May 2019
Level With Me By JeremyWyatt
SB 853: Avoiding Liability for Subcontractors’ Employment Claims Under Maryland’s New, Harsh Law
could leave the general contractor liable for that employee’s unpaid wages and attorneys’ fees.
What is it?
In October, 2018, a new law came into effect in Maryland — SB 853 —making general contractors potentially liable for the unpaid wages of every employee on Maryland construction projects, regardless of whether the general contractor employs the unpaid person or a subcontractor (at any level) does. That’s a huge change. Previously, general contractors were only responsible for paying their own employees, and subcontractors were responsible, in turn, to pay their respective employees. Subcontractors aren’t spared SB 853’s wrath either, as they now have a statutory duty to indemnify (defend and protect) general contractors for the subcontractor’s “violation” of Maryland wage and payment laws, whatever the court will interpret that quoted term to mean. The bottom line for what is known about the new law at this point is that SB 853 spreads liability for unpaid wages all over Maryland construction projects, tacking on to the existing wage payment structure of Maryland law. And that existing structure (now applicable to general contractors and their indemnitors) provides that employees can recover not only unpaid wages, but also triple damages and their attorneys’ fees. That’s nothing to sneeze at.
That new risk is compounded by the potential that a subcontractor who is alleged to have failed to pay its employees may not have sufficient records for general contractors to review and defend themselves from a wage payment claim. Without good records, any wage payment claim becomes more uncertain and volatile. Finally, for general contractors, the likelihood is that if a particular subcontractor fails to pay its own employees, then that subcontractor is probably experiencing financial difficulties, making reimbursement to the general contractor (indemnity or not) unlikely. In essence, the buck will often stop with the general contractor. We all know that crap rolls downhill, and it should come as no surprise that general contractors (wisely) have already begun finding ways to shift the risks for SB 853 liability down to subcontractors. In light of the new liability, subcontractors should expect a few new problems. First, general contractors may exercise rights to withhold larger amounts of retention for longer periods (subject of course to Maryland’s statutory retention limitations). The timing aspect of retention may become particularly important, because Maryland’s wage payment claims have a three-year statute of limitations, meaning that an employee of a subcontractor could sue a general contractor up to three years after going unpaid. That’s a long time to hold retention! Second, as general contractors’ subcontractor-related risks increase, we should expect their demands for subcontractor bonds to increase correspondingly. Again, this may include not only a “size- What are SB 853’s new risks for subcontractors?
What are SB 853’s new risks for general contractors?
While SB 853’s relative youth means we do not have a complete risk profile yet, the biggest risk is obvious: General contractors will now be liable to pay for the faults of others. Even if a general contractor promptly pays all amounts due to their subcontractors, the bad/ negligent acts of a single subcontractor in not paying an employee
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jwyatt@harrisonlawgroup.com
www.HarrisonLawGroup.com
(410) 832-0000
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