GSBE Weekly Update 11/01/2017
AB 1701 Labor-related liabilities
On October 14, 2017 the Governor signed Assembly Bill 1701 (AB 1701) would require general contractors to “assume, and [be] liable for . . . unpaid wage, fringe or other benefit payment or contribution, including interest owed,” which subcontractors owe their employees.
NEW REQUIREMENTS
This bill imposes the following requirements under Labor Code section 218.7:
- Applies to All Private Works Contracts That Are Entered Starting January 1, 2018.
For private works contracts entered on or after January 1, 2018, a “direct contractor” (i.e., prime contractor or contractor who has direct contractual relationship with an owner) must assume and be liable for any debt which its subcontractor or a lower tier subcontractor incurs “for [a] wage claimant’s performance of labor included in the subject of the contract between the direct contractor and the owner.” (Lab. Code, § 218.7, subds. (a)(1) and (e).)
- The Labor Commissioner and Joint Labor-Management Cooperation Committees May Bring Action to Recover Unpaid Wages on Behalf of Wage Claimants.
The California Labor Commissioner and joint Labor-Management Cooperation Committees established under the federal Labor Management Cooperation Act of 1978 (29 U.S.C. § 175a) (typically comprised of labor unions and management) may bring a civil action against the direct contractor for unpaid wages owed to a wage claimant. (Lab. Code, § 218.7, subds. (b)(1) and (3).) The Labor Commissioner may also bring its claims through administrative hearings (Labor Code section 98) or by citations (Labor Code section 1197.1). (Lab. Code, § 218.7, subd. (b)(1).)
- Third Parties That Are Owed Fringe or Other Benefit Payments or Contribution on Behalf of Wage Claimants (Labor Unions) May Bring Action.
Third parties who are owed fringe or other benefit payments or contributions on a wage claimant’s behalf (e.g., labor unions) may bring a civil action against the direct contractor for such unpaid benefit payments or contributions. (Lab. Code, § 218.7, subd. (b)(2).)• It Does Not Confer Wage Claimants With Any Right to Sue Direct Contractors.
AB 1701 gives the Labor Commissioner, Labor-Management Cooperation Committees and the unions standing to bring an action against the direct contractor, but it does not confer any private right of action by the wage claimants against the direct contractor.
- Labor-Management Cooperation Committees and Labor Unions Shall Recover as Prevailing Plaintiffs Their Attorneys’ Fees and Costs, Including Expert Fees.
For actions brought by Labor-Management Cooperation Committees or labor unions, “[t]he court shall award a prevailing plaintiff in such an action its reasonable attorney’s fees and costs, including expert witness fees.” (Lab. Code, § 218.7, subds. (b)(2)-(3).)
- Direct Contractor’s Property May Be Attached to Pay for Judgment.
AB 1701 authorizes the attachment of direct contractor’s property to pay for any judgment that is entered pursuant to this section. (Lab. Code, § 218.7, subd. (c).)
- One-Year Statute of Limitation to Bring Action under This Section.
Actions brought pursuant to this section must be filed within one year of the earliest of: (1) recordation of a notice of completion of the direct contract; (2) recordation of a notice of cessation of the work covered by direct contract; or (3) actual completion of work covered by direct contract. (Lab. Code, § 218.7, subd. (d).)
- Rights to Receive Payroll Records and Project Award Information from Subcontractors and to Withdraw All Payments Owed for Their Failure to Comply.
Upon the direct contractor’s request, subcontractors and lower tier subcontractors must provide payroll records and project award information. (Lab. Code, § 218.7, subds. (f)(1)-(2).) Direct contractor may withhold as “disputed” all sums owed if a subcontractor does not timely provide the requested records and information without specifying what is untimely and such failure to comply does not excuse direct contractor from any liability under this section. (Lab. Code, § 218.7, subds. (f)( 3) and (i).)
- Rights to Receive Payroll Records and Project Award Information from Subcontractors and to Withdraw All Payments Owed for Their Failure to Comply.
Upon the direct contractor’s request, subcontractors and lower tier subcontractors must provide payroll records and project award information. (Lab. Code, § 218.7, subds. (f)(1)-(2).) Direct contractor may withhold as “disputed” all sums owed if a subcontractor does not timely provide the requested records and information without specifying what is untimely and such failure to comply does not excuse direct contractor from any liability under this section. (Lab. Code, § 218.7, subds. (f)( 3) and (i).)
