By: Alexander A. Miuccio Published: May 2015

Subcontractor Liable for Unpaid Wages of Sub-Subcontractor's Workers

New York’s Labor Law requires an employer to pay legally required wages to its employees. Whether a person or entity is an “employer” within the meaning of the Labor Law is a fact-specific inquiry. In the recent case of Matter of Exceed Construction Corp. v Industrial Board of Appeals, an appellate court addressed the issue of whether a subcontractor can be considered an “employer” of the employees of its sub-subcontractor and, thus, liable for unpaid wages due to these workers.

Background

Exceed Construction, a drywall subcontractor on a Manhattan construction site, signed a sub-subcontract with an individual named Rodriguez under which Exceed sub-subcontracted to Rodriguez its entire scope of work under its own subcontract with the project’s general contractor. Despite the sub-subcontract, Exceed’s vice-president, an individual named Correa, set the hours of Rodriguez’s workers and directed them to modify their hours by appearing for work earlier than they had been doing. Rodriguez followed Correa’s orders by reassigning his workers to sites located in Brooklyn and Long Island on certain days of the week while continuing to work at the Manhattan site on other days. Correa also supervised Rodruguez’s workers at the Brooklyn and Long Island sites closely—but not the Manhattan site. Correa also transported one of these workers to the Long Island site.

Ultimately, six of Rodriguez’s employees filed claims with the Department of Labor for unpaid wages for work performed on the project. The Department of Labor sought to recover the unpaid wages from Exceed, as the employer. A hearing was held on the issue of whether Exceed was, in fact, the “employer” of these workers, as defined under New York’s Labor Law.

Decision

The Industrial Board of Appeals determined after the hearing that Exceed, and not Rodriguez, was the “employer” within the meaning of Labor Law §190(3). In doing so, the IBA held that the facts established that Rodriguez was effectively a foreman or agent of Exceed, and not an independent sub-subcontractor. In affirming the decision of the IBA, the appellate court noted that it was not determinative that Exceed’s vice-president did not supervise the manner of the employees’ work at the jobsite or that the workers had been paid by Rodriguez, and not Exceed. There was substantial evidence in the record, however, which showed that Exceed exercised its power to control the workers in question. This evidence was sufficient to support the IBA’s determination that Exceed was the true employer of the workers.

Comment

Here, the Exceed court affirmed the IBA’s holding that, under these facts, the employer/employee relationship was between the subcontractor and the workers, and not the purported sub-subcontractor. The testimony of the workers during the IBA hearing demonstrated that Exceed had the power to—and did—control significant parts of the workers’ employment. Exceed set the workers’ hours and work schedules, reassigned the workers to other jobsites, and closely supervised their work at those sites.

While every contractor needs to maintain supervision of its subcontractors—after all, the contractor will be held liable to the owner if there is any issue with the work performed on behalf of that contractor—contractors would be well advised to respect the boundaries of their subcontracts and not directly control the workplace conditions of the subcontractors’ workers. As the Exceed court demonstrated, it is possible to turn your subcontractor’s workers into your own for wage liability purposes where you exercise a large degree of power to control the workers’ conditions of employment. Allowing your subcontractor to direct and control its own workers is crucial in avoiding wage liability as a putative “employer” under the Labor Law.

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