Before the conclusion of its most recent session, the Minnesota legislature passed into law additional “Construction Worker Wage Protections” which went into effect on August 1, 2023. The new legislation will increase compliance costs and potential wage liability for general contractors on many types of construction projects.
The legislation requires general contractors entering into a construction contract to assume and be liable for the unpaid wages of all employees of every subcontractor at any tier below the general contractor. In other words, the legislation allows an employee of a subcontractor to bring a claim against the general contractor for the subcontractor’s failure to pay that employee’s wages. The employee can also recover additional damages in an amount equal to the unpaid wages and attorneys’ fees incurred in bringing the claim against the general contractor.
Crucially, an employee of a subcontractor can bring a claim for unpaid wages against the general contractor even if the general contractor has already paid the subcontractor that failed to pay its employee. The legislation also prohibits a subcontractor or any of its employees from agreeing to indemnify a general contractor for wage liability or otherwise releasing or transferring the general contractor’s wage liability. In short, there is no way for general contractors to “contract around” the obligation to assume wage liability for all subcontractor employees.
However, there are contractual due diligence provisions that general contractors can incorporate into subcontractor agreements to potentially minimize risk. These include allowing the general contractor greater audit rights of the subcontractor’s payroll records during the construction project and requiring that a subcontractor provide proof of its financial strength prior to undertaking any work. Note that the new legislation also gives general contractors certain additional audit rights with respect to subcontractor payroll records.
There are several types of construction projects to which the new legislation does not apply. A contract for home improvement between a contractor and the owner of an owner-occupied dwelling is not considered a “construction contract” under the new law. As is a contract for the construction of one-family or two-family dwelling units unless the contract (or multiple contracts) results in the construction of more than 10 one-family or two-family dwelling units at one project site annually. The legislation also will not apply to general contractors or subcontractors that are parties to a collective bargaining agreement that meets certain requirements, such as a grievance procedure for addressing unpaid wage claims. It also does not apply to general contractors required to pay prevailing wages pursuant to Minn. Stat. § 177.41. Absent these few exemptions, all commercial construction and almost all multi-family new construction contracts will fall under the requirements of the new law.
Minnesota’s new “Construction Worker Wage Protections” will impose significant potential wage liability on general contractors under many construction contracts. Although the new law prevents general contractors from “contracting around” the additional wage liability, there may be other ways in which general contractors can draft subcontractor agreements to potentially minimize risk.