attempt to manage and limit their liability for subcontractor wage claims.

These new laws take effect January 4, 2022, and apply to construction contracts created, renewed, modified or amended on or after that date.

Given the scope of liability, general contractors will face, it will makes sense for contractors to require and enforce these contract provisions on their subcontractors.