LEGAL NEWS


Contractors at Risk for Subs’ Failure to Pay Laborers on Private Works


By Mary A. Salamone and Dan J. Bulfer of Atkinson, Andelson, Loya, Ruud & Romo


L


ast year, the California legislature enacted Labor Code § 218.7 (AB 1701), which holds direct


contractors (i.e., prime contractors or contractors who have a direct contractual relationship with an owner) liable for unpaid wages, benefits, or contributions that subcontractors owe to their workers on certain types of construction projects. Te statute also allows direct


contractors to protect themselves by requiring subcontractors to furnish payroll records that would enable direct contractors to evaluate their subcon- tractors’ compliance with wage and hour laws. When the original statute took effect, Gov. Jerry Brown signaled that legislators would follow up with clarifying legislation. Tat legislation has now been enacted. On September 19, 2018, Gov.


Brown signed Assembly Bill 1565 (AB 1565), which amends Section 218.7 to


Cybersecurity in Construction Continued from page 18


tions report that found that 90 percent of cybersecurity incidents can be attributed back to human action or human mistakes. People may not follow the cyber-


security policies and procedures a company has in place, Nord pointed out. Poor password hygiene is rampant and can lead to the cybercrime of “credential stuffing.” Email fraud all too often makes its way into a company by a single employee opening a malicious email attachment.


Lack of open discussion and sharing “Silence is not golden,” said


Nord. Te pattern of victims in the construction industry declining to


www.AGC-CA.org


clarify the scope of direct contractors’ liability and establish additional requirements that direct contractors must meet in order to avail themselves of the audit rights provided under that statute. AB 1565 was designated as urgency legislation, taking effect immediately upon the governor’s signature.


Background Section 218.7 created significant


potential liability for direct contractors if their subcontractors failed to pay wages, fringe benefits, or other benefits to laborers. Te statute’s reach, which is unchanged in the amended version, extends to any construction contract “for the erection, construction, alter- ation, or repair of a building, structure, or other private work” in California that is entered into on or after January 1, 2018. Tus, contractors on public works of improvement are not affected by Section 218.7. Under the statute, direct


contractors are now liable for the


share details of how a cyber-incident happened only allows it to spread. Nord and Cormier cited an FBI statistic that only between 10-12 percent of all cybersecurity incidents are reported to authorities.


Practical Tips for E&C Nord and Cormier offered several


practical tips that contractors and others can follow to reduce their risk of being a


victim of cybercrime. Among them:  Create policies and procedures, including best practice training, for both field and office staff.


 Include cybersecurity in evaluation of all technology solutions.


 Implement regular security monitoring and scanning of your company’s cybersecurity by a third party.


Mary Salamone Dan Bulfer


failure of a subcontractor at any tier to pay wage, fringe, or other benefit payments or contributions, including interest owed on those amounts. Te original version of the statute also provided that this liability was “in addition to existing obligations and remedies provided by law,” except for penalties or liquidated damages resulting from a subcontractor’s failure to pay wages and benefit payments. Te statute limits the entities that


can make a claim to the following: (1) the labor commissioner; (2) a “third party owed fringe or other benefit payments or contributions on a wage


Continued on page 20


 Add cybersecurity qualification item for all subs, suppliers and anyone else on the job. “Owners should be adding cyber security as part of their due diligence and qualification of contractors, and contractors should do the same with subs, subs the same with suppliers,” Nord said.


 Understand your cyber insurance policy. "Know the requirements and exclusions before you file a claim,” said Nord.


 Ask the right questions. Tese include: Do your company use two-factor authentication? What backups do we have of essential data? Do people have access to only the data and systems they need to perform their jobs? 


Associated General Contractors of California 19


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