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• • • Misery Loves Company; Your Subcontractor’s Employees are Your Problem Too – read now

Misery Loves Company; Your Subcontractor’s Employees are Your Problem 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 mentioned 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 worst, 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 a 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.

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