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HIRER BEWARE: Hirer's Are Liable for Unlicensed
Subcontractor's Employees' Unpaid Wages
You hire a drywall company to work on your project. All goes well. Later you are shocked when your company is sued for huge sums by the drywaller's employees who allege that your company is liable for the subcontractor's failure to pay them wages, overtime, and other wage & hour violations.
The subcontractor's employees allege that their employer was not a properly licensed contractor while he worked on your project. They allege that, by operation of law, your company is also their "statutory" employer, and is jointly liable for wage and hour violations of the sub-contractor occurring while it worked on your project.
Are you liable for this huge unforeseen liability? In Sanders Construction v. Cerda (June 2009) 175 Cal.App.4th 430, the Court of Appeal held that employees of unlicensed contractors may assert a wage claim against the general contractor, citing Labor Code Section 2750.5.
The Sanders Court relied on workers' compensation law that holds that Labor Code Section 2750.5 operates to conclusively establish that a hirer of an unlicensed sub-contractor is also the joint-employer of the sub-contractor's employees. Thus, a hirer of an unlicensed sub-contractor is jointly liable for workers' compensation benefits payable to the sub-contractor's employees. The Sanders court held that the public policies underlying Labor Code §2750.5 also apply to unpaid wages.
Comment
The Sanders decision has a huge potential impact. Hirer's of unlicensed sub-contractors are now subject to potential wage and hour liability in an area the hirer does not control or have knowledge of: i.e. possible wage and hour violations of the sub-contractor with respect to its own employees.
It is not easy to avoid this liability by checking the license status of the sub-contractor. Many hirers of sub-contractors are unsophisticated, such as homeowners or small businesses, and do not know of the need to ensure that a sub-contractor is properly licensed for the work being performed.
Moreover, it is difficult, and in some cases impossible, for hirers to know through the entirety of a project if a subcontractor is properly licensed. For example, the Business and Professions Code provides for "automatic" suspension of a contractor's license if the contractor's workers' compensation insurance lapses or is canceled. Thus, a sub-contractor may appear to possess a valid license at the start of a project, but later lose his insurance without notice to the hirer, and than be defined by statute as unlicensed.
Sub-contractors may also provide false or misleading licensing or employee information. These misrepresentations by the subcontractor are not likely to apply to the sub-contractor's employees to bar a suit for wage and hour violations.
In sum, hirers of sub-contractors are now placed in a difficult situation, and must ensure that a sub-contractor is properly licensed to do the specific work, and has workers' compensation coverage in place during the entire project.
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