A pair of amendments to Illinois state law aimed at preventing wage theft make construction contractors liable if subcontractors don’t pay their employees.

Gov. J.B. Pritzker signed the bills amending the state’s existing wage payment and collection law June 10. The first amendment, HB 5412, makes the general contractor, construction manager or prime contractor liable for any unpaid wages and benefit payments or contributions owed by a subcontractor for work on a construction, repair, demolition or other project for contracts entered into from July 1 onward. 

The law also requires a subcontractor to compensate the general contractor for any penalties or other costs it incurs as a result of the subcontractor’s failure to pay wages or benefits—unless that failure was caused by the contractor not paying owed money to the subcontractor. 

This provision does not apply to contractors working for the federal, state or local governments.

The second amendment, HB 4600, adds more exemptions. Contractors who are party to a project's collective bargaining agreement are not liable for subcontractors’ unpaid wages, and neither are contractors working on repairs to an existing single-family home or a single unit in a multi-unit building. The law also amends the act to only apply on projects worth more than $20,000.

Attorney Steven Mroczkowski, who co-leads Dykema’s construction practice out of the law firm’s Chicago office, says the increased liability may lead to increases in project pricing. It also could reduce contractors’ appetite to do business with firms they don’t already know, potentially adding hurdles for businesses that are newer to the market. 

“Contractors are going to want to maintain those strong relationships they’ve had, and they’re going to stand by those where they’ve got a good track record with downstream trades and subcontractors who pay their people,” he says.

Contractors may also want to modify some of their contract language, such as requiring subcontractors to provide certified payrolls, in order to protect themselves, Mroczkowski says.

State Sen. Cristina Castro (D-Elgin), who sponsored both pieces of legislation, said in a statement that the law was needed to protect workers from being shorted in the event a subcontractor goes out of business, or otherwise fails to pay workers what they’re owed. 

“Wage theft is a real problem, especially in the construction industry, which can have a complicated web of involved companies,” Castro said.

The first amendment was similar to another which died in committee during lawmakers’ prior legislative session after drawing opposition from industry groups. That earlier bill would not have included the exemptions  contained in the enacted amendments.

The signed law also includes a 10-day notice requirement to the employer and the primary contractor before a subcontractor employee files a lawsuit, though Mroczkowski notes the requirement is not as robust as some laws from other jurisdictions. And a similar law passed in New York last year includes an added protection for contractors via a requirement for subcontractors to provide certified payroll records and allowing contractors to withhold payment if the records aren’t provided.

“Wage theft is a serious issue, and so I don’t want to downplay that at all, but I’m just not so sure of the instrument that was employed here to try to mitigate the effects of wage theft in the construction industry,” Mroczkowski says.

In addition to the wage law amendments, the second amendment directs the creation of a task force on bond reform in the construction industry. It will include 11 members appointed by various officials plus seven members representing the construction industry appointed by the governor. The group is tasked with studying ways to reduce industry insurance costs while protecting owners from nonperformance, such as using owner-financed insurance instead of contractor-financed insurance, and alternative ways to manage risk. The task force’s findings are due by March 1, 2023.