New York Wage Theft Liability Legal Alert: Photo of New York Park with tag

As the New York Legislative Session reaches the home stretch, there’s one proposed piece of legislation that’s drawing a particular amount of attention. Early this year, a pair of bills were introduced into the state Senate and Assembly that are meant to curb the ongoing issue of wage theft on construction projects in New York. If enacted, this would create liability for general contractors for the unpaid wage claims made against their subcontractors — and both sides of the fence have sounded off.

NY bill imposing liability on GCs for subcontractor wage violations

The New York Legislature is currently considering enacting Senate Bill 2766 (A3350). If passed, this new law would open general contractors and/or construction managers on private projects to liability for unpaid wage claims made against a subcontractor on the project.

Bill Overview

If enacted, this would add a new section to NY Labor Laws: §198-e entitled “Construction industry wage theft.” The provisions of the bill themselves aren’t overly complicated, but the impact on the NY construction industry could be substantial. 

Here’s the long-short of it: This law would make general contractors on private projects jointly and severally liable for any debts owed to a wage claimant by a subcontractor of any tier. This includes unpaid wages, benefits, wage supplements, penalties, liquidated damages, attorneys’ fees, and any other costs owed.

Such claims — and correspondingly, a general contractor or construction manager’s liability — are subject to a statute of limitations of six years.

Public response to proposed legislation

Wage theft is a serious issue and has been a steadily growing problem in New York. According to a study conducted back in 2015 by the Economic Policy Institute, wage theft in New York averaged over $965 million in lost wages annually.

Keep in mind that these claims aren’t solely for nonpayment, but also underpayment, misclassification of workers, overtime pay, illegal deductions, failure to provide required benefits, and more. And, unfortunately, this problem has only worsened — particularly during the COVID-19 pandemic.

No one disagrees that this trend needs to be curbed, but exactly how to tackle this problem has been a topic of controversy in recent weeks.

Arguments in favor of the bill

We reached out to Assemblywoman Latoya Joyner, the main sponsor of this bill.

We need to end wage exploitation and wage theft to ensure that working New Yorkers get the pay they deserve and have worked so hard for,” Joyner said. “The Wage Theft Prevention Act of 2021 will make sure that the New Yorkers who have built our great state are treated fairly and equitably. And it’s important to note that the Assembly passed an amended version of this bill on June 1st by a wide margin (122-25).

Those who support Joyner’s stance are calling for more uniformity and accountability to prevent wage theft, and that the current system is ineffective to deal with this growing issue. Many subcontractors committing such violations have been known to merely go out of business, or change their company names to make it harder to make a claim against them/

The New York State AFL-CIO echoed this sentiment shortly after the bill was introduced, urging for its passage:

“Currently, workers may only bring a private wage theft action against the subcontractor directly responsible for their paycheck. Even when such [a] suit is successful, workers often are not made whole because the subcontractor is often judgment-proof or can change its corporate identity to avoid liability. This problem is magnified in the construction industry where the use of subcontractors and labor brokers is extremely prevalent.”

Arguments against the bill

On the other side of this debate, the main argument against the passage of this bill is the undue costs and burden it places on general contractors.

Mike Elmendorf, the President of the Associated General Contractors of New York State, recently urged the legislature against its passage:

“We also take umbrage at the notion that GCs/CMs should bear responsibility for such theft perpetrated by subcontractors (often many tiers removed from the general contractor) when there was no knowledge or notice of the violation,” Elmendorf commented. “In short, subcontractors, as with any business, who violate the law should bear responsibility for their own violations and there should be no expectation for another business — in this case a GC/CM — to cover the cost.”

The main concern is that if GC/CMs can be held liable for such claims, this would increase both administrative and legal costs of contractors, not to mention the time and efforts spent policing violations.

Such costs would drive up the price of construction projects in general, and may also have the unintended consequence of increasing the barriers to entry for smaller, less-capitalized construction firms.

The Business Council of New York State has also joined the movement against the enactment of this new legislation, issuing the following warning:

“The new law would, in essence, make general contractors and construction managers employing subcontractors on job sites investigators, record keepers, and ultimately — defendants,” the Council stated.

“This dramatically shifts the blame from unscrupulous subcontractors to another segment of the industry rather than focusing on those best suited to investigate and enforce wage theft: the Department of Labor, New York State Attorney General’s Office, and local District Attorneys.”

Since the legislative session is scheduled to end on June 10th, tensions are mounting. In anticipation of a vote, the Construction Law Committee of the New York City Bar Association also weighed on the matter.

Without taking a specific stance, they did express concern about the language of the bill as-is — and its potentially harsh consequences. Just last week, they issued a report with recommended revisions that would still achieve the goals intended by the bill, but also providing safeguards for general contractors and construction managers as well. The full report can be read here, but here are some of the most relevant revisions they recommend:

  • Adding a written notice requirement, that should be sent to the GC within 90 days of a missed payment
  • Include whistleblower protection against discrimination or retaliation, and permit anonymous reporting to the GC
  • Limiting the GC’s liability to violations to lower-tiered subs after the notice is received, and allowing the withholding of payment to the subcontractor until the claimant is paid directly or the claim is otherwise resolved
  • Removing a GC’s liability for liquidated damages, attorney fees, and costs (as to not add punitive measures onto a party that lacked the ability to prevent the wage theft in the first place)

NY construction industry waits with bated breath

Laws expanding liability for wage theft claims to general contractors has been a growing trend in the US, as states like California, Maryland, and most recently Virginia have enacted similar provisions.

Whichever side you land on regarding this bill, all parties involved in the New York construction industry should keep a close eye on the progress of this legislation. If and when this bill passes, and what it will look like if it does, is still up in the air. And its effects will be felt at every level; both positive and negative.

We’ll keep you updated on its progress.