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What is the best legal action to protect my company from below?

I was just informed this morning that a subcontractor has not paid some or all (not sure) employees. He has been paid 60% +/- of his contract and I owe him another smaller draw in the 10% range. What is my best recourse/action to avoid any further issue? legally, what can I do to protect my company? Under project type, residential is indicated; there are 6 for rent houses on the same lot being built. Not sure if this falls under commercial. Thank You

5 replies

Apr 6, 2020

Your remedies will largely depend on what is written in your contract. Many subcontract agreements require the subcontractor to comply with all employment laws and regulations. If your contract contains such a provision, you could send a 48-hour notice telling the subcontractor to pay his employees or be removed from the job. It is crucial for you to review your contract in this situation. In California, the general contractor and the owner of the project can become responsible for the payment of wages to a subcontractor's employees.

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Apr 6, 2020

Thank you Shawn, Below are the paragraphs in the contract I believe you are referring. Please advise... Paragraph 19: INDEMNITY CLAUSE FOR EQUAL EMPLOYMENT OPPORTUNITIES VIOLATIONS: SUBCONTRACTOR shall, at his own expense, conform to the equal employment opportunity policies of the CONTRACTOR, and, in addition, shall comply with all equal employment opportunity requirements promulgated by any governmental authority, including, without limitation, the requirements of the Civil Rights Act of 1964, 42 United States Code, Section 1983, Executive Orders 11246, 11375 and 11478, the California Fair Employment Practices Act, the California Plan, (if project is in California) any other applicable statute or ordinances, plans or programs, inclusive, and all successors and amendments thereto, and all plans, programs, standards and regulations which have been or shall promulgated or approved by the parties or agencies which administer said Acts or Orders (hereinafter collectively referred to as EEO laws). SUBCONTRACTOR shall have and exercise full responsibility for compliance hereunder by itself, its agents, employees, materialmen and subcontractors with respect to its portion of the work on this Project; it shall directly receive and respond to, defend and be responsible for any citation, order, claim, charge, or criminal or civil actions, arising by reason of failure of SUBCONTRACTOR or its agents, employees, material- men and subcontractors to so comply, regardless of whether such non-compliance results from active or passive acts or omissions or whether such non compliance is the sole or a contributory cause of any of those matters against which SUBCONTRACTOR is obligated hereunder to indemnify and hold harmless CONTRACTOR. SUBCONTRACTOR shall indemnify and hold harmless CONTRACTOR from and against any liability loss (including any loss of profits or prospective advantage occasioned by the suspension, cancellation or termination of any contract, or CONTRACTOR'S eligibility therefore), damage, costs, claims, awards, judgments, fines, expenses, including litigation expenses, reasonable attorneys' fees, claims or liability for harm to persons or property, expenses incurred pursuant to or attendant to any hearing or meeting or any applicable costs which may be incurred by CONTRACTOR resulting from SUBCONTRACTOR'S failure to fulfill the covenants set forth in this paragraph. In the event SUBCONTRACTOR fails to comply with any of the aforementioned EEO laws, or any judgment, order or award issued by the Office of Federal Contract Compliance, United States Department of Labor, or any other federal, state or local agency or any court of law, or any other body responsible for the administration and or enforcement of any EEO laws, within the period specified in any such laws, judgments, order or award, CONTRACTOR may, at his discretion, exercise the rights and remedies provided him under the terms of this Subcontract, including, but not limited to, the rights and remedies provided in Paragraph 10. Recourse by Contractor. Paragraph 10: 10. RECOURSE BY CONTRACTOR: In the event that SUBCONTRACTOR at any time refuses or neglects to supply a sufficient number of properly skilled workmen or a sufficient quantity of materials of proper quality or perform work in compliance with plans and specifications, or be adjudicated as bankrupt, or files an arrangement proceeding, or commits any act of insolvency, or makes an assignment for benefit of creditors without CONTRACTOR'S consent, or fails to make a prompt payment to his material men or laborers, or fails in any respect to properly and diligently prosecute the work covered by this Agreement, or becomes delinquent with respect to contributions or payments for any required employee benefit program or trust, or fails to fulfill these Subcontract Provisions by him to be performed, or otherwise fails to perform fully any and all of the agreements herein contained, CONTRACTOR may, at his option, after giving forty-eight (48) hours written notice (confirmed fax, email, registered letter or hand delivered) to SUBCONTRACTOR, provide any such labor and materials as may be necessary and deduct the cost thereof from any money then due or thereafter to become due to the SUBCONTRACTOR under this Agreement; or CONTRACTOR may, at his option, terminate SUBCONTRACTOR'S right to proceed with the work and, in that event, CONTRACTOR shall have the right to enter upon the premises of the project and take possession, for the purpose of completing the work included under this Agreement, of all materials, tools, and appliances of SUBCONTRACTOR, and may employ any other person or person's to finish the work and provide the materials. In case of such termination of SUBCONTRACTOR'S right to proceed with the work, said SUBCONTRACTOR shall not be entitled to receive any further payment under this Agreement until the work undertaken by CONTRACTOR in his prime contract is completely finished. At that time, if the unpaid balance of the amount to be paid under this Agreement exceeds the expenses incurred by CONTRACTOR in finishing SUBCONTRACTOR'S work, such excess shall be paid by CONTRACTOR to SUBCONTRACTOR; but, if such expense shall exceed such unpaid balance, then SUBCONTRACTOR shall promptly pay to CONTRACTOR the amount by which the expense exceeds such unpaid balance. The expense referred to in the last sentence shall include expenses incurred by CONTRACTOR for furnishing materials, for finishing the work, for attorneys fees, and any damages sustained by CONTRACTOR by reason of SUBCONTRACTOR'S default, plus a markup of 15% General Overhead and 10% Profit on any and all such expenses; and CONTRACTOR shall have a lien upon all materials, tools and appliances taken possession of, as aforesaid, to secure the payment thereof. The notice referred to in this paragraph will be sufficient and complete when mailed to SUBCONTRACTOR at his address shown in this Agreement. CONTRACTOR may withhold, or on account of subsequently discovered evidence, nullify the whole or a part of any payment under SECTION 2 to such extent as may be necessary to protect CONTRACTOR from loss, including costs and attorney’s fees on account of (1) defective work not remedied; (2) claims filed or reasonable evidence indicating probable filing of claim; (3) failure of SUBCONTRACTOR to make payments properly to his subcontractors or for material, labor, or for fringe benefits; (4) a reasonable doubt that this Agreement can be completed for the balance then unpaid; (5) damage to another subcontractor. When the above grounds are removed, such amounts are then due and owed shall be paid or credited to SUBCONTRACTOR.

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Apr 6, 2020

Yes; the language that I was referring to is contained in Paragraph 10, which allows you to send a 48-hour notice and if the subcontractor fails to comply with the 48 hour notice, you may terminate his ability to proceed and back charge him for additional costs that you incurred. If you need additional assistance, feel free to give me a call.

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Apr 6, 2020

Thank You -

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Apr 17, 2020

what the contract form is popular for G.C. to use these days for residential renovation project ?

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