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socrateaser
socrateaser, Lawyer
Category: California Employment Law
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Experience:  Retired (mostly)
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This a California Public Works Construction Contractor question.

Resolved Question:

This a California Public Works Construction Contractor question. We are aprime contractor who paid a subcontractor , and joint checked their vendors to be sure they were paid. Upon near completion of this project we were notified by the DIR that the subcontractor was be investigated for not paying wages to its employees even though certified payroll said they were. As it turns out the DIR has assessed an amount $22,000 over the retentions we were required to hold once the wages and liquidated damages were totaled. The subcontractor hasn't even responded to the DIR and is believes we will have to pay this total amount due. We have requested a Request for Review and Settlement Meeting to protect ourselves but would really like to know the law and what we as a responsible contractor is legally liable for. This subcontractor has already told his employees we would be paying their wages though he has already received all conrtractual payments minus the 5% retentions.
Submitted: 4 years ago.
Category: California Employment Law
Expert:  socrateaser replied 4 years ago.
Hello,

Sorry for the delay, but I think your characterization of the issue as a "public works question" may have scared a lot of contributors away. I've just read your question, and I do not believe that the public works aspect of the question is actually relevant here. Rather, the regular employment laws (unemployment, workers comp, etc.) controls the answer.

A general building contractor who hires an unlicensed subcontractor is responsible for wages owed to the subcontractor's employees. Because Labor Code § 2750.5 makes an unlicensed subcontractor the general contractor's “employee," the general contractor is also the employer of persons the unlicensed subcontractor employs. See Sanders Const. Co., Inc. v. Cerda (2009) 175 CA4th 430, 434–435.

So, if you have subcontractors that were actually unlicensed, then they are presumed by law to be your employees, and so are their employees/workers. In such circumstances, you would be liable to DIR for the unpaid prevailing wages, benefits and overtime required under the public works laws, and your only recourse would be to sue the subcontractors who created the problem for you to try to recover some of your losses (which may be a waste of time, because the unlicensed subs are likely to not have "two nickels to rub together").

If the subcontractors are licensed, then you could prove that they are not your employees by proving to the DIR that they satisfy the elements of "independent contractor" status. EDD provides a guide to determining whether or not an individual or entity is an independent contractor (DE 38). If you can prove that the subs really are independent contractors, then they would be responsible for their employees/workers, and you would be entirely off the hook.

Hope this helps.

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Customer: replied 4 years ago.
This helps a little,the subcontractor is licensed with a signed contract. What I really need to know is under what quidelines, laws, and or statutes can the Department of Labor call our payment bond to pay for the subcontractors wgaes owed to their employees.
Expert:  socrateaser replied 4 years ago.
Under Labor Code 1742.1, "(a) After 60 days following the service of a civil wage and penalty assessment under Section 1741 or a notice of withholding under subdivision (a) of Section 1771.6, the affected contractor, subcontractor, and surety on a bond or bonds issued to secure the payment of wages covered by the assessment or notice shall be liable for liquidated damages in an amount equal to the wages, or portion thereof, that still remain unpaid. If the assessment or notice subsequently is overturned or modified after administrative or judicial review, liquidated damages shall be payable only on the wages found to be due and unpaid."

Under Labor Code 1742, you are entitled to a hearing if requested in writing within 60 days after service of the assessment upon you. At that hearing, you will have to prove that the subcontractors are, in fact, independent contractors, rather than employees, and that the subcontractors are licensed. If you do, then the assessment must be reduced by any amount allegedly owed to the subcontractor. If you fail, then the Labor Commissioner can seek payment from the surety under your bond.

Hope this helps.

NOTICE: My goal here is to entertain while educating the public about the law. Your positive feedback to the website is appreciated. If you need to contact me again, please put my user id at the beginning of your question ("To Socrateaser"), and the system will send me an alert. Please Click the following link for IMPORTANT LEGAL INFORMATION. Thanks and best wishes!

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