General Contractor Liability for Unpaid Wages Act

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Theodore Maxwell
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1 General Contractor Liability for Unpaid Wages Act Senate Bill 853 Effective October 1, 2018 Expands liability for wage and hour laws in the construction industry

2 Where did Senate Bill 853 come from? California and Oregon Combat wage theft Unions Maryland legislative history Previous laws

3 General Contractor Liability for Unpaid Wages Act Adds the following text to Maryland Code, Labor and Employment Article GC s - jointly and severally liable to employees of subcontractors for unpaid wages GC s also responsible for second and third-tier subcontractors Requires subcontractors to indemnify the general contractor for "any wages, damages, interest, penalties, or attorney's fees owed as a result of the subcontractor's violation." Two exceptions to indemnification: (1) when indemnification is provided for in a contract between the general contractor and the subcontractor; or (2) when a violation arose due to the general contractor s failure to make timely payments to the subcontractor.

4 What are Construction Services Broadly defined Includes: (1) building; (2) reconstructing; (3) improving; (4) enlarging; (5) painting; (6) altering; (7) maintaining; and (8) repairing. Md. Code, Lab. & Empl. Art (b).

5 CAUTION Bona fide dispute not defined in the construction context Does not expressly exempt a general contractor for liability where non-payment to a subcontractor is permitted under the construction contract. Construction disputes involving backcharges, delays, and other issues may be litigated in an employee wage payment case If a subcontractor is insolvent or files bankruptcy, indemnity could be worthless.

6 Effect of Law on Industry Impacts to Construction Industry Police subs Increase defense costs GC could defend both a mechanics lien claims on behalf of an owner while at the same time defending new wage claims from individual employees of the subcontractors. GC s likely to require subcontractors to obtain wage payment bonds or insurance to protect themselves from wage claims. Increase cost of a construction project Less work for startup companies, disadvantaged business entities, or smaller subcontractors unable to obtain requisite bonding

7 Penalties Back Pay Interest Attorneys Fees and Costs Treble Damages (3 times wages owed) Statute of limitations: May make a claim as soon as 2 weeks after a violation occurs, and as late as three (3) years after the occurrence.

8 Maryland Wage Payment and Collection Law MD. CODE, LAB. & EMP. ART., 3-501, ET SEQ. FREQUENCY OF PAY ( 3-502): Employer must set regular pay periods; Pay each employee at least once in every 2 weeks or twice in each month PAY ALL WAGES DUE ON TERMINATION OF EMPLOYMENT ( 3-505): Pay all wages due for work that the employee performed before the termination of employment; Wages must be paid on or before the day on which the employee would have been paid the wages if the employment had not been terminated.

9 What is a Wage under the MWPCL? ALL COMPENSATION THAT IS DUE TO AN EMPLOYEE FOR EMPLOYMENT. WAGE INCLUDES: a bonus; a commission; a fringe benefit; overtime wages; or any other remuneration promised for service.

10 Private Cause of Action Employee may bring an action against employer to recover unpaid wages. ( ). Can be filed after 2 weeks have elapsed from the date on which the wages were due. Three year statute of limitations. Possible enhanced damages!

11 Enhanced Damages If the court finds that an employer withheld wages not as a result of a bona fide dispute, the following may be awarded: Treble Damages: Up to 3 times the wrongfully withheld wage; and Reasonable counsel fees and costs.

12 What is a Bona Fide Dispute? Legitimate dispute over the validity of the claim/amount owed Employer must have a good faith basis for refusing an employee's claim for unpaid wages. See Peters v. Early Healthcare Giver, Inc., 439 Md. 646, 657 (2014) Question of fact/jury question Employer s burden to show a bona fide dispute Employer must make an effort to understand its legal obligations.

13 Likely Claims Under GC Liability for Unpaid Wages Law Failure to pay for all hours worked Could include failure to pay for work at the shop, travel time, etc. Failure to pay overtime Independent contractor trap Delays in paying wages

14 Likely Defendants General Contractors Subcontractor/Employer Owner or high ranking manager of violating subcontractor

15 Contractor s Overview Wage and Penalty? All subcontract tiers? Is indemnity meaningful, confusing, avoidable? Can a responsible contractor be competitive? Disproportionate impact on small and disadvantaged businesses?

16 Contractor s Risk Management Contractual Risk Transfer Indemnification Compliance with laws, regs, and ordinances Flow down requirements Identification and approval of sub-tier trades Withholding/setoff/Joint Checks/Direct Payment Basis for default and termination Internal Risk Management Subcontractor Selection and Qualification - $ Joint Checks - $ Catastrophic Coverage - $$$ Revise Bond Language or get specific Wage Bonds - $$ Group captives -?? Tracking

17 Special Problems Job starts Accountability for poor performance Catch 22 Job close outs Owner slow pay or no pay Levies and garnishments Impact of unrelated work Family squabbles

18 Managing Risks Contract language Indemnification Offset Bonds Insurance Really know subcontractors Ask questions policies, records Increase consumer costs

Maryland Wage Payment and Collection Law ("MWPCL")

Maryland Wage Payment and Collection Law ("MWPCL") Md. Code, Lab. & Empl. Art., 3-501 et seq. 3-501. Definitions... 1 3-502. Payment of wage... 1 3-503. Deductions... 2 3-504. Notice of wages and paydays...