Builders are on the Line When Subcontractors Underpay Employees

The latest installment of California’s “wage theft” campaign targets the construction industry. On July 9, 2018, Labor Commissioner Julie Su announced citations against TB Penick & Sons, Inc. (Penick), a San Diego general contractor and its subcontractor Champion Construction, Inc. (Champion), a drywall and framing contractor based in Newport Beach.

Labor Code 218.7, effective January 1, 2018, makes “direct” contractors engaged in construction work liable for their subcontractors’ failure to pay wages. Under Civil Code 8018, a “direct contractor” is one “that has a direct contractual relationship with an owner.” In this newest case, the state held Penick responsible for Champion’s hidden underpayments to 103 employees on a public high school construction project.

Public works projects have special prevailing wage requirements set by the Department of Industrial Relations based on the location and type of work.

The Labor Commissioner’s investigation resulted in total civil wage and penalty assessments of $1,735,784. Via a settlement agreement, Penick agreed to pay $1,187,078 of that amount, allocated to back pay, penalties and apprenticeship training. These companies were fortunate that the Labor Commissioner pursued civil penalties and not criminal prosecution for the violations.

Commissioner Su highlighted the importance of paying prevailing wages on public projects as well as the liability of contractors for the wage sins of its subs: “Prevailing wages create a level playing field for all contractors bidding on public construction projects. This case clearly demonstrates that general contractors who select contractors that don’t play by the rules will pay a heavy price. Under the law, they are responsible for the wage theft of their subcontractors.”

The Carpenters Contractors Cooperation Committee (CCCC) brought this case to the Labor Commissioner’s attention in March 2016.

Contractors that prefer not to support the state’s General Fund with civil penalties, or to cover unpaid wages to subcontractors’ workers, must ensure their subs are bidding enough to pay their workers properly and monitor subs’ ongoing compliance with wage laws.

See also:

• Contractors Liable for Wages and Benefits if Subcontractors Don’t Pay Their Employees (January, 2018)

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin

July 12, 2018