NY Law Now Holds GCs Accountable for Labor Law and Contractor’s Pay Obligations | Rivkin Radler LLP
On September 9, 2021, Governor Hochul enacted a new wage protection law that added a new section to the New York Labor Act. Section 198 (e) holds building contractors responsible for all claims under Section 198 of the labor law for unpaid wages, benefits and salary supplements of employees of all their subcontractors. The definitions of construction contracts, contractors, subcontractors and project owners covered by this new law are very broad. However, the law excludes from the definition of “construction contracts” certain smaller residential contracts, such as:
- home renovation contracts with the owner of an occupied dwelling; and
- contracts for the construction of single-family or two-family dwellings, except when the contract (s) involve the construction of more than 10 dwellings on the same project site.
Liability extends to wage claims for minimum wage, overtime, damages, attorney fees and penalties for legal claims.
Prior to this law, a general contractor was not responsible for the wage practices of his subcontractor or his liability to his employees unless he was considered a “joint” employer, which, according to the applicable case law, is a difficult burden to shoulder. Subcontractors now face strict liability for complaints associated with the payroll practices of the subcontractor, and this applies to all levels of subcontractors. The limitation period for claims against the general contractor will be three years, while the general limitation period for wage claims is six years.
This new payroll law also adds a new section 756 (f) to the New York General Business Act. The new section allows construction contractors to withhold payments owed to subcontractors who fail to pay their construction workers or who fail to comply with the law or with contractors’ requests for payroll information and records required by them. the law (c. names of employees, payments of wages and benefits and dates of work). This provision will allow general contractors to impose important contract, audit, payment and indemnification provisions on subcontractors with the aim of managing and limiting their liability for wage claims from subcontractors.
These new laws come into force on January 4, 2022 and apply to construction contracts created, renewed, modified or amended as of that date.
Considering the extent of the liability that general contractors will face, it will make sense for contractors to demand and apply these contractual provisions to their sub-contractors.