On June 9, 2025, Governor Tina Kotek signed SB 426 into law. The bill, set to become effective on January 1, 2026, follows the Oregon Legislature’s ongoing attempts to pass a “wage theft” bill imposing strict liability on owners and general contractors for unpaid employees of all lower-tier subcontractors on most private projects within Oregon.

An article published in the Daily Journal of Commerce last month analyzed the version of SB 426 being considered at the time and described the significant effects it would have on construction projects in Oregon. While the Oregon House of Representatives subsequently amended SB 426 to clarify the scope of exemptions for small residential and commercial projects, the impacts of SB 426 will likely still be felt throughout the industry.

Strict Liability (Are You Liable?)

Under SB 426, project “owners” and “direct contractors” may be strictly liable for unpaid wages of employees of all lower-tier “subcontractors” on most private construction projects. In other words, if a lower-tier subcontractor fails to pay its employees, or pays them less than the required wage amount, an employee can sue the owner or direct contractor directly to recover the unpaid wages. An employee’s right to sue an owner or general contractor for unpaid wages exists even if the owner and general contractor timely paid a lower-tier subcontractor the full amount owed.

In addition to unpaid wages, owners and direct contractors may also be liable to lower-tier subcontractor employees for fringe benefit contributions, interest and penalty wages, damages, and attorney fees and costs. Those penalty wages can amount to 30 eight-hour days of wages per employee and, in aggregate, require an owner or direct contractor to remit payment exceeding an agreed-upon fixed price. Such claims can also be brought within two years from the date such wages are due.

SB 426 provides the following definitions:

1. Owner. The term “owner” is defined to include any person or corporate entity that has a property interest in property or improvements effected by construction. Strict liability, however, only applies to “owners” who “cause” construction to occur. This means that, depending on the circumstances, a person or entity with a property interest (e.g., passive owner, landlord) may not be subject to strict liability if such person or entity did not cause the construction to occur.
2. Direct Contractor. The term “direct contractor” is defined to include any person or corporate entity or assignees thereto that enter into a “construction contract with an owner.” In other words, a general contractor.
3. Subcontractor. The term “subcontractor” is defined to include any person or corporate entity that enters into an “express” or “implied” contract with a “direct contractor” or a “direct contractor’s subcontractors at any tier.” The inclusion of “implied” subcontractors means, as a practical matter, there does not need to be a written or oral subcontract. Under existing law, an “implied contract” can be “inferred from the acts or conduct of the parties.”

Exemptions from Strict Liability (Are you Exempt?)

SB 426 contains two primary exemptions strict liability:

1. Union Labor. Strict liability does not apply to unpaid workers who are covered by a collective bargaining agreement so long as that collective bargaining agreement includes a mechanism by which employees can recover for unpaid wages.
2. Small Projects. Strict liability does not apply to construction work performed on (1) the owner’s primary residence or (2) a project that consists of five or fewer residential or commercial units on a single tract.

New Subcontractor Recordkeeping Requirements

SB 426 also requires all first-tier subcontractors, regardless of size and sophistication, upon request of the owner and/or direct contractor, to provide certified payroll records on non-exempt projects. These same subcontractors are also required to provide the name of each worker who performs work on the underlying project, contact information for lower-tier subcontractors, and disclosures concerning any civil, administrative, or criminal proceedings involving unpaid wages.

Notably, these new payroll recordkeeping requirements do not affect an owner or direct contractor’s liability. If a subcontractor refuses or otherwise fails to provide such records, owners, and director contractors, remain liable to unpaid employees of subcontractors.

Mitigating Risk (What can be done to Mitigate Risk?)

SB 426 creates new risk for owners and direct contractors on private construction projects throughout Oregon. A typical contractual provision used by owners and contractors to mitigate this risk would be a requirement that any lower-tier subcontractor indemnify the general contractor and owner for any claims by employees for unpaid wages. Unfortunately, SB 426 states explicitly that “[a]ny agreement to waive or release an owner or direct contractor or to indemnify an owner or direct contractor for liability assigned under [SB 426] is invalid.”

As a result, owners and direct contractors should consider other, albeit less effective, options to mitigate this new risk of liability created by SB 426.

3. Utilizing Existing Subcontractor Relationships. Owners and direct contractors may want to rely on existing relationships with established subcontractors.
4. Vetting New Subcontractor Relationships. Owners and direct contractors should thoroughly vet new subcontractor relationships to minimize risk. To do so, owners and direct contractors may want to request, among other things, disclosures concerning any civil, administrative, or criminal proceedings involving unpaid wages.
5. Project Monitoring. Owners and direct contractors may want to more closely monitor construction site personnel (g., by using a check-in sheet, etc.). Owners and direct contractors could use this information to verify payroll records are accurate and otherwise mitigate the risk of “implied” subcontractors performing work on the project without an actual written or oral contract.
6. Certified Payroll Reports. Owners and direct contractors, particularly on larger projects, may want to require certified payroll reports similar to those typically required on public construction projects to verify that workers are being paid.

5. Payment Bonds. Owners and direct contractors may want to consider requiring payment bonds on private projects. These bonds can be expensive (up to 5% of the contract price) and those costs are usually passed upstream to the direct contractor and the owner. Payment bonds may also not apply to penalty wages.

6. Updated Contracts. Owners and direct contractors may review and update subcontracts to ensure that they comply with the law and memorialize any payroll reporting requirements.

Owners and general contractors need to familiarize themselves with SB 426 to properly understand the new risk of liability for unpaid wages on private construction projects and consider how they may mitigate this risk.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.