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Contractor Enhanced Liability for Unpaid Wages

Beginning on October 1, 2018, general contractors working on construction projects became jointly and severally liable for a subcontractor’s failure to pay its employees for all hours worked in violation of Maryland’s Wage Payment and Collection Law (“MWPCL”).    Construction services covered by the MWPCL include building, reconstructing, improving, enlarging, painting, altering, maintaining and repair real property.   A general contractor will be liable to the subcontractor’s employee, and to employees of lower tiered subcontractors, even if there is no direct contractual relationship between the parties.   This joint liability extends to treble damages and attorneys’ fees which may be claimed by the subcontractor’s employees.

The law requires that the subcontractor indemnify the general contractor for all liability incurred by the general contractor due to subcontractor’s failure to pay its employees, including for wages, penalties, attorneys’ fees and interest.  The indemnification obligations will only protect the general contractor if the subcontractor is solvent and has financial resources available for the general contractor to recover.   One exception to requirement that the subcontractor indemnify the general contractor is when the lack of wage payment is due to the general contractor’s failure to promptly pay the subcontractor pursuant to the contract between the parties. 

The addition of contractor liability to MWPCL may cause general contractors to become less willing to contract with small or startup companies for fear of the substantial liability that may arise if the subcontractor fails to pay employees.

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