NY Contractors Face Increased Liability and Administrative Costs from Proposed Amendments to Wage Theft Prevention Act

The State of New York is poised to pass wage theft legislation that could have a major impact on the construction industry across the state. Among other things, it would impose greater liability risk on prime contractors and reporting requirements on subcontractors.

The bill, S2766-C, adds a new section to NY Labor Law § 198.  The bill has already passed the State Senate and Assembly and is set to be signed by Governor Cuomo. It extends full and complete liability to the prime contractor or construction manager on a project for any non-payment of wages by any subcontractors. The prime contractor or construction manager remain responsible for unpaid wages all for subcontractors, no matter how far down the chain of subcontractors the failure to pay occurs.

Under the proposed law, a worker who claims wage theft – or another party acting on their behalf, such as a union or even the attorney general acting on its own accord – can seek payment from both its employer and the prime contractor on the project. Liability does not, however, extend to any intermediate subcontractors, construction managers which do not hold the trade subcontracts, or to project owners.  The prime contractor and direct employer under the bill would be jointly and severally liable for damages.

The prime contractor’s liability cannot be waived except through a collective bargaining agreement. The prime contractor can seek indemnification and reimbursement from the subcontractor which failed to pay full wages, though in many instances we expect the ability to obtain this recovery will be limited, at best.

The legislation would also amend General Business Law § 756 to provide that, even without specific contractual provisions, subcontractors performing work on a project submit up the chain employee names and contact information as well as wage and benefit details. Ultimately, the prime contractor must be able to determine how much would be owed to the worker and their identifying information to confirm that full wages and benefits are paid. The law also expressly makes the failure to provide this information justification for withholding of payments to any subcontractor of any tier.

The law would provide deeper pockets for workers seeking compensation for non-payment of wages and benefits but imposes an increased risk and administrative expense to prime contractors and heightened reporting costs to trade contractors. It also provides a benefit to trade unions in that a waiver of this liability can only occur pursuant to a collective bargaining agreement, and union contractors already engage in reporting requirements regarding wage and benefit details.

We anticipate this new law will increase costs for non-union construction projects due to the added reporting requirements and risk imposed on the construction managers or prime contractors.