In adding yet another layer of regulation on private construction contracts, California’s SB 727 extends the direct contractor’s liability to penalties, liquidated damages, and interest owed by subcontractors for contracts entered into, on or after January 1, 2022. 

This law requires the Labor Commissioner to notify, as specified, the direct contractor and subcontractor at any tier on a private works project at least 30 days prior to taking certain actions for the failure of a subcontractor on that private works project to pay the specified wage, fringe, or other benefit due to workers. The law also removes, for contracts entered into on or after January 1, 2022, the limitation of liability.

Previous law required, for contracts entered into, on or after January 1, 2018, a direct contractor, as defined, making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other private work, to assume, and be liable for, any debt owed to a wage claimant or third party on the wage claimant’s behalf, incurred by a subcontractor at any tier acting under, by, or for the direct contractor for the wage claimant’s performance of labor included in the subject of the original contract.

Limitations Removed

Previously the law limited the direct contractor’s liability under those provisions to extend only to any unpaid wage, fringe or other benefit payment or contribution, including interest owed and provided that liability does not extend to penalties or liquidated damages.

This new law, for contracts entered into, on or after January 1, 2022, requires the notice to include the project name and name of the employer and provide that any liquidated damages awarded by the Labor Commissioner or the court shall be payable to the aggrieved employee.

Additionally, the law authorized the Labor Commissioner to enforce against a direct contractor the liability for unpaid wages pursuant to specified provisions, or through a civil action, and limits the direct contractor’s liability to unpaid wages, including any interest owed.

What’s more is that under previous requirements, prior to commencement of an action against a direct contractor, a joint labor-management cooperation committee was to provide the direct contractor and subcontractor that employed the wage claimant with at least 30 days’notice, as provided.

By Dave Sorem, P.E. ECA Government Affairs Chairman Email: [email protected]