A contractor assumes liability for any unpaid wages, benefits, damages, attorney fees related to a civil or administrative action by a wage claimant or the Department of Labor against a subcontractor, of such contractor.
NY LABOR LAW § 198‑E applies to Construction contracts entered, renewed, modified, or amended on or after January 4, 2022
By Richard B. Ziskin, Esq.*, The Ziskin Law Firm, LLP
The New York Labor Laws contain considerable worker protections and provide for recovery for workers who are not appropriately compensated.
In NYS, workers must be paid at or above the minimum hourly wage rate, receive overtime compensation after working more than forty (40) hours per week if they are covered under New York’s overtime provisions, and be provided with certain meal breaks, paid sick leave, and paid family leave.
New Labor Laws (NYLL) also require that workers must receive notice of their promised benefits, including vacations, personal leave, and holidays as well as health benefits.
The modifications to § 198‑E of the NYLL provide that, contractors will be held jointly and severally liable for their subcontractors’ failure to pay proper wages as defined by the NYLL.
For example, even if the general or primary contractor had no direct involvement in a subcontractor’s failure to pay minimum or overtime wages, the primary contractor may be liable for up to three (3) times the value of lost wages for such violations.
The law applies to contracts entered, renewed, modified, or amended with property owners on or after January 4, 2022.
Additionally, any amendment or revision to applicable construction contracts, even changes unrelated to the use of subcontractors or wages, may trigger liability for contractors.
NEW SECTION 198‑E
The legislature’s stated purpose of this bill was to amend the existing wage theft law to increase the likelihood that “exploited” workers in the construction industry will be able to secure payment and collect unpaid wages and benefits for work that has already been performed.
SUMMARY OF PROVISIONS
Section 1 adds a new section 198‑E to the Labor Law pertaining to construction industry wage theft.
Pursuant to this new section, a construction contractor, would assume liability for any unpaid wages, benefits, damages, attorney fees related to a civil or administrative action by a wage claimant or the Department of Labor against a subcontractor, of such contractor.
Section 2 adds a new section 756-F to the General Business Law to clarify that a contractor or subcontractor may withhold payment to their subcontractor for failure to provide certain payroll records.
Section 3 provides a severability clause.
Section 4 establishes an effective date.
JUSTIFICATION
This bill provides New York construction workers with a new remedy against wage theft. Prior to the enactment of NY Labor Law § 198‑E, a worker could bring a private lawsuit against their direct employer to collect any unpaid wages, including overtime and fringe benefits.
This has been a major issue in the construction industry where the direct employer has sometimes been a subcontractor willing to hide assets, change corporate identity and take part in other unscrupulous practices to avoid liability and make themselves judgment proof from a wage theft action.
By holding the prime contractor of the construction project liable for all subcontractors that it chooses to utilize on a jobsite, the New York State Legislature is seeking to ensure that that underpaid construction workers are more likely to collect unpaid wages, while creating an incentive for the construction industry to better self-police itself.
EFFECTIVE DATE
This act shall take effect on the one hundred twentieth day after it shall have become a law and shall apply to construction contracts entered, renewed, modified, or amended on or after January 4, 2022.
Contractors must not only strive to maintain clear and accurate employee payroll records, but must also confirm that the wage and hour records of subcontractors are also maintained.
HOW SHOULD CONTRACTORS ADDRESS CHANGES IN THE LAW
With these new provisions in the law, contractors must consider taking the following steps to monitor their subcontractors to avoid potential liability:
Contractors should request certified payroll records from all subcontractors who work on a project, including subcontractors of all tiers, as permitted by GBL section 756-F.
Contractors may need to withhold payment from subcontractors who fail to provide certified payroll records.
Contracts with subcontractors should state clearly that subcontractors must provide certified payroll records with each payment requisition.
Contractors should include in all contracts with subcontractors, provisions that the subcontractor will indemnify the contractor for all damages under section 198‑E of the NYLL, including for attorneys’ fees and costs, stemming from the subcontractor’s failure to comply with the NYLL. Any existing contracts with subcontractors that are amended should also include such provisions. (Section 198‑E prohibits contracts that prevent employees from exercising their rights to collect lost wages, but contractors may enter into indemnification agreements with subcontractors.)
Contractors should monitor their subcontractors and require that their subcontractors notify them immediately if any work on the project is further subcontracted.
Contractors should retain their subcontractors’ payroll records for a minimum of three years, which is the applicable statute of limitations for claims made pursuant to section 198‑E of the NYLL. By retaining the subcontractor’s records, the contractor can defend itself against potential liability.
NEW YORK'S MINIMUM WAGE
All New York workers are entitled to receive at least an hourly Minimum Wage rate.
The Minimum Wage rate varies depending on region and is increasing every year until it reaches $15.00.
Employers that break the Minimum Wage Law may be subject to orders to pay:
Back wages
Interest
Liquidated damages
Fines
Employers may also be subject to criminal prosecution and penalties. The fines for violations can total up to 200 percent of the missing wages. Employers may also have to pay 16 percent interest on the unpaid wages.
Minimum Wage as of 12/31/2021
New York City: $15.00
Long Island & Westchester: $15.00
Remainder of New York State: $13.20
*From Mr. Richard B. Ziskin's presentation titled "NY LABOR LAW § 198‑E: Contractors Liable for Wage Violations of Subcontractors" at the NYC Special Riggers Association Technical Event, at Club 101, on March 24, 2022. The content of the presentation is available online. The information provided in this presentation does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this presentation are for general informational purposes only.