Almost a year ago to date, Virginia passed a new law making general contractors on certain types of projects potentially liable for wage payment violations of their subcontractors. But the scope of a GC’s liability under this new legislation was a major cause for concern. Fast forward to March 31, 2021. The Governor of Virginia signed SB-1209 into law, limiting the scope of liability for GCs and providing a potential defense for such claims.
Virginia’s 2020 wage theft law
In April of 2020, a new wage theft law (§ 11-4.6) was enacted in Virginia that can hold a GC jointly and severally liable for payments to subs and suppliers on projects over $500K (with the exception of single-family residential projects). On top of that, if the contractor or employer is found to have knowingly and willfully failed to pay proper wages, they can be liable for triple the amount of unpaid wages. That’s a LOT of financial liability for GC’s on these projects.
Backlash and response sparks change to protect GCs
This new legislation was immediately met with backlash, and in January of 2021, Sen John Peterson sponsored SB-1209 to limit the scope of the new wage theft laws; which we covered in another article about proposed legislation for Virginia contractors to monitor in 2021. Two months later, the bill was officially signed into law by Governor Northam, and goes into effect on July 1, 2021.
“The change was due to almost universal pushback from construction industry groups such as the Associated General Contractors of Virginia,” says Christopher Hill, a Virginia construction attorney, “and due to concerns with the ability of a General Contractor to control the actions of its “downstream” trades, and in particular those more than one contractual step removed from the General Contractor.”
There were two important changes made by this new law. Let’s take a look at each.
“Subcontractor” definition adjusted
Currently, the wage theft law incorporates the definition of “subcontractor” from the VA mechanics lien statute. This law defines subcontractors as “all such contractors, laborers, mechanics, and persons furnishing materials, who do not contract with the owner but with the general contractor.”
The problem with using this definition was that a general contractor’s liability could extend to any supplier providing materials to the project, regardless of the extent of their contributions.
To fix this issue the definition of subcontractors, under the wage theft provisions, is limited to “not include persons solely furnishing materials.” That way, a general contractor can only be liable for those who provide labor to the improvement.
Written certification helps protect general contractors from liability
This is the most significant change here, additional language was added to the end of §11-4.6, which reads as follows:
As evidence, a general contractor may offer a written certification, under oath, from a subcontractor in direct privity of contract with the general contractor stating that (a) the subcontractor and each of his sub-subcontractors has paid all employees all wages due for the period during which the wages are claimed for the work performed on the project and (b) to the subcontractor’s knowledge all sub-subcontractors below the subcontractor, regardless of tier, have similarly paid their employees all such wages. Any person who falsely signs such certificate shall be personally liable to the general contractor for faud and any damage the general contractor may incur.
“While a safe harbor was implied in the original statute, this statute makes explicit what most construction attorneys I know here in Virginia were advising could be some protection from this concern,” says Christopher Hill, “by specifically stating that a General Contractor has a “safe harbor” from liability should it be able to show a written certification by its subcontractors that wages were paid and that the subcontractor believes its subcontractors paid their employees. In short, while there is still the concern for lack of control, the General Contractor has some protection now.”
How VA general contractors can help protect themselves
General contractors in Virginia should prepare for these changes once July 1st rolls around. The obvious, and most effective way to do so is to make sure they get their hands on written certifications of payment from all of their subs. This can either be a separate form required under the subcontract, or the language can be simply added to subcontractor pay apps or lien waivers.
Note, however, the phrase “as evidence.” A previous version of this bill stated that “It shall be a valid defense if the general contractor obtains a written certification,” but was subsequently amended. This seems to imply that the Virginia legislature made it clear that obtaining written certification isn’t a complete defense. The courts will still conduct an inquiry into whether the GC knew or should have known that wages were going unpaid on the project.
Another way for GC’s to minimize their liability is to take proactive steps before the project even begins. This could include a thorough prequalification process for all potential subcontractors on projects that fall within the scope of the wage theft laws. That way subs can be properly vetted before they are brought on based on their financial stability and payment history. And to take it a step further, GCs could also require their subs to post payment bonds on these projects to help insulate themselves from liability.