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New Virginia Law Can Make General Contractors Liable for Subcontractors' Employee Wages
New Virginia Law Can Make General Contractors Liable for Subcontractors' Employee Wages

The General Assembly, in its 2020 session, passed new legislation (codified at new Virginia Code §11.4-6 and in amended and reenacted Virginia Code § 40.1-29) that makes Virginia general contractors jointly and severally liable for its subcontractors’ employee wages if the general contractor knew or should have known that the subcontractor was not paying its employees. The new law goes into effect on July 1, 2020. It applies to all construction projects, except for single-family residential projects, where the contract was entered into on or after July 1, 2020, and the value of the project is greater than $500,000. 

The amount of the wages for which general contractors can be liable must equal or exceed the wage amount required by applicable law, including the Virginia Minimum Wage Act and Fair Labor Standards Act. Likewise, subcontractors can be liable for the wages of their sub-subcontractors on the same kind of projects, and on similar contracts signed on or after July 1, pursuant to the same terms.

General contractors will be deemed to be the employer of their subcontractors’ employees for purposes of Virginia Code Section 40.1-29, which can impose civil and even criminal penalties upon general contractors, including enhanced damages up to treble damages, and attorneys’ fees, for failing to pay employee wages when due.

Any general contractor that becomes liable for the employee wages of its subcontractors can seek relief from the offending subcontractor by way of an indemnification claim, including a claim for the amount of the wages paid, interest, penalties, and attorneys’ fees incurred as a result of the subcontractor's failure to pay its employees’ wages when due.

It is not an overstatement to say that the new statute may have a huge impact on the way that business is conducted in Virginia. Look for a wave of increased claims for unpaid wages against general contractors and subcontractors, more rigorous pre-qualification and underwriting procedures when entering into contracts and an increased emphasis on the value of trusted business relationships. If you have questions regarding the effect of the new statute on your business or want to discuss ways to protect your business from wage claims, please contact the Hirschler Construction Team.

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