In the latest issue of The Wright Toolbox:
Misery Loves Company; Your Subcontractor’s Employees Are Your Problems Too
I was presenting at a seminar recently with numerous government contractors and one of the participants was explaining a problem he had with monitoring his subcontractor’s compliance on a federal project. He stated that “I don’t really worry about whether my sub is paying his employees, because that is his problem, not mine.” There was a collective audible gasp in the audience as many understood that this contractor was unaware that he still held legal responsibility for those wages even when his subcontractors were not paying their employees appropriately. As Maryland approaches a $15 minimum wage, the stakes for this dual liability for a subcontractor’s mistakes were ratcheted up tremendously.
Under a variety of statutes and legal theories, prime contractors may be held jointly and severally liable for wage and hour violations of their subcontractors. Although frequently it involves allegations the two are joint employers because of control issues, as many contractors in the construction arena are aware, federal projects governed by the Davis-Bacon Act (DBA) make prime or higher tier contractors jointly and severally liable for violations by their subcontractors. Failure of a subcontractor to pay appropriate wages may leave a prime contractor responsible for the unpaid or improperly paid wages, possible treble damages and attorneys’ fees incurred by the unpaid employees. Even worse, a prime contractor may face government penalties as well as possible debarment from further government contracting. This exposure is not isolated to Federal projects. Many states, including DC and Maryland, have wage laws which mirror the imposition of liability for subcontractor defalcations on prime contractors.
Under these scenarios, contractors must ensure that there are mandatory wage compliance provisions in any subcontracts and need to take measures to test and measure compliance on a regular basis by ensuring certifications are received from subcontractors that employees are properly classified, are paid timely, are paid proper regular and overtime wages, and that subcontractors are accurately tracking all hours worked. Having good subcontract terms is only one weapon in this battle. Since many of these reflected liability scenarios result from contractors who have little attention to record keeping, the exposed prime contractor is often left with little documentation to mount a defense. In addition to the mandatory contract clauses, provision of monthly certifications which include representations about subcontractor employee pay as well as executed reports of wages paid, hours worked including employee sign-in and out sheets, subcontracts should also include indemnity obligations and explore the possibility of personal indemnity from subcontractor owners.
In addition to these basic contractual provisions and deliverables, some of our proactive clients are even holding mandatory training meetings for subcontractors to attend to roll out the wage forms to be collected with each invoice and use the opportunity to make sure all subcontractors are aware of their wage obligations to employees and are affirmatively taking steps to avoid these claims.
If you have questions about your contractual requirements or discuss what options you can undertake to mitigate your exposure, feel free to reach out to one of our attorneys in the Construction Group or Labor and Employment Group.
Spring Cleaning Priorities for Your Business
Now that we are officially in Spring, we should all take a few moments to ignore the junk piling up in our garages at home and focus on ways to implement the spirit of Spring cleaning to improve our businesses. Pick one or all 5 and get started today.
- Dump old policies
Have you merged sick and vacation time into PTO? Instituted casual Friday, but the dress code still says business attire every day? Now is a great time to revisit those old policies and hand books and update them so that employees have clear guidelines and expectations. In many cases, it may just be a matter of conforming them to current practices.
- Put your document retention policy to work
No policy in place? It’s definitely time to create one. We are all overwhelmed with data today, including digital and paper files, so a consistent purging process is necessary to manage the volume and ensure that important records are easily accessible when needed. Before you go crazy with the shredder and delete button, consider whether there are any litigation holds in place or if your industry is regulated such that advertising material (website archives) must be maintained for a certain time.
- Evaluate your hiring needs
Spring is hiring season for upcoming May grads and a time when seasoned workers look to make a move, inspired by the warm weather and themes of new life and renewal. Current college students are also looking for summer intern/externship opportunities and many programs now have experiential components requiring students to earn a few credits in the field. Hosting a student for the summer is a great way to “test-drive” an entry-level hire for next year and get a little extra help during vacation season as long are you’re committed to offering a quality, educational experience. The Department of Labor does not allow businesses to use unpaid interns to fill otherwise paid positions.
- Eliminate unneeded expenses (and stuff)
Subscriptions and services tend to accumulate over time and those ongoing charges really add up over time. Unread magazines and unused supplies clutter up the office, making it feel chaotic. Recycling the pile now is only a temporary solution; ending the subscription is a permanent fix. Most industry organizations are happy to provide their news and updates online and save the cost of printing and mailing the paper copy anyway. Take it one step further and re-direct the savings you generated to plan a company picnic or outing. Nothing says Spring like making plans for the Summer!
- Refresh content
Outdated and obsolete content, on your website and in print, can be frustrating for clients, leading to confusion and potentially losing sales. Highlighting new products or services will help to cross-market to existing clients and open the door to new ones. Good quality, current marketing materials enable your team to serve client needs more efficiently by answering common questions and providing background information, so it is absolutely worth the effort to update them occasionally.
As an added bonus, you can also clean out the office refrigerator. You know it needs it.
To browse past issues, visit The Wright Toolbox page.