Construction Insight: States Say Contractors Must Guarantee Wages

Road construction worker

Maryland's General Contractor Liability for Unpaid Wages Act becomes effective on October 1st, making private contractors for prime construction projects in the state financially responsible for unpaid wages of subcontractor employees. And unless the reason for nonpayment is related to a legitimate dispute, general contractors could be held responsible for up to three times the amount owed, plus attorney fees. 

California and Oregon also enacted similar laws earlier this year. In California, general contractors are now liable for the unpaid wages of any employee who furnishes labor to or through them, plus unpaid benefits and interest. 

Oregon's wage protection law creates liability for the general contractor only if the worker's subcontractor employer has not yet been paid in full. 

Mitigating the Risk

In order to reduce the risk of general contractors having to pay their subcontractors' employee wages, some industry experts are recommending that subcontractors provide their own payment bonds. 

Opponents of the recent laws argue that it could be difficult for subcontractors on rocky financial ground to meet bond underwriting requirements. And since large projects could require several new bonds per job, overall project costs could increase significantly. Plus, if subcontractors don't pay up, prime contractors will have to pay twice for the same labor. 

Amanda S