Oregon courts have repeatedly punished general contractors (GCs) for paying workers when a subcontractor fails to. The courts use the GC’s payment to the workers, or joint payment to the subcontractor and worker, as proof that the GC is a “joint employer” of the workers. As a joint employer, the GC is liable for the workers’ unpaid wages, penalties, interest and taxes. These holdings have the absurd effect of discouraging GCs from paying workers stiffed by subcontractors.

The Oregon Legislature went a step further. In its short session, the Legislature attempted to push through House Bill 4154, which would have made general contractors liable for a broad range of employees’ claims against their employer-subcontractor. Like the court holdings, HB 4154 failed to accomplish its primary goal: to get workers paid for work performed. While HB 4154 did not pass, something like it will undoubtedly reappear next session. When it does, the Legislature should consider the failings of HB 4154 and craft a bill that gets workers paid.

HB 4154 failed to get workers paid because it would have made the GC liable for claims that have nothing to do with paying workers for work performed, incentivized GCs and subcontractors to try and move money to each other instead of into workers’ pockets, and encouraged protracted bureaucratic litigation instead of straightforward resolutions between parties.

Under HB 4154 the GC would have been liable for any kind of wage claim brought by the subcontractor’s employees. For example, if the subcontractor took an improper deduction from the employee’s paycheck, the employee could collect from the GC. And if the subcontractor failed to provide an earned income tax credit notice to its employees and an employee suffered losses, the employee could collect from the GC. No one in the Legislature appeared to understand the breadth of the bill under consideration. But parts of it had nothing to do with a subcontractor’s failure to pay its employees’ wages.

In addition to its over-breadth, the bill did not require the GC to pay the workers if it had already paid the subcontractor in full for the project. While this is a crucial piece, this alone fails to put money in workers’ pockets. Giving the GC immunity against the employees if it pays the subcontractor – and not the workers – incentivizes the GC to figure out a way to pay the subcontractor immediately upon hearing of BOLI’s investigation into a wage claim.

Instead, a bill should give the GC immunity if it pays the workers. And it should go a step further and prohibit courts from using that payment as a factor to find the GC as a “joint employer” with the subcontractor and hold it liable for additional wages, penalties, interest, etc. Motivating the GC to pay the workers would ensure that workers not only are paid immediately, but also continue to work – thus avoiding project delays.

Finally, under HB 4154, the GC would have received no immunity unless the workers filed a claim with the Oregon Bureau of Labor and Industries. This shows a lack of understanding about how this really works. In the real world, workers more often go straight to the GC and threaten to walk off the job unless they are paid. Under HB 4154, the workers would have no access to the GC’s funds unless they involve BOLI, thereby launching a time-consuming and antagonistic process.

So, how does the Oregon Legislature ensure that workers get paid immediately instead of the subcontractors and BOLI investigators? Any bill should:

• apply only where a subcontractor fails to pay workers for work already performed;
• provide the GC broad immunity from wage claims, attorney fees, interest, penalties, etc. if the GC pays the workers what it reasonably believes is owed regardless of whether the workers call BOLI;
• limit the GC’s liability to the amount it owes the subcontractor for work already performed;
• reduce the amount the GC owes the subcontractor by the amount the GC paid the subcontractor’s workers and require subcontractors to issue lien releases for that amount; and
• prohibit courts from using the GC’s payment to the workers as a factor in finding that the GC is a “joint employer” of the workers for the purposes of any other claims.

Such a bill would incentivize GCs to put money into workers’ pockets immediately without expensive bureaucratic processes and keep projects moving forward.

Column first appeared in the Daily Journal of Commerce on May 22, 2018.

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