By: Alexander A. Miuccio Published: September 2012

Contractor Not Liable for Unpaid Wage Claims of Subcontractor's Workers

A general contractor is not typically considered an employer of its subcontractors' employees and is not responsible for unpaid wages of the subcontractor's workforce. There are situations, however, where a general contractor acted as a "joint" employer of a subcontractor's employees, thereby owing unpaid wages to a subcontractor's employees. In the case of Matter of Ovadia v Office of the Industrial Board of Appeals, the Court of Appeals, New York's highest court, ruled on whether a general contractor is a joint employer of its subcontractor's employees.

Background

In 2006, a real estate developer hired HOD Construction Corp. to act as a general contractor for a construction project. HOD entered into a subcontract with Well Built Construction Corp. for the project's masonry work. Pursuant to the subcontract, HOD paid Well Built and, in turn, Well Built paid the wages of its workers. The masonry workers were employed and supervised by Well Built. While the owner of HOD visited the work site several times a day, he spoke only with Well Built's supervisor or owner.

Because of apparent cash flow issues, Well Built periodically underpaid its laborers and, ultimately, it abandoned the job and ceased paying its workers altogether. Upon the filing of an unpaid wage claim, the Department of Labor conducted an investigation and issued an order concluding that the general contractor assumed the status of an "employer" of Well Built's workers. DOL then ordered the general contractor to pay over $117,000, which sum represented past-due wages, along with penalties and interest. HOD sought an administrative review and after a hearing, the Industrial Board of Appeals upheld the DOL's order. HOD commenced an Article 78 proceeding seeking to annul the Board's ruling. The Appellate Division confirmed the Board's determination. HOD appealed the decision to the Court of Appeals.

In holding the general contractor liable for unpaid wages owing to the subcontractor's employees as a "joint employer", the lower court relied on certain factors to determine whether HOD was a joint employer of the subcontractor's employees: (1) the general contractor provided the work site and the materials to be used by the subcontractor's workers; (2) the workers worked at the general contractor's project for the duration of the contract; and (3) the general contractor conducted routine quality control inspections at the job site.

Decision

The Court of Appeals reversed the lower court's decision. The Court stated the general rule that a typical general contractor is not an employer of its subcontractor's employees. The Court held that the lower court's reliance on the facts that the general contractor provided the work site and materials used by the subcontractor's workers for the duration of the project and the general contractor's routine quality control inspections "would likely render most general contractors the joint employers of their subcontractors' employees-a proposition that does not reflect the actual relationships in the construction industry."

The Court also noted that a general contractor is expected to conduct routine quality inspections and ensure that the coordination of the work proceeds on schedule. This fact does not render the general contractor an employer of all workers at the job site.

Comment

While the Court of Appeals recognized that the relationship between HOD and Well Built was nothing more than the usual contractor/subcontractor relationship, the Court cautioned that its holding does not mean that a general contractor in a construction setting can never be an employer of its subcontractor's employees. The Court pointed out that there may be situations where the business relationship between a general contractor and a subcontractor may support a finding that the general contractor assumed the role of employer of the subcontractor's employees.

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