With recent legislation changes in California and other states, there have been decidedly more HR duties added to GCs’ responsibilities.¹ Per these changes, GCs now assume new HR-related responsibilities within contracting chains.² 

In fact, in certain states, GCs are now potentially exposed to such complications as payroll and benefits processing by all subcontractors on their projects.³

This article will outline and analyze new responsibilities and associated risks affecting GCs due to recent legislative changes and provide insight into potential best practices.

Legislative Changes: What’s Going On?

Currently in effect, California’s Assembly Bill No. 1701 makes GCs jointly liable for the unpaid wages, fringe benefits, or other benefit payments or contributions of subcontractors (at any tier).⁴ The idea behind the requirement is theoretically similar to that of mechanics liens or other construction payment protections: parties atop the chain can better control the flow of money throughout. This ability and the idea that GCs can use inherent leverage to direct subcontractors’ actions can make GCs vulnerable to perceived payment issues or abuses.

The purported benefit to Assembly Bill No. 1701 is that additional GC liability for sub-tier wages, and the associated control, will provide a stronger mandate with respect to payment of all workers on a construction project.

Requiring a GC to be responsible for wages all the way down the contracting chain, beyond just ensuring payment to its own employees and subcontractors, will presumably provide greater down-the-chain protection and help prevent the misclassification of employees as independent contractors.⁵ If a GC pays its subcontractor, that subcontractor pays its subcontractor, but that sub-subcontractor does not pay wages, then the GC will still be liable.⁶ And, as the party ultimately responsible for all employee workers on the project, the GC can be incentivized to carefully select subcontractors in order to minimize the risk of paying twice. But it is questionable how much merely being selective can help.

According to Assembly Bill No. 1701 author Tony Thurmond, “[t]his measure incentivizes the use of responsible subcontractors and helps to ensure the economic vitality of the construction industry and its role in the creation of good paying middle class jobs.”⁷ However, it can be argued that a fairly tenuous thread exists between increased GC liability for unrelated parties’ wages and the construction industry’s employment rate.

California is not alone in believing the GC should ultimately bear responsibility for every worker’s wages on a project. In legislation effective October 2018, Maryland mandated that a GC performing work on a construction services project is liable to a worker to the same extent as the employee’s direct employer.⁸ Similar to California, this responsibility is not limited to first-tier subcontractors and applies “regardless of whether the subcontractor is in a direct contractual relationship with the GC.”⁹ In excess of the obligation imposed in California, which is limited to unpaid wages and interest, the obligation in Maryland extends to penalties the unpaid worker could recover from his or her direct employer – three times the owed wages, plus attorneys’ fees and costs.¹⁰

While ensuring the payment of individual workers is a noble goal, there may already be solutions in place. With respect to these obligations, what practices should a GC’s HR department implement and what tools are HR professionals given to ensure compliance?

GCs can monitor payments made by subcontractors and have access to subcontractors’ payroll, employee records, and contracts. If a subcontractor fails to provide information upon its GC’s request, the GC can withhold disputed sums. But is requesting and examining subcontractor payroll records sufficient?