- Further Legislative Efforts on Subdivision (h) Are Expected in 2018.
Subdivision (h), which states that “[t]he obligations and remedies provided in this section shall be in addition to any obligations and remedies otherwise provided by law . . .” (emphasis added) is potentially misleading since the author and sponsor of the bill have indicated that the bill is not intended to punish direct contractors with liquidated damages or penalties. As such, further legislative efforts on subdivision (h) are expected in 2018.
ADDITIONAL CONSIDERATIONS
While workers should be paid for the work they perform, AB 1701 would place an undue burden on general contractors to monitor their subcontractors’ payroll, confirm that all wages and benefits are paid timely and withhold disputed payments from non-compliant subcontractors. General contractors would also need to caution against the chain reaction that could result from such withholding, including work stoppage, increased change order requests, and an overall increase in construction costs. Finally, general contractors would need to brace themselves for at least a year after project completion against any union or a Labor-Management Cooperation Committee actions armed with a prevailing party’s right to recover attorneys’ fees and expert fees, for previously unidentified subcontractor or sub-subcontractor workers.
STRATEGIES DEVELOPERS AND GENERAL CONTRACTORS SHOULD LOOK FOR
Developers and general contractors are advised to consult their attorneys for a review and revision of their existing contracts, to develop plans for accessing and monitoring subcontractor payroll records, and to consider strategies for mitigating claims that may be brought against them, as follows:
- Execute all pending agreements before January 1, 2018 to avoid the effects of AB 1701;
- Include an audit provision requiring subcontractors and sub-subcontractors to provide payroll records (at minimum, information set forth in Labor Code section 226) and project award information, regularly and/or upon request, with specific deadlines for such production, as subdivision (f) does not specify what is untimely;
- Include defense and indemnity provisions that would require subcontractors to defend and indemnify the general contractor for claims that are brought pursuant to this section arising from labor performed by employees for subcontractors and sub-subcontractors, and require subcontractors to include a similar provision in their own contracts with sub-subcontractors that would require lower tier subcontractors to also defend and indemnify the general contractor for claims arising from their respective employees’ work;
- Require subcontractors to provide a payment bond and/or a letter of credit to satisfy claims that are made against the general contractor under this section;
- Require personal guarantees from owners, partners or key subcontractor personnel;
- Include withholding and back-charge provisions that would allow general contractors to withhold or chargeback the subcontractors for disputed amounts, for claims brought against them, and for failure to comply with the audit, bond, and guarantee requirements.
- Consider implementing a system to confirm evidence of payments, such as signed acknowledgment of payment by each subcontractor and sub-subcontractor employees and by third parties entitled to recover fringe and other benefit payments or contribution, possibly working with electronic billing software providers to implement such system.
EMPLOYMENT LAW
Labor and Employment Alert: California Expands Employers’ Mandatory Harassment Training
The California Fair Employment and Housing Act currently requires employers with 50 or more employees to provide all supervisory employees with at least two hours of training and education regarding sexual harassment and abusive conduct. Training for each covered individual must occur within six months of the individual becoming a supervisor and then once every two years thereafter. California has just expanded these requirements to include harassment based on gender identity, gender expression, and sexual orientation. The new requirements become effective on January 1, 2018.
Under current law, the required training and education must include information and practical guidance regarding federal and state statutory provisions concerning the prohibition against, and the prevention and correction of, sexual harassment and abusive conduct, and the remedies available to victims. The training and education must also include practical examples of ways to prevent harassment, discrimination, abusive conduct and retaliation. It must be presented by trainers or educators with knowledge and expertise in those areas. “Abusive conduct” means “malicious” workplace conduct that a reasonable person would find hostile or offensive, and which is unrelated to the employer’s legitimate business interests.
Now, these training and education programs must also include harassment based on gender identity, gender expression, and sexual orientation. Like the other forms of required training and education, such training must include practical examples of harassment based on gender identity, gender expression, and sexual orientation, and be presented by trainers or educators with knowledge and expertise in those areas. In addition, employers must also display a poster (to be developed by the Department of Fair Employment and Housing) regarding transgender rights. Existing law already requires employers to post a poster on discrimination and sexual harassment.
Employers should review their existing supervisor training to ensure that it includes gender identity, gender expression, and sexual orientation.