Wage Insurers, Enforcers and a General Contractor’s Role

In 1931, the Nevada Legislature enacted a statute that made general contractors (GC) liable for the labor-related debt of their subcontractors. This statute, now codified as NRS 608.150, was set up to protect Hoover Dam workers to make sure they were properly compensated for their work. The statute ensures payment of not only wages, but also benefits. The legislature imposed this burden upon general contractors because it believed the general contractors’ leverage over subcontractors put them in the best position to ensure payment of workers.

In a typical construction project, the owner/developer solicits bids from general contractors to perform a certain scope of work. The general contractors, in the formulation of their bid, solicit bids from subcontractors for each trade required on a given project. The general contractor with the lowest bid will usually be awarded the contract.

The general contractor manages the day-to-day oversight and coordination of the construction of the project. Ideally, the owner makes progress payments to the general contractor, who in turn pays the subcontractors, who presumably have already paid their employees.

The practical effect of NRS 608.150 is that general contractors may have to pay twice—once when they originally pay the subcontractors, and again if the subcontractors fail to pay their employees. And since the statute of limitations is as long as four years, a GC may be asked to pay a second time for labor on a project that has long been completed.

In these scenarios, the general contractors provide what amounts to wage and benefit insurance to the employees of their subcontractors. Consequently, savvy general contractors require proof that the subcontractors’ debts are paid as a condition of payment. Thus, general contractors can avoid becoming wage insurers and instead act as wage enforcers.

Given the number of judicial and administrative remedies available, there are very few subcontractors that don’t pay their employees. Nor are there many employees willing to work for free. Thus, as a practical matter, NRS 608.150 has been used almost exclusively, not by workers, but by union trust funds to collect unpaid fringe contributions (the funding for union-related benefits like paid vacation, training, health insurance and retirement.)

Thus, on a standard union job, prior to paying the subcontractors, the general contractor will seek written verification from the applicable union trust funds that the subcontractors are current on all labor-related obligations. Once the trust funds verify that the subcontractors are current, the general contractors pay the subcontractors, having purchased peace of mind against a collections action some years in the future.

Although GCs and trust funds can usually work amicably within this system, in recent years some trust funds have begun seeking delinquent fringe contributions from general contractors on behalf of non-union subcontractors employing non-union labor. The trust funds’ stated justification for these lawsuits is that, although the subcontractors are not directly affiliated with any union, they are sufficiently interrelated with union contractors that they are alter egos of the union subcontractors. Therefore, according to the trust fund, the subcontractors are also bound to the respective collective bargaining agreement, including the obligation to make benefit contributions.

If the subcontractor is eventually judicially deemed a union signatory through alter-ego principles, it leaves the general contractor in a vulnerable position. At the time the job was performed, the GC had no notice that one of its subcontractors would be sued in the future for delinquent contributions that would only ever become due retroactively and after a judicial determination. General contractors in this position are justifiably at a loss as to what they could have done to avoid liability.

To date, no court has determined the applicability of NRS 608.150 in cases where a subcontractor is not affiliated with any union when work is performed, though there are open cases that may require such a decision. General contractors should be aware of this issue even though at this point effective countermeasures are only hypothetical.

Zachariah B. Parry, Esq. is a partner at Pickard Parry Kolbe.