SUBCONTRACTOR LIABILITY BILL STRONGLY OPPOSED

One bill that continues to move forward that we continue to strongly oppose is AB 1701 (Thurmond; D-Richmond). This bill creates a new private right of action against general contractors for liabilities they did not cause and without providing any notice or ability to prevent the harm.

We believe that every worker should be paid promptly. However, under current law, subcontractors are prohibited from providing employee identification without the employee’s permission or a court order. Moreover, the general contractor does not hire subcontractors to another subcontractor and may not be aware of their presence on the job.

Rather than creating an ability to avoid the harm of unpaid workers, AB 1701 would make the worker go through a lengthy process of litigation – beginning one year after the work is complete, delaying payment for years. If general contractors could obtain information about the status of worker compensation prior to making a progress payment to the subcontractor, they could ensure that workers are promptly paid.

Additionally, AB 1701 will have the unintended consequence of increasing the likelihood that subcontractor employees will not be paid by adding Labor Code section 218.7(a)(3): “A direct contractor or any other person shall not evade, or commit any act that negates, the requirements of this section.”

This would prevent general contractors from including indemnification provisions in their agreements with subcontractors. Contractual indemnity provisions put the subcontractor on notice that they will not escape liability if they fail to pay their employees. Without a contractual right of indemnification, AB 1701 creates a moral hazard.

We strongly oppose this bill that will further make housing and construction in the state of California more expensive.

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