On September 27, 2021, Governor Gavin Newsom signed into law SB 727, which amends the labor code to broaden the liability for prime contractors for wage and benefit violations committed by their subcontractors on private projects. Prior to SB 727, prime contractors were liable if their subcontractors failed to pay wages and provide benefits to their employees, but prime contractor liability did not extend to any penalties or liquidated damages for such violations.
SB 727 adds Labor Code section 218.8 to impose joint liability on prime contractors and subcontractors for contracts entered into after January 1, 2022, on private projects. Prime contractors are now liable for their subcontractors’ penalties, liquidated damages, and interest stemming from subcontractor wage and benefit violations. They will also be liable for the failure of a subcontractor to make payments to the California unemployment insurance fund or for failure to provide workers’ compensation benefits.
For public works contractors, current law imposes joint liability on prime contractors and subcontractors if workers are paid less than prevailing wage. The penalty for such a violation can be up to $200 each day for each worker paid less than prevailing wage. However, a prime contractor can escape liability by complying with requirements set forth in Labor Code section 1775(b)(1) – (4), including:
(1) listing the provisions of enumerated Labor Code sections in its contract with the relevant subcontractor;
(2) periodically reviewing the certified payroll records of the relevant subcontractor for prevailing wage compliance;
(3) diligently taking corrective action to halt or rectify a situation in which a subcontractor is not paying its workers prevailing wage; and
(4) obtaining a signed affidavit from the subcontractor prior to final payment stating that it has paid the specified general prevailing wage to its employees on the project.
Tao Rossini APC’s lawyers have decades of experience assisting clients on public and private projects. If you have questions about the contractor liability issues discussed above, or other related questions, please contact us.