At a typical construction site, there are numerous workers doing various tasks to help complete the project. The workers could be employed by a general contractor, or they could be employed by a subcontractor who was hired by the general contractor. Up until now, general contractors only needed to worry about making sure they were not in violation of Maryland wage and hour laws. Effective October 1, 2018, that is all going to change.
Earlier this year, the Maryland legislature passed a stunning new law that makes general contractors jointly responsible for subcontractors who fail to pay their employees in accordance with state wage and hour laws. The law is called the General Contractor Liability for Unpaid Wages Act.
Changes under the new law expose general contractors to a major new liability. Under Maryland law, employers who fail to comply with wage and hour laws can be forced to pay up to three times the wages owed plus all reasonable attorney fees and other costs.
The new law does not apply to all employers, it only applies to general contractors who work on a “construction services” project. Construction services is broadly defined and may include any of the following:
Under the new law, general contractors are not only responsible for wage and hour law violations of subcontractors that work directly under them (i.e., first-tier subcontractors), they are also responsible for any subcontractors their direct subcontractors hire (i.e., second-tier subcontractors), and subcontractors they hire (third-tier subcontractors), etc. So not only is a general contractor responsible for subcontractors they hire directly, they are responsible for all other subcontractors they are even indirectly associated with.
The Implications of the General Contractor Liability for Unpaid Wages Act
It is difficult to know the full ramifications of the new law until it is implemented, because you never know what unintended consequences might arise. Based on what we know already, however, there are several ways this law might impact general contractors, subcontractors, and the working relationships between the two:
- Stricter Vetting Processes for General Contractors: When this new law goes into effect, general contractors will need to be much more careful who they hire as subcontractors on a construction project. This will likely require general contractors to implement a much more extensive vetting process to ensure that they only work with reputable subcontractors who have a proven track record of paying their employees.
- Greater Difficulty for Upstart Subcontractors: This law is likely to hurt new subcontractors who have not yet established themselves in the industry. It is already an uphill battle for upstart subcontractors bidding against larger players that are better known and have more resources. The new law will certainly not help in this regard, and it may cause newer subcontractors to lose out on jobs they might have gotten otherwise.
- Insufficient Employee Record Requirements: While the statute puts general contractors on the hook for wage and hour violations of subcontractor employees, it does not require subcontractors to provide general contractors with their employee records. This could make it more difficult to defend wage and hour violation claims brought against them.
- Broad and Undefined Potential Litigation Exposure: The new law is vaguely worded, and as mentioned earlier, it puts general contractors on the hook for subcontractors of subcontractors of subcontractors. The law also opens up the possibility that a general contractor could be sued by employees of a subcontractor even if those employees did not work on the same construction project.
- Contract Changes Needed to Address Exposure: Indemnification language in the contracts between general contractors and subcontractors will need to be strengthened to address the new liability exposure. Bonding requirements may need to be enhanced as well.
- New Insurance May be Needed: General contractors may need to add a rider to their present liability coverage or obtain new insurance coverage to insure for exposure to wage and hour violation lawsuits by subcontractor employees.
- Potentially Higher Consumer Costs: The enhanced bonding and insurance requirements, as well as the potential for fewer subcontractors to be considered for bids on projects could drive up costs for construction project services, which will likely be passed along to the consumer.
- Out-of-State Contractor Implications Unclear: General contractors who are based out of state and land even one construction project in Maryland will need to find out how the new law affects them. It could be that some out-of-state contractors will decide to stay out of Maryland altogether, which would be another contributor to a less competitive and more cost-prohibitive environment for consumers.
Speak with a Skilled Attorney about the Latest Changes
If you are a general contractor or subcontractor who performs work in the state of Maryland, the General Contractor Liability for Unpaid Wages Act will impact you in some way. To learn more about this new law and the steps you need to take to cover your legal exposure, contact the Law Offices of Matthew S. Evans, LLC today.
Our Maryland lawyers have in-depth knowledge of the complexities of state construction statutes, and we have over two decades of combined experience helping clients with all matters related to this area of the law. Call us today at 410-626-6009 for an initial consultation or send us a message through our web contact form for a case review. You may also visit us in person at our Annapolis office.