New York rule on contractors’ liability for wages of employees of subcontractors

Particular attention has been paid to the “joint employer responsibility” doctrine in recent months, including on this blog. Under the Fair Labor Standards Act, an employee can be deemed to have more than one employer, each of which would be jointly responsible for all aspects of FLSA compliance, including with respect to the payment of wages, as part of their job. performing the same job. job. During the previous administration, the US DOL issued a rule to standardize the parameters of joint employer liability. Months later, however, a federal court struck down part of the new rule, ruling that it impermissibly narrowed the scope of the joint employer doctrine. And, in July 2021, the DOL announced its outright repeal of the rule, that is, whether a business could face joint employer liability will again be governed by the multifactorial test of “economic reality” subject to various judicial interpretations.

A significant new development in New York law, however, essentially makes the concept of joint employment, and the standards that govern it, a moot point, at least in terms of wage liability in the construction industry. In September 2021, Governor Hochul signed Senate Bill S2766C (A3350), entitled “An Act amending Labor Law and General Business Law, in relation to actions for non-payment of wages”, which adds new sections at New York Labor. Law (198-e) and General Business Law (756-f). As stated in the rationale for the bill, the law seeks to “provide New York construction workers with a new remedy against wage theft” – in particular, by throwing the blame on contractors when one of their subcontractors do not pay wages owed to its (the subcontractor) employees. This transfer of responsibility occurs without regard to whether the contractor can properly be considered a joint employer of the employee of the subcontractor.

The critical aspects of labor law § 198-e, which will enter into force on January 4, 2022, are as follows:

• The law transfers responsibility to “contractors”, which includes any person or business entity that “enters into a construction contract with an owner”.

• The law applies to work carried out under a “construction contract”, which is defined broadly, but exclude public works contracts, home improvement contracts awarded by owners of owner-occupied housing, and some (but not all) single-family or two-family home construction contracts.

• The law makes contractors responsible for wages owed but not paid by sub-contractors at “any level” – ie the contractor is responsible for the wages of sub-contractors of his sub-contractors, and so on.

• Liability exemptions granted to contractors by subcontractors or their employees will generally be invalid, although exemptions granted by collective agreement may be effective, provided certain criteria are met.

• The law establishes an abbreviated three-year limitation period for wage claims that an employee of a subcontractor may wish to assert against a contractor, unlike the ordinary six-year limitation period which applies in other cases. contexts under labor law.

• While contractors must take responsibility for the wages owed by the subcontractors in the first place, they can bring an action against the affected subcontractor to recover the wages paid to the employees of the subcontractor.

As stated in the rationale for the bill, the intention of the legislator was not only to ensure that “construction workers are able to quickly recover unpaid wages”, but also, at the same time, to ” to create[e] an incentive for the construction industry to better self-control in turn[.]To the latter end, the corresponding revisions of the General Business Law are supposed to equip entrepreneurs with tools to monitor their subcontractors and thus reduce their exposure to wage liability. More specifically, at the request of a contractor, a subcontractor (at any level) must provide:

• Certified payroll records containing “sufficient information to inform the contractor.” . . the payment status of that subcontractor with respect to the payment of salaries and the payment of any payment of fringe benefits or other benefits or contributions to a third party on behalf of its employee ”;

• the names of all the subcontractor’s workers (including independent contractors) on a project;

• where applicable, “the name of the subcontractor of the contractor with whom this subcontractor is under contract”;

• the start date of the subcontractor’s contract and the duration of the work;

• the identity of the unions with which the subcontractor is a signatory; and

• the contact details of the contact person designated by the subcontractor.

If a subcontractor at any level does not provide the above information, the entrepreneur may withhold payment otherwise due to that subcontractor.

Entrepreneurs potentially affected by the new law should note that it applies not only to new contracts entered into as of January 4, 2022, but also to contracts “renewed, modified or amended»From that date. Therefore, entrepreneurs in New York should:

1. 1. the requirement that the subcontractor provide on a recurring basis, without the need for an affirmative request, all information to which the contractor is entitled under the revisions of the general business law;

   2. compensation provisions making explicit reference to the new section of the labor law (such provisions are expressly permitted under the new law, as it states that it does not prohibit a contractor. to establish by contract or apply any other legal remedy against a subcontractor it hires for the liability created by the violation of this section ”); and

   3. obligations that subcontractors certify and / or demonstrate compliance with applicable wage laws.

• Be sure to implement the above types of protective provisions when renewing, modifying or amending an existing contract.

• Develop and implement practical procedures to collect and review the information they are entitled to receive from contractors under the new law, and any additional information they may otherwise require in order to reduce the exposure to wage claims under the new law.

Finally, although the new law applies to only one industry, it can be useful to keep an eye on its impacts, even from a broader perspective. As we have noted, the departure from basic notions of joint employer liability is shocking. And the double justification for this departure, that is to say that (i) some players in the industry are “unscrupulous” and may try to “exercise judgment” and (ii) those acting in good faith industry are able to influence the behavior of these alleged bad actors would not necessarily be unique to this space. Time will tell if New York’s new rule is an anomaly or the leading edge of a trend.