Contractors Responsible for Subcontractors Payroll effective Jan. 1, 2018

Effective January 1, 2018, General Contractors will be legally responsible to ensure that their Subcontractor’s workers get paid on the GC’s projects. This includes fringe benefits, attorney fees and associated court costs for laborers bringing suit against a GC. GC’s should take care to monitor their Subcontractor’s payroll and protect themselves against the added risk of Subcontractors not paying their laborers.

California Assembly Bill 1701 was signed into law by Governor Jerry Brown in October of 2017. A Subcontractor’s laborers may bring suit against a GC as well as the State. Contractors are at risk of paying twice on a contract if they pay their subcontractors up front and then pay again in the event the Subcontractor does not pay their laborers.

The effect on contractors performing public works contracts will be lessened as they already provide a payment bond to owners. Payment bonds give the laborers of subcontractors a remedy for non and underpayment of wages and fringe benefits. Thus, AB 1701 will effectively provide the legal remedies of a payment bond to Unions and laborers of Subcontractors without the financial support of a surety.

Contractors seeking to mitigate the risk of Subcontractors not meeting their financial obligations should consider requiring that their Subcontractors provide performance and payment bonds. Requiring Subs to bond would mitigate this risk by including their surety in the contract and provide another avenue for laborers and unions to seek payment. Contractors should also closely monitor their subcontractor’s payroll and benefit payments.

Many building and contractor’s associations opposed this Bill as it will likely lead to increased costs on private contracts. Home building projects will likewise find increased costs as builders and GC’s seek to mitigate this risk. Laborers associations and Unions applaud this Bill as it provides protection and remedies for laborers.

The effects of AB 1701 will have long-term consequences for the construction industry in California. The cost of construction will increase as will the activity of legal actions brought about by laborers and unions bringing suits against Contractors for non-payment by Subcontractors.

Contractors should consider protecting themselves against the risk brought about by AB 1701 by establishing controls to monitor their Subcontractors payrolls. They should also consider requiring that Subcontractors provide performance and payment bonds to eliminate this risk altogether.