Illinois House Passes Bill Affecting Subcontractor Wages
Illinois is looking to follow the example led by California and Maryland, which are holding general contractors liable for unpaid wages of subcontractors. House Bill 2838 would amend the Illinois Wage Payment and Collection Act and take effect on contracts entered into on or after July 1. The bill was referred to the Senate's Assignments Committee earlier this month after being passed by the House.
If signed into law, direct contractors would 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 contract between the direct contractor and the owner," according to the bill.
Ultimately, the contractor could be held responsible for paying more than once, should the subcontractor withhold payment. The legislation "… could inflate construction costs by forcing general contractors to pay construction workers twice," said Mark Grant, National Federation of Independent Business state director for Illinois, in a release. Grant continued to call the bill "unfair to general contractors" if they have to pay for subcontractor workers. The Illinois Chapter of Associated Builders and Contractors opposed the proposed legislation as well.
"As a contractor who hired someone and paid them to do a job and then when they don't pay their employees, how on Earth is that my responsibility?" said Rep. Tom Weber of Illinois' 64th District, who is also a contractor, according to Illinois News Network. While considered unfair by some, it is a reality and no joke.
In July 2018, a San Diego-based general contractor reached a settlement agreement for nearly $1.2 million to pay for its subcontractor's wage theft. "This case clearly demonstrates that general contractors who select contractors that don't play by the rules will pay a heavy price," said California Labor Commissioner Julie A. Su in a Department of Industrial Relations release. "Under the law, they are responsible for the wage theft of their subcontractors." A similar law went into effect Oct. 1, 2018, in Maryland, placing joint liability for unpaid subcontractor wages on general contractors.
According to Construction Dive, unpaid subcontractor wages are only one aspect impacted by the new and proposed laws. Surety companies could also be affected. "Because surety companies could be on the line for extra wages in these states, they may identify more risk when underwriting bonds and contractors could end up paying extra," states the article from Construction Dive.
General contractors could require subcontractors to obtain a bond to protect against such instances, according to an article from law firm Baker Donelson. It's possible the new law would have general contractors fighting on two fronts: one against having to pay for their subcontractors' workers as well as if there is a mechanic's lien on the owner's property, states Watt, Tieder, Hoffar & Fitzgerald, in an article about Maryland's newly enacted law.
The owner's obligation to pay direct contractors timely under Illinois' Prompt Payment Act will not be affected "except that if a subcontractor does not timely provide the information requested … the director contractor may withhold as 'disputed' all sums owed until that information is provided," according to the bill.