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Employers May be Liable For Unpaid Wages to Subcontractor’s Workers

Section 218.7 of the Labor Code, effective January 1, 2018, made contractors responsible for wage and benefit payments to employees of subcontractors who fail to make those payments. It permitted a contractor to require proof of wage and benefit payments from subcontractors and to withhold portions of a subcontractor’s payment if the demanded proof was not supplied.

Our blog on section 218.7 recommended that contractors require subcontractors to document payroll and benefit information for each pay period. See, Contractors Liable for Wages and Benefits If Subcontractors Don’t Pay Their Employees (January, 2018).

In A.B. 1565, the legislature has now created section 218.7(i) to require that written contracts with subcontractors must provide for production of such documentation before a contractor may withhold funds for unpaid wages and benefits from subcontractor payments. Subcontractors may include the same written provision with their subs and may withhold money from payments if the documentation is not forthcoming.

While obtaining and reviewing this documentation is an additional burden for contractors, it is more important than ever to do so, as a contractor can then ensure the needed payments are made from withheld funds.

Without such documentation and review, and subsequent withholding of funds for direct payment to unpaid employees, contractors risk government actions to enforce contractor wage and benefit payments to subcontractor employees from the contractor’s own pocket, especially if the contractor is using small, inadequately funded subcontractors..

For further information, please contact one of our attorneys Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin

November 23, 2018