An Illinois bill would hold contractors liable if any subcontractors they hire fail to pay employees on a project.
The bill, HB3293, would add the liability on all private projects, other than those valued at less than $100,000 with the owner acting as the “primary contractor,” starting on July 1, 2022. A stipulation in the bill would require the subcontractor to compensate the contractor for any money lost as a result of failing to pay its own employees. It passed the state Senate last October with amendments and is awaiting a House vote. Illinois Gov. J.B. Pritzker (D) is expected to sign the bill if it passes a house vote.
The goal is to make sure laborers are paid for their work, said state Sen. Cristina Castro, (D-Elgin), who sponsored the legislation and filed a pair of amendments.
"With construction projects, we often see multiple subcontractors all working on one site, so it’s important to make sure that no employee gets lost in the shuffle, and if they do, there is a mechanism to make sure they are fairly compensated," Castro said in a statement.
Some industry groups are concerned the legislation would add costs and complications to the contracting process. Tom Cuculich, executive director of Chicagoland Associated General Contractors, says his group and others “adamantly oppose this bill” because they already have due process included in their collective bargaining agreements if there was ever a case of wage theft. Under the bill, he says contractors could be effectively double-billed for labor if they pay a subcontractor that then doesn’t pay an employee.
“It does nothing to hurt the bad actors, because they just close up shop and move down the road and start a new business,” he says.
Additionally, Cuculich says the bill could unintentionally hamper newer, smaller businesses — potentially including minority-owned enterprises that officials have been trying to bolster — by pushing contractors to only work with companies they already know.
“The generals (contractors) aren’t going to take a risk on somebody they haven’t done business with for many years,” Cuculich says.
The bill is similar to a law signed in New York last year, but there’s a key difference between the two, according to attorney Steven Mroczkowski, who co-leads Dykema’s construction team out of the law firm’s Chicago office. The New York law places an obligation on subcontractors to provide certified payroll records to the contractors that hire them. If a subcontractor doesn’t comply with the reporting requirements, the law allows the contractor to withhold payment until they have proof that employees have been paid.
“I think that is a better example of how to do this, and hopefully Illinois can move to that direction if it’s inevitable that such legislation is going to pass,” Mroczkowski says.
If the Illinois bill passes as it currently stands, Cuculich says he expects contractors will turn to tools like retention bonds to protect themselves. Mroczkowski says contractors will need to make sure they add contract provisions allowing them to review and audit their subcontractors’ payroll records, though he notes that may add an expense of needing to hire someone with the technical knowledge to conduct those audits.