For the first time ever, the California Labor Commissioner fined a general contractor nearly $250,000 for wage and hour violations committed by its subcontractor, who had been hired for a hotel construction project in Southern California. This decision is significant for businesses that use subcontractors.

After not receiving four weeks of pay, several of the subcontractor’s workers walked off the job and reported the violations to the Labor Commissioner. The Labor Commissioner promptly conducted an investigation and found that the subcontractor had paid the workers from an account with insufficient funds and skipped several pay periods for a majority of the workers. The investigation also revealed that the subcontractor failed to pay overtime wages to many of the workers, who worked up to two overtime hours per day.

As a result, the Labor Commissioner issued citations against both the general contractor and the subcontractor for unpaid overtime and minimum wages, waiting time penalties, rest period premiums and civil penalties for work performed over little more than a one-month period. The general contractor contested the fines. However, on May 16, 2017, the hearing officer affirmed that the general contractor was liable as a “client employer” under AB 1897, which holds client employers liable for wage violations of its subcontractors.

What does this mean for you? The impact of this finding will have significant effects on businesses and general contractors who require the work of subcontractors. Please contact Stokes Wagner if you have any questions regarding your independent contractor, general contractor, and/or subcontractor agreements.

For more legal updates, check out our update for September 2017!