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MARYLAND ENACTS TOUGH LEGISLATION ENSURING PAYMENT OF SUBCONTRACTOR EMPLOYEE WAGES. PDF Print

(April 17, 2018) - Earlier this month, the Maryland General Assembly amended the Maryland Labor and Employment Code to require that general contractors be liable for the unpaid wages of its subcontractors and even lower-tiered subcontractors, regardless of the contractual relationship. The penalties that general contractors will now face if their subcontractors fail to make payroll include payment of three times the amount of the unpaid wages, reasonable attorneys' fees, and other costs. The legislation also imposes indemnification obligations on subcontractors for any unpaid wages and penalties incurred by the general contractor under this new law.

While this legislation is certainly a win for employees of subcontractors, this is also a harsh outcome for unsuspecting general contractors who likely have no knowledge of the operations of their subcontractors.

Under the new rule, general contractors have two choices: do nothing and risk the penalties or consider actively monitoring subcontractor wage payments. In order to mitigate the risk and the additional administrative costs that active payroll monitoring entails – both to the general contractor and the subcontractors that must respond to that monitoring – the Code will also require the offending subcontractor to indemnify the general contractor for any wages, damages, interest, penalties, or attorneys' fees resulting from a violation unless (1) indemnification is already provided for in the prime contract; or (2) the violation occurred as a result of the lack of prompt payment by the general contractor under the terms of the prime contract. This indemnity shifts the risk of nonpayment back to the offending subcontractor where the subcontractor violates wage laws, but will not reimburse the general contractor or subcontractors for the costs of monitoring lower tiered payroll when subcontractors satisfy their obligations to employees.

Likewise, subcontractors who regularly and faithfully comply with wage laws can expect two unfortunate outcomes: (1) more oversight from their general contractor clients due to the new exposure general contractors face; and (2) more contractual risk shifted back to subcontractors in what are sometimes already onerous contracts.

This law will go into effect on October 1, 2018. More information on the legislation can be found here.

 

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