By Chris Shea
Laws signed by Governor Phil Murphy make New Jersey construction contractors responsible for their subcontractors’ debts for unpaid wages and violations of employer tax law.
The first of the laws (S4064/A5801 approved as P.L.2019, c.510) says that any contract entered into on or after January 1, 2020 for the erection, construction, reconstruction, alteration, maintenance or repair of any building in the State other than an owner-occupied residence, the contractor making or taking the contract shall assume, and be responsible 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 contractor for the wage claimant’s performance of labor under the contract.
The second of the laws (S4225/A5840 approved as P.L.2019, c.374) imposes liability on every construction contractor for subcontractors’ unpaid employer taxes under the workers’ compensation law (N.J.S.A. 34:15-1 et seq.), the unemployment compensation law (N.J.S.A. 43:21-1 et seq.), the temporary disability benefits and family leave insurance law (N.J.S.A. 43:21-25 et al. and N.J.S.A. 43:21-39.1 et al.), and the New Jersey Gross Income Tax Act (N.J.S.A. 54A:1-1 et seq.). In addition, a contractor now shares civil legal responsibility for provisions of those laws regarding retaliatory actions against employees for exercising their rights under any of those laws and provisions of those laws regarding the misclassification of workers, and both the client employer and the labor contractor providing workers to the client employer may be subject to any remedy provided for violations of those laws.
The laws also pin individual liability on any owner, director, officer, or manager acting on behalf of an employer who violates any provision of State wage and hour laws or State employer tax laws, regarding compliance with such laws.
These are powerful risk shifting laws which has led to an outcry for remedies to fix ultimate responsibility on the culpable subcontractor and reimburse the payor. The problem is that the culpable subcontractor will, in all likelihood, be unable to pay the debt or the fine assessed, otherwise there would be no liability to shift. In this way, the State has now made guarantors out of contractors for all those below them in the chain of contract.
So, what can contractors do to protect themselves from their subcontractor’s (presumably) unknown behavior? Well, the ultimate answer remains unknown at this point in time, but here are our thoughts: First, every subcontract should have a properly drawn indemnification clause that imposes liability on the subcontractor for all losses on account of the subcontractor or it’s lower-tier subcontractors’ failure to obey the labor and tax laws, referenced above. Second, contractors should investigate the purchase of a stand-alone wage and our insurance policy, or if possible, a wage and hour extension coverage endorsement to their present employment practices liability policy (EPL). Finally, a contractor can contractually require the lower tiered subcontractors to provide certified payroll reports on a regular basis, thereby making the subcontractor swear to compliance with New Jersey’s wage and hour laws.
If you or someone you know has questions about New Jersey Wage and Hour laws, contact the attorneys at R.C. Shea and Associates. P.C. (732) 505-1212