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It’s been a rollercoaster. But the ride appears to be over. In United Riggers & Erectors, Inc. v. Coast Iron & Steel Co., Case No. S231549 (May 14, 2018), the California Supreme Court addressed whether a direct contractor can withhold payment from a subcontractor based on the “good faith dispute” exception of the state’s prompt payment laws if the “dispute” concerns any dispute between the parties or whether the dispute must be directly relevant to the specific payment that would otherwise be due. California’s Prompt Payment Laws California has a number of construction-related prompt payment laws scattered throughout the state’s Civil Code, Public Contracts Code and Business and Professions Code. Their application depends on the type of construction involved, whether public or private; the type of payment involved, whether a progress payment or retention; and who is paying, whether it’s a private owner, public entity, direct contractor, or subcontractor. While the application of these statutes vary they are structured similarly and provide for payment by a private owner, public entity, direct contractor, or subcontractor to lower-tiered parties within certain time-frames, ranging from seven days to 45 days. The failure to comply can subject these entities to prompt payment penalties of two percent per month, which exceeds the interest rate on many credit cards. Penalties, in other words, can be substantial. However, each of these statutes provide a “good faith” or “bona fide” dispute exception, in which a higher-tiered party can withhold from a lower-tiered party up to 150 percent of any amount disputed in “good faith” or in which there is a “bona fide” dispute, without being subject to the prompt payment statute’s credit card-like penalties for non-payment. At issue in United Riggers, was whether the good faith withholding exception applies to any disputes between the parties or only to disputes directly related to the payment that is due. Thus, for example, can a direct contractor who is back charging a subcontractor for defective work withhold up to 150 percent from a pay application submitted by that subcontractor, or is the good faith withholding exception limited to disputes related to that specific pay application? In United Riggers, the California Supreme Court, addressing this issue with respect to one of the state’s prompt payment statutes, Civil Code section 8814, found that the good faith withholding exception only applies if there is a “good faith” dispute as to a specific pay application. Read More … https://www.jdsupra.com/legalnews/california-supreme-court-addresses-good-15471/

At the tail-end of the 2018 legislative session, the Maryland General Assembly passed Senate Bill 853, making construction general contractors jointly and severally liable for the failure of their subcontractors to pay their employees in compliance with Maryland’s wage and hour laws. This new law will become effective October 1, 2018. California recently passed a similar measure, AB 1701, which is applicable to construction contracts entered into in that state on or after January 1, 2018. This controversial new Maryland law contains both a multiplier and an attorneys’ fees provision, dramatically increasing its impact. Under existing law, an employer that fails to pay an employee in accordance with Maryland’s wage and hour laws may be liable to the employee for up to three times the wages owed, plus reasonable attorneys’ fees and other costs. Until now, this liability has largely been confined to the direct employer-employee relationship. SB 853 expands the reach of Maryland’s wage and hour law, making a general contractor on a construction services project jointly and severally liable for a subcontractor’s failure to properly pay its employees. The term “construction services” is broadly defined to include “building, reconstructing, improving, enlarging, painting, altering, and repairing” in connection with real property. Notably, the liability imposed by this new law is not limited to first-tier subcontractors; rather, it expressly applies “regardless of whether the subcontractor is in a direct contractual relationship with the general contractor.” So, a general contractor is now liable for every wage and hour law violation occurring on a construction project, including those committed by subcontractors far down the construction chain. The time frame for this liability is also expansive. A claimant may make a claim against both the general contractor and the non-paying party as soon as two weeks after a violation occurs, and as late as three years after the occurrence. For balance, the new law requires subcontractors to indemnify the general contractor for “any wages, damages, interest, penalties, or attorney’s fees owed as a result of the subcontractor’s violation.” This protection, however, is only as strong as the subcontractor’s ability to pay such damages and costs. SB 853 increases the likelihood that employees will sue both the general contractor and their direct employer when they believe they have not been properly paid. Because general contractors are now a target for additional litigation, the potential costs subject to indemnification by subcontractors will be increased by the general contractor’s costs of defense. Additionally, because the general contractor will not always be the direct employer of the plaintiff bringing such a claim, it may not have in its possession the employee-related documents necessary to defend a claim, including a potentially fraudulent claim. Notably, the law outlines two express exceptions to indemnification: (1) when indemnification is provided for in a contract between the general contractor and the subcontractor; or (2) when a violation arose due to the general contractor’s failure to make timely payments to the subcontractor. The potential consequences for subcontractors are also significant, as general contractors will likely require subcontractors to obtain a bond or insurance policy to protect against the possibility of wage claims brought by the subcontractor’s employees. No doubt, a general contractor will want coverage for three times wages, anticipated attorneys’ fees, and costs, not just for the subcontractor, but for lower tier subcontractors as well. Notably, because the limitation period for wage claims in Maryland is three years, bonds or insurance policies should be maintained for at least that period of time. All of these financial layers will necessarily increase the cost of construction projects in Maryland, making the environment even more challenging for smaller and newer subcontractors. While the law does not go into effect until October 2018, and the full impact is yet to be determined, general contractors should take steps now to minimize potential damages when a subcontractor fails to pay its employees in compliance with the Maryland wage and hour laws. https://www.jdsupra.com/legalnews/new-maryland-law-makes-general-57093/