Beginning October 1, 2018, the obligations of all general contractors in Maryland will change dramatically, thanks to Senate Bill 853, which was recently passed by the Maryland General Assembly. Pursuant to the new law, which amends the Maryland Wage Payment and Collection Law, general contractors will be jointly and severally liable for their subcontractors’ violations of the Maryland Wage Payment and Collection Law. In other words, if a subcontractor fails to timely pay its employees, the subcontractor’s employees can hold the general contractor accountable for those wages.
While the new law will increase the potential for liability of general contractors, it also provides a mechanism for general contractors to obtain reimbursement from the offending subcontractor. To put it legally, the law requires the subcontractor to “indemnify” the general contractor if general contractor pays wages on behalf of the subcontractor. The new law also requires the subcontractor to reimburse the general contractor for all wages paid, as well as damages, interests, penalties, and attorney’s fees owed as a result of the payments made.
While at first blush the indemnity may seem ridiculous, because it redirects the ultimate liability for wages back on the subcontractor, the reality is that the indemnity will oftentimes be useless to the general contractor. This is because subcontractors who cannot afford to pay their employees typically do not have funds readily available. General contractors attempting to pursue reimbursement are therefore likely to hit a roadblock. Additionally, there are two situations where the indemnity does not apply at all. The first is where a subcontract between the general contractor and the subcontractor contains an indemnity provision. The second is where a general contractor has failed to timely pay the subcontractor, and this failure has resulted in the subcontractor failing to pay its own employees.
It is also worth noting that while the statute refers only to “subcontractors,” it appears the new law defines subcontractors much like the Maryland mechanic’s lien laws and applies to anyone who has furnished labor and materials to a construction project. The new specifically states that it applies regardless of whether the offending subcontractor has a contract with the general contractor or not. No doubt the scope of this new law will be tested in the Courts. But for now, general contractors must be sure to keep a close eye on those furnishing labor and materials on Maryland constructions projects. Failure to do so could have catastrophic consequences.
If you have any questions about this topic or any other construction law issue, please contact Brian Loffredo at
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Brian is a commercial litigator with more than seventeen years of experience representing clients in the franchise industry. Brian routinely assists clients during the licensing and franchise/FDD review process, as well as with the resolution of franchise-related disputes, including those involving terminations, territorial disputes, fraud, disclosure/relationship law violations and breaches of contract.
In addition, Brian represents and counsels clients in the construction industry on matters involving litigation, construction defects, licensing and compliance, collections, mechanic’s liens, payment bond and Miller Act claims, contract drafting, and compliance with home improvement laws and other construction industry laws.
Brian also has extensive experience representing financial institutions with workouts, collections and residential / commercial foreclosures.
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