Introduced to the Colorado House Committee on Business Affairs & Labor on January 10, 2024, House Bill 24-1008 (hereinafter the “Bill” or “HB 24-1008”) proposes several significant additions to the Colorado Wage Claim Act, C.R.S. §§ 8-4-101 et. seq., targeted directly at the construction industry. If passed, the new law could significantly impact those involved in the industry, particularly subcontractors. On February 8, 2024, an amended version of HB 24-1008 was referred to the House Committee on Appropriations, which is scheduled to meet on April 17, 2024.
Among the additions, the Bill imposes specific obligations on subcontractors upon receipt of a written demand for payment by an employee and contains financial penalties for a subcontractor’s failure to comply with these new requirements. The Bill also seeks to increase general contractor responsibility for wage claims brought against subcontractors. Notably, if enacted, HB 24-1008 would render general contractors and their subcontractors jointly and severally liable for an employee’s wage debts. Said another way, the Bill passes and shares subcontractor wage liabilities upstream with general contractors on a project. Finally, the Bill’s additions to the current law seek increased subcontractor disclosure obligations upon request by a general contractor.
Subcontractor Requirements Upon Employee’s Written Demand for Payment
First, the proposed legislation increases the responsibilities of a subcontractor when it receives a written demand for payment of wages from an employee. While present Colorado wage law already sets forth requirements and procedures to follow for all employers upon receipt of a written demand for payment by an employee, (see C.R.S. § 8-4-109(3)), the current law does not contain obligations specific to subcontractors – let alone trigger reporting requirements between subcontractors and general contractors.
The proposed language of the Bill includes the addition of C.R.S. § 8-4-109(3)(a.3)(I)-(II). This addition provides that upon receiving a written demand for payment of outstanding wages by an employee, a subcontractor must:
- Forward a copy of the written demand for payment to the general contractor within three business days after receiving the demand; and
- Send a copy of the correspondence sent to the general contractor and the general contractor’s name and address to the wage claimant.
Under the proffered legislative changes, a subcontractor’s failure to comply with these two requirements results in a $2,000 fine owed to the general contractor, in addition to any other outstanding amounts owed.
Though the modifications are seemingly straightforward, there is potential for waters to quickly become murky: subcontractors will need to be able to recognize a “wage demand,” have procedures in place to comply with these requirements expeditiously or else face penalties, determine any impacts on the veracity of lien waivers following the wage demand, to name a few issues. In other words, this facially straightforward “reporting requirement” could lead to a parade of administrative pickles and quagmires.
General Contractors and Subcontractors Jointly and Severally Liable for Wage Claims
Subcontractors are not the only target audience for the Bill’s additions. Specifically, the Bill and its amendments further seek to add C.R.S. § 8-4-110.5, which holds a general contractor liable for any amount owed to an employee within the scope of a construction contract, including amounts owed by a subcontractor acting under, by, or for the general contractor or the general contractor’s subcontractors. General contractor liability does not extend to retaliation by a subcontractor.
The provisions imposing liability on general contractors may also implicate the administrative burdens carried by subcontractors. For instance, in this circumstance, the Bill permits a general contractor to require the following information from a subcontractor:
- Pay data showing the hours worked, pay, overtime and deductions for each individual worker engaged by the subcontractor;
- Contact information for all additional subcontractors that perform any portion of the work within the scope of the subcontractor’s contract with the general contractor; and
- An affidavit attesting to whether the subcontractor or any of its current principals has participated in any civil or administrative proceeding within the last five years involving any allegations of wage and hour violations, and any details from the proceeding if it has been completed.
Notably, however, if a subcontractor does not comply with these three requirements, it will not relieve a general contractor from liability of debts owed. This may give general contractors heartburn over the idea that they could face potential liability for wage debts while simultaneously have very little control over the information – and obtaining the same – that could exonerate them.
The Bill further states that a subcontractor must indemnify a general contractor for any amount owed on a wage claim unless the unpaid debt is caused by the general contractor’s failure to remit payment to the subcontractor pursuant to the terms of the construction contract. A subcontractor’s indemnification obligation includes attorney fees incurred by the general contractor’s defense against liability on the part of the subcontractor. Of significance, a subcontractor’s failure to indemnify a general contractor will not relieve a general contractor from liability on the outstanding wage debt.
This provision of the Bill belies the reality of many construction contracts and Colorado law with respect to construction project payments and the enforceability of pay-if-paid provisions. Those who spend their days living in the lines of construction contracts know all too well that pay-if-paid clauses in construction contracts can be enforceable if “the relevant contract terms . . . unequivocally state that the subcontractor will be paid only if the general contractor is first paid by the owner” and further state that “subcontractor bears the risk of the owner’s nonpayment.” Main Elec., Ltd. V. Printz Serv. Corp., 980 P.2d 522, 528 (Colo. 1999) (en banc).
While a full recount of pay-if-paid clauses is beyond the scope of this publication, the important thing to note is that if properly drafted, these clauses can be enforceable in Colorado. However, any general contractor, subcontractor, or supplier who has been lucky enough (or unlucky enough) to see the gears of these clauses turn in real life knows that a general contractor’s failure – whether excused or otherwise – to make payments to downstream contractors is not an excuse for the subcontractor’s failure to pay wages to its employees.
This means that the Bill contemplates a situation that, by law, cannot exist. A general contractor’s failure to pay a subcontractor on a contract cannot function as a legitimate “cause” for the subcontractor’s failure to pay wages. By contemplating this fictional “loophole,” the Bill actually threatens to create a wage responsibility “black hole.” The Bill could be interpreted to construct (pun intended) a dynamic whereby subcontractors are excused from payment of an employee’s wages while downstream payments are held up behind a pay-if-paid clause.
Exception for Collective Bargaining Agreements
Also of importance, C.R.S. § 804-110.5 specifies that nothing in the proposed legislation diminishes the rights, privileges, or remedies of any employee under a collective bargaining agreement. Further, the requirements of the bill may be waived if the collective bargaining agreement:
- Is entered into by a bona fide building and construction trade labor organization that has established itself or its affiliates as the collective bargaining representative for persons performing work on a project;
- Contains a grievance procedure that results in a final and binding hearing;
- May be used to recover unpaid wages on behalf of employees covered by the agreement;
- Provides for the collection of unpaid contributions to fringe benefit trust funds; and
- Does not diminish or impair the rights of an employee under the proposed bill.
Other Potential Implications of HB 24-1008
Though HB 24-2008 seeks to protect employees from wage theft and ensure their compensation, passage of the Bill could have significant consequences for contractors, particularly those subcontractors running smaller businesses. Faced with the risk of liability for a subcontractor’s outstanding debts owed to employees, general contractors may be incentivized to require added financial assurances before hiring a subcontractor, such as imposition of higher bonds. Arguably, such action could increase the cost of construction and may be unaffordable for some subcontractors.
In addition, the contradictory language of the Bill’s proposed additions and existing wage law in Colorado may actually leave employees in a more tenuous situation when downstream payments are held up as a result of pay-if-paid provisions at work. Current law does not provide an exception to required wages for construction projects under the benevolent dictatorship of a pay-if-paid clause; the new Bill’s language arguably, albeit indirectly, does.
Current Status of HB 24-1008 and Recommendations
Whether or not these critical changes to Colorado’s construction wage law will go into effect is yet to be determined as HB 24-1008 is still under consideration by the House of Appropriations. However, the Bill, as amended, passed overwhelmingly in the House Committee on Business Affairs & Labor. If HB 24-1008 becomes law, it will be effective July 1, 2025, at the earliest.
Given the potential ramifications HB 24-1008 may impose on general contractors and subcontractors alike, construction industry clients should be aware of this bill and its impact on their business, risk, and both direct and ancillary protections to be taken if passed. We will continue to follow the progress of this proposed law and provide any significant updates.
If you have any questions, please contact one of Woods Aitken’s Construction Attorneys. We encourage you to subscribe to our Construction Law E-Briefs for the latest construction news, tips, and updates.