California’s AB 1701 has passed legislature and has been signed by Governor Jerry Brown. The bill has raised plenty of concerns among California builders, as it would require that general contractors step in and pay unpaid wages of parties down the chain. It also looks to prevent the misclassification of employees. At the last minute, the bill was amended to clarify that GC’s would not be liable for penalties after a sub’s nonpayment. Still, the legislation marks a huge shift.
California AB 1701
Assembly Bill 1701 makes a general contractor jointly liable for the unpaid wages, fringe benefits, or other benefit payments or contributions of a subcontractor (at any tier). It provides greater down-the-chain protection while preventing the misclassification of employees as independent contractors. The bill applies even if the general contractor has paid the sub – if the GC pays a sub, but the sub does not pay wages, the GC will still be liable. Interestingly, this setup actually resembles how homeowners may have to pay twice when lien claims arise.
To quote the bill’s author, Tony Thurmond, “This measure incentivizes the use of responsible subcontractors and helps to ensure the economic vitality of the construction industry and its role in the creation of good paying middle class jobs.”
Because GCs are taking on so much liability, the expectation is that penalties will encourage general contractors to select subs more carefully. Even after the hire, GC’s will be able to monitor payments made by their subs. Under AB 1701, a general contractor will have access to their subs’ payroll records, employee records, and contracts. If a sub fails to provide information upon their GC’s request, the GC can withhold disputed sums.
For further reading, here’s the full text of the bill.
Many argue that this is an unfair burden for general contractors and that the bill will only raise prices for an already brutal California housing market. They claim that this legislation is unnecessary, and that the bill aims to fix a problem that isn’t there. On the other hand, groups like the California Conference of Carpenters argue that the pricing concerns are overblown. They claim the bill will merely make sure workers are paid their due. California mechanics lien laws (we’ve got those here) protect many unpaid parties, but the pension and benefit contributions are not protected- they are under this bill. What’s more, lien laws, by themselves, do nothing to prevent the misclassification of an employee.
But with the exposure to liability (aka more potential for litigation) and the additional responsibility of actively monitoring every sub’s payroll, prices could very well rise. However, in line with the goal of the legislation, AB 1701 creates a more direct link between the payment obligations of a general contractor and their subcontractors. It will take participation from the entire chain to reach Construction Payment Utopia, so this just might be a step in the right direction.