On January 1, 2022, an expansion of prevailing wage law in New York will become effective.  The new law will significantly increase the universe of construction projects subject to prevailing wage requirements.

In brief, when a project is subject to prevailing wage requirements, workers must be paid set hourly wage rates and hourly benefit amounts as determined by the fiscal officer of each New York county.  These rates are substantially higher than minimum wage and also traditionally far greater than average non-union rates largely due to the added benefits amount.

Under the Budget Bill, S.7508-B A.9508-B, signed into law by former Governor Cuomo on April 3, 2020, workers must be paid prevailing wages on “covered projects,” which refer to  “construction work done under contract which is paid for in whole or in part out of public funds where the amount of all such public funds, when aggregated, is at least thirty percent of the total construction project costs” and “where such project costs are over five million.”

Previously, projects were subject to prevailing wage requirements only if a public entity was a party to a construction project and the purpose of the work was to benefit the public.

The law broadens the definition of “public funds” from the traditional definition of direct public investment.  “Paid for in whole or in part out of public funds” refers to money from the following sources:

  1. “The payment of money, by a public entity, or a third party acting on behalf of and for the benefit of a public entity, directly to or on behalf of the contractor, subcontractor, developer or owner that is not subject to repayment;”
  2. “The savings achieved from fees, rents, interest rates, or other loan costs, or insurance costs that are lower than market rate costs; savings from reduced taxes as a result of tax credits, tax abatements, tax exemptions or tax increment financing; savings from payments in lieu of taxes; and any other savings from reduced, waived, or forgiven costs that would have otherwise been at a higher or market rate but for the involvement of the public entity;”
  3. “Money loaned by the public entity that is to be repaid on a contingent basis; or”
  4. “Credits that are applied by the public entity against repayment of obligations to the public entity.”

Under the new law, the definition of “public entity” is broadened to include “the state,” “a local development corporation,” “a municipal corporation,” “an industrial development agency,” “any state, local or interstate or international authorities” and “any trust created by any such entities.”

Therefore, by broadening the scope of projects deemed to have a sufficient public connection, it is expected that more construction projects will now be subject to prevailing wage requirements.

Additionally, the law imposes new responsibilities on owners and developers regarding prevailing wage.  These responsibilities include (1) certifying under penalty of perjury that prevailing wages are required on the project; (2) retention of original payroll records after completion of the project, which will be subject to inspection by the Commissioner of Labor upon demand; and (3) compliance with the objectives and goals of the Minority- and Women-Owned Business Enterprises (MWBE) program pursuant to Executive Law Art. 15-A, and the Service-Disabled Veteran-Owned Businesses program pursuant to Executive Law Art. 17-B.

While the law requires payment of prevailing wage where “total project costs” exceed $5,000,000, it does not define “total project costs” or “construction project costs.”  Therefore, there is some uncertainty as to which costs fall into this category and accordingly which projects are subject to the prevailing wage requirements.

It should also be noted that certain construction projects are exempt from this expansion of prevailing wages including but not limited to the following:  small residential or school construction, nonprofit projects, and affordable housing developments.

To comply with this new law, parties to a construction contract should first determine if the relevant construction project is subject to the new prevailing wage requirements based on the parameters outlined above.  If so, owners and developers should ensure they follow the guidelines for certified payroll records and retention of same.

New York’s new wage theft law – expected to have a major impact on the construction industry state-wide – goes into effect on January 4, 2022 and will apply to contracts executed, modified, extended, or renewed from that date forward. Most notably, the law will impose (a) greater liability risk on prime contractors, and (b) reporting requirements on subcontractors.

The underlying bill, S2766-C (which can be found here), adds a new section to NY Labor Law § 198 and was signed into law on Labor Day by Governor Hochul. It extends full and complete liability to the prime contractor or construction manager on a project for any deviation of proper payment of wages by any subcontractor. The prime contractor or construction manager remains responsible for unpaid wages for all subcontractors, no matter how far down the subcontractor chain the wage theft occurs.

Under the new law, a worker who claims wage theft – or another party acting on their behalf, such as a union or even the attorney general acting on its own accord – can seek payment from both the worker’s employer and the prime contