Virginia contractors may be liable for subcontractor's employee wages

In their 2020 session, the State of Virginia enacted legislation that grants construction employees private causes of actions for nonpayment on a construction project. One of the most significant changes is that under these new laws, contractors (and general contractors in particular) can be found liable for the unpaid wages of their subcontractors’ own employees. Let’s break down what this new legislation looks like.

Virginia legislative update

The Virginia General Assembly recently enacted a law that can make contractors liable to their subcontractors’ employees for unpaid wages. These changes stem from the passage of Senate Bill 838 and House Bill 123. These bills add a new statute under §11-4.6 and amend the existing §40.1-29.

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The new regulations will apply to all construction contracts entered into after July 1, 2020, which are over $500,000 with the exception of single-family, residential projects. Here are the significant impacts of this new legislation.

Virginia contractors are liable for subcontractor employee wages

One of the major changes under this new legislation is that the state can hold Virginia contractors liable for the payment of wages to their subcontractors’ employees.

§11-4.6(B). Any construction contract entered into on or after July 1, 2020, shall be deemed to include a provision under which the general contractor and the subcontractor at any tier are jointly and severally liable to pay any subcontractor’s employees at any tier the greater of:

(i) all wages due to a subcontractor’s employees at such rate and upon such terms as shall be provided in the employment agreement between the subcontractor and its employees; or

(ii) the amount of wages that the subcontractor is required to pay its employees under the provisions of the Virginia Minimum Wage Act and the Fair Labor Standards Act.

This statute will make general contractors share the liability of non-payment with the subcontractor who hired the employee. This holds true both for unpaid employees and employees who aren’t being paid the proper wages under the Virginia Minimum Wage Act and the federal Fair Labor and Standards Act.

Contractors are employers of subs’ employees

The way this legislation makes VA contractors liable is that the employees of their subcontractors are deemed to be employees of the contractor. This opens them up to both civil and criminal penalties for non-payment.

§11-4.6(C). A general contractor shall be deemed to be the employer of a subcontractor’s employees at any tier for the purposes of §40.1-29. If the wages due to the subcontractor’s employees under the terms of the employment agreement between the subcontractor and its employees are not paid, the general contractor shall be subject to all penalties, criminal and civil, to which an employer that refuses to pay wages is subject under §40.1-29. Any liability of the general contractor pursuant to §40.1-29 shall be joint and several with the subcontractor that failed or refused to pay the wages to its employees.

§11-4.6 (D). Except as otherwise provided in a contract between the general contractor and the subcontractor, the subcontractor shall indemnify the general contractor for any wages, damages, interest, penalties, or attorney fees owed as a result of the subcontractor’s failure to pay wages to the subcontractor’s employees as provided by subsection B, unless the subcontractor’s failure to pay the wages was due to the general contractor’s failure to pay moneys due to the subcontractor in accordance with the terms of their construction contract.

More legal protection for construction employees

Lastly, this legislation results in more available private actions for those faced with non-payment. A Virginia contractor can be liable if they knew or should have known that the employees were being unpaid. It allows plaintiffs who succeed in such actions to collect back wages, liquidated damages, interest, and attorney’s fees and costs.

Furthermore, if the contractor/employer is found to have knowingly and willfully failed to pay wages, they can be liable for triple the amount of unpaid wages.

§40.1-29(J). In addition to any civil or criminal penalty provided by this section, and without regard to any exhaustion of alternative administrative remedies provided for in this section, if an employer fails to pay wages to an employee in accordance with this section, the employee may bring an action, individually or jointly, with other aggrieved employees, or on behalf of similarly situated employees as a collective action consistent with the collective action procedures of the Fair Labor Standards Act… against the employer… and the court shall award the wages owed, an additional equal amount as liquidated damages, and reasonable attorney fees and costs. If the court finds the employer knowingly failed to pay wages to an employee in accordance with this section, the court shall award the employee an amount equal t0 triple the amount of wages due and reasonable attorney fees and costs.

Impact of increased liability on VA construction

These changes are clearly aimed at protecting lower-tier project participants from non-payment and wage theft. However, this can have a unique impact on the construction industry as a whole in the state of Virginia. As Christopher Hill, a Virginia construction attorney who’s a member of our Construction Expert Center community recently stated in his Impactful Construction Legislation Enacted for 2020 article,

“This legislation is likely to increase costs for all construction projects because of the additional risk to general contractors that a remote employer outside of its control will fail to pay wages… It could limit projects with a value of over $500,000.00 to only those larger general contractors that can absorb the additional costs or have the ability to get novel forms of bonding to hedge against this risk.”

Virginia’s new legislation will increase the likelihood of claims by contractors and employees, and as Chris Hill mentioned, increase the costs of construction in general. This may result in the increased usage of payment bonds, increased screening and prequalification processes in hiring, and more contractual protections concerning payments and indemnification.

We will continue to monitor how this legislation works in practice once they go into effect in July 2020.