Are You Ready to Comply With New York’s New Construction Industry Wage Law?

Contractors may be held jointly and severally liable for subcontractors’ failure to pay proper wages under a new law amending the New York Labor Law (NYLL) and General Business Law (GBL)...

Contractors may be held jointly and severally liable for subcontractors’ failure to pay proper wages under a new law amending the New York Labor Law (NYLL) and General Business Law (GBL). The new law took effect on January 4, 2022, and applies to all new, renewed, modified, and amended contracts. 

New York’s New Construction Industry Wage Law

The new wage law, Senate Bill S2766C, amends the NYLL and GBL to hold upstream contractors liable for any unpaid wages owed to employees of their subcontractors of any tier. Its stated goal is to increase the likelihood that construction industry workers can secure payment and collect unpaid wages and benefits for work that has already been performed.

Under prior New York wage law, a worker could bring a private lawsuit against his/her direct employer to collect any unpaid wages, including overtime and fringe benefits. According to the bill’s sponsors, this was a major issue in the construction industry “where, oftentimes, such direct employer is an unscrupulous subcontractor or labor broker willing to hide assets, change corporate identity and take part in other unscrupulous practices to avoid liability and make themselves judgment proof from a wage theft action.”

By holding the prime contractor of the construction project liable for all subcontractors that it chooses to utilize on a job site, sponsors are hopeful that workers will be able to quickly able to collect unpaid wages while creating an incentive for the construction industry to better self-police itself. Governor Kathy Hochul signed the legislation into law on September 6, 2021. The new wage law include two key changes:

New Section 198-e of the NYLL

Under the new section, a construction contractor assumes liability for any unpaid wages, benefits, damages, attorney fees related to a civil or administrative action by a wage claimant or the Department of Labor against its subcontractors. Accordingly, contractors are now jointly and severally liable to their subcontractors’ employees for: unpaid minimum wage; unpaid overtime wages; liquidated damages for up to one hundred percent of the unpaid minimum wage and overtime wages; statutory damages of up to $5,000 per employee for failure to receive the requisite wage notices; statutory damage of up to $5,000 per employee for failure to provide the appropriate paystubs; and attorneys’ fees and costs.

The law defines a construction contract as “a written or oral agreement for the construction, reconstruction, alteration, maintenance, moving or demolition of any building, structure or improvement, or relating to the excavation of or other development or improvement to land.” Exceptions include public works contracts that are governed by Article 8 of the NYLL, home improvement contracts, and residential contracts for one- or two-family dwellings, unless it is a contract for the development of ten or more one- or two-family dwellings. 

The new law establishes a three-year statute of limitations for claims against contractors, which is shorter than the existing six-year statute against employers. Notably, liability may not be waived by agreement between a contractor and subcontractor except by collective bargaining agreement. However, contractors may contract for indemnification by subcontractors and seek to recover owed wages that are paid by the contractor, provided that the indemnification arrangement does not diminish the employee’s right to bring an action.

New Section 756-f of the GBL

The new section of the GBL clarifies that a contractor may withhold payment to a subcontractor or lower-tier subcontractor for failure to provide certain payroll records. At the request of a contractor (or a subcontractor of the contractor), subcontractors must provide certified payroll records which, at minimum, contain all lawfully required information for all employees providing labor on the project. Such payroll records must contain sufficient information to apprise the contractor or subcontractor’s payment status in paying wages and making any applicable fringe or other benefit payments or contributing to a third party on its employee’s behalf.

Additionally, any subcontractor that performs any portion of work within the scope of the contractor’s construction contract with an owner must provide:

• Information regarding wages and benefits paid to workers;
• Names of all subcontractors’ workers on the project (including independent contractors);
• The name of the subcontractor with whom a sub-subcontractor is in contract;
• The anticipated contract start date and duration of work;
• Local unions with which the subcontractor has contracts; and
• Name, address, and telephone number at which the subcontractor can be reached.

Next Steps for Subcontractors and Contractors

Contractors and subcontractors should immediately take steps to comply with the new law. Subcontractors must ensure that wage-and-hour records are being properly maintained and that they will be able to provide certified payroll records as requested by contractors. Of course, it is also imperative to maintain compliance with the NYLL, as violations may now trigger indemnification actions by contractors.

For contractors, it is important to explore ways to limit your liability, such as requesting employee wage information from all subcontractors, preemptively auditing subcontractor payroll practices, including comprehensive indemnification provisions in all contracts, and exploring the availability of insurance coverage for wage claims.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Thomas Herndon, Jr., or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.