General Contractors Beware: Protect Against Liability for Nonpayment by Subcontractors
BY XENIA TASHLITSKY, FENNEMORE LLP C
alifornia Labor Code Sections 218.7 and 218.8 take aim at general contractors to fight wage theft.
These sections provide that if a contractor hires a subcontractor, and the subcon- tractor or its sub-subcontractor does not pay its workers, the contractor must pay the workers—even if the contractor and the workers have no privity of contract!
tractor. Tus, the direct contractor is liable for nonpayment by a subcontractor “at any tier” for labor on the project covered by the contract between the contractor and owner, regardless of whether it was the direct contractor or its subcontractor who engaged the delinquent subcontractor. In addition to educating contrac- tors about Sections 218.7 and 217.8,
Contractors should provide professional insurance training for project personnel and any non-risk management personnel from corporate who may be interfacing with them while troubleshooting larger issues that arise during construction.
Sections 218.7 and 218.8 came into
effect on January 1, 2022 and apply to private (not public) works contracts. Section 218.7 applies to contracts en- tered into between January 1, 2018, and December 31, 2021, and Section 218.8 applies to contracts entered into on or after January 1, 2022. Both sections cover a “direct” contractor, a term that broadly refers to a contractor that enters a contract in California for the erection, construc- tion, alteration, or repair of a building, structure, or other private work. Note that the word “direct” refers to
the contract between the contractor and the owner, not to the contract between the contractor and the delinquent subcon-
attorneys can advise their clients to update their subcontracts and practices to minimize their exposure. Consider including the following provisions in upstream contracts: • The right to obtain the payroll records of subcontractors and sub- subcontractors for workers on the project.
• Te right to obtain certified payroll records of subcontractors and sub- subcontractors showing that workers are, in fact, being paid.
• Te right to obtain daily reports with names of workers.
• Te right to withhold payments for wage claims that may expose the
contractor to liability under Sections 218.7 and 218.8.
• A requirement that subcontractors and sub-subcontractors obtain payment bonds and keep them in place until the statute of limitations for Section 218.7 and 218.8 claims expires.
• Te right to claim on those bonds for wage claims that may expose the contractor to liability under Section 218.7 and 218.8.
• A requirement that subcontractors indemnify and defend the contractor for wage claims that may expose the contractor to liability under Sections 218.7 and 218.8.
• A requirement that subcontractors flow down these provisions in their sub-subcontractors.
In addition, consider adopting the
following practices: • Obtain payroll records and monitor subcontractors and sub-subcontractors to make sure they comply with the payroll and recordkeeping requirements.
•
Diligently take corrective action, including by retaining funds from subcontractors to cover the wages unpaid by subcontractors or sub- subcontractors.
• Obtain an affidavit of payment of wages by the subcontractor and its sub-subcontractors under penalty of perjury before issuing final payment to the subcontractor.
Xenia Tashlitsky is an associate with Fennemore LLP, specializing in prompt payment disputes, construction defects, bid
protests, insurance coverage, prevailing wages, wage theft, and federal, state and private projects. She can be reached at xtashlitsky@
fennemorelaw.com.
CALIFORNIA CONSTRUCTOR MAY/JUNE 2025
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