By: Mark Glennon*
Leave it to the Illinois General Assembly to find ways to make life more expensive and difficult for employers.
Suppose you are a contractor and you subcontract work for part of the project. This is routine for many elements in most construction and fabrication projects. A bill pending in the Illinois General Assembly, House Bill 5412, would make you liable if your subcontractor fails to pay a wage claim from the subcontractor’s employees. The bill would allow a worker with a complaint against the subcontractor to sue the general contractor directly.
This is crazy because contractors usually have no control over the subcontractor’s payroll or even information about it. Subcontractors would therefore likely often have to pay deposits to ensure their wages were paid. These costs would be greatest for small subcontractors, often minority-owned.
Because of this, minorities of contractor trade groups oppose the bill. Opponents include the Hispanic American Construction Industry Association, Black Contractors Owners and Executives, and the Federation of Women Contractors, Capitol News Illinois reports. And those small subcontractors may get less work.” By increasing the risk a prime contractor takes when hiring a subcontractor, flat-rate liability provides the prime contractor with an incentive to use internal labor and avoid hiring external help, stakeholders argued.
Manufacturers are also opposed to the law, saying it would ultimately drive up costs for consumers. Dennis LaComb, of the Technology and Manufacturing Association, says that “the bill encourages large contractors to offer a comprehensive umbrella of in-house services, meaning subcontractors hold the bag in hand for small businesses. In the end, it is the customers and end users who have to pay more. This is another small business and consumer tax in Illinois.”
But wait, there’s one exception to what the bill would cover, and it’s no surprise what would be exempt: government-funded projects and union projects.
“The hypocrisy of Illinois politicians isn’t even surprising anymore,” LaComb said. “So these politicians are not only getting rid of this bill, it is yet another attempt to support their union benefactors and to punish non-union workers. They don’t care that in the process they harm small businesses, family producers and consumers.”
A previous attempt at similar legislation fell through in 2019. At the time, a JD Supra column listed the following issues it raised:
- Would direct contractors require all subcontractors to provide payment guarantees to guarantee payment of wages?
- Would smaller and newer subcontractors who cannot provide guarantees not be competitive on most private commercial projects?
- How much additional administrative effort would be required to keep track of whether subcontractors are paying all employees?
- Would the payment process for all subcontractors be slowed down while proof of payment is collected from lower levels, further putting cash flow under pressure?
- What role would politics play in whether an industrial cooperation committee sued one of its major contractor members?
- Does the word “subcontractor” include suppliers of materials, as is the case under the Illinois Mechanics Lien Act, or does it only include subcontractors covered by the applicable wages law?
- Do publicly funded jobs on private land or projects on public land with private funds count as “private” projects?
- If attorneys’ fees are awarded to a winning wage earner, should they also be available to a successful direct contractor?
- Does the provision permitting attachment of a direct contractor’s property in order to seek judgment differ from applicable law, and if so, how?
The key problem is that the bill would fundamentally disregard the basic legal concept of representation – that you shouldn’t be liable for what you can’t control. As JD Supra put it, “For hundreds of years, American jurisprudence has recognized the distinction between independent contractor and agency laws.”
Let’s hope this bill dies like the last attempt.
*Mark Glennon is the founder of Wirepoints.