By: Donna M. Glover, Esq. and Michael A. Schollaert, Esq.
General contractors (“GCs”) may recall that last year, the Maryland General Assembly enacted the General Contractor Liability for Unpaid Wages Act under which a general contractor is now jointly and severally liable for its subcontractors’ failure to pay employees in accordance with Maryland wage and hours laws. That law, which took effect on October 1, 2018, applies to subcontractors of the subcontractor and even lower tier sub-subcontractors As a result, GCs are now liable for wage violations at any tier on a project.
One year later, the Maryland General Assembly has done it again. Effective October 1, 2019, Senate Bill 300, Prevailing Wage Rates – Public Work Contracts – Suits by Employees, authorizes an employee working on a public work project who is paid less than the appropriate prevailing wage to sue their employers immediately for prevailing wage violations without first filing a complaint with the State Commissioner of Labor and Industry (“Commissioner”). GCs may recall that in the 2018 session, Governor Hogan vetoed a similar bill for policy reasons.
GCs and subcontractors working on eligible public works projects in Maryland must pay their employees the appropriate prevailing wage rate. “Public works” are structures or works, including a bridge, building, ditch, road, alley, waterwork, or sewage disposal plant, that are constructed for public use or benefit or paid for entirely or in part by public money.
Eligible public works projects are:
- those carried out by the State;
- elementary or secondary schools for which at least 25% of the money used for construction is State money; and
- any other public work for which at least 50% of the money used for construction is State money.
Any public works contract valued at less than $500,000 is not required to pay prevailing wages. The State prevailing wage rate also does not apply to (1) any part of a public works contract funded with federal funds for which the contractor must pay the prevailing wage rate determined by the federal government or (2) specified construction projects carried out by public service companies under order of the Public Service Commission.
Prevailing wages are wages paid to at least 50% of workers in a given locality who perform the same or similar work on projects that resemble the proposed public works project. If fewer than 50% of workers in a job category earn the same wage, the prevailing wage is the rate paid to at least 40% of those workers. If fewer than 40% receive the same wage rate, the prevailing wage is calculated using a weighted average of local pay rates. The Commissioner is responsible for determining prevailing wages for each public works project and job category based on annual surveys of GCs and subcontractors working on both public works and private construction projects. Prevailing wage determinations are generally attached as an exhibit to the public work contract so that it is clear what wage rate is to be paid for each classification of worker.
The Commissioner has the authority to enforce contractor compliance with the prevailing wage law. Currently, if an employee under a public work contract is paid less than the prevailing wage rate for that employee’s classification, the employee may file a complaint with the Department of Labor, Licensing and Regulation (“DLLR”) (i.e., currently, the employee may not immediately file a suit against the contractor). A contractor found by the DLLR to have violated the prevailing wage law must pay restitution to the employee(s) and liquidated damages to the public body in the amount of $20 a day for each laborer who is paid less than the prevailing wage, or $250 per laborer per day if the employer knew or reasonably should have known of the obligation to pay the prevailing wage. Under current law, GCs and subcontractors are jointly and severally liable for restitution to a subcontractor’s employees.
If an employer fails to comply with an order by the Commissioner to pay restitution, either the Commissioner or an employee may then sue the employer to recover the difference between the prevailing wage and paid wage by bringing a civil action to enforce the order in the circuit court in the county where the employee or employer is located. A court may order the employer to pay double or treble damages if it finds that the employer withheld wages or fringe benefits willfully and knowingly or with deliberate ignorance or reckless disregard for the law.
Now, employees may sue GCs and subcontractors for prevailing wage violations immediately without first filing a complaint with the DLLR. Further, a determination by the DLLR that a contractor is required to make restitution does not preclude the employee from bringing a private cause of action. Additionally, GCs and subcontractors will be jointly and severally liable for any violation of the subcontractor’s obligations associated with civil actions brought either by the DLLR or the employee. Treble damages and recovery of attorneys’ fees remain available remedies to employees.
What Should Contractors Do In Light of the Change?
Prior to the October 1, 2019, the effective date of the new law, GCs and subcontractors should consider a self-audit of prevailing wage rates for each locality in which they have public works contracts, ensure that employees are properly classified, and ensure that overtime is being properly paid.
GCs should review their subcontract provisions, consider requiring subcontractors to obtain a bond or insurance to protect against wage claims by a subcontractor’s employees, and consider adding subcontract provisions to allow for review of their subcontractors’ pay practices, pay records, and history of wage claims and lawsuits. GCs also should consider requiring a subcontractor’s principal or officer to sign certified payrolls, thereby attesting that employees were properly paid. Additionally, GCs should consider including a provision allowing them to withhold contract payments if a subcontractor’s employee claims that the subcontractor failed to pay the proper prevailing wage rates. Finally, GCs should modify the indemnification provisions of their subcontracts to ensure appropriate protection from the failure of their subcontractors or lower tier sub-subcontractors to pay appropriate wages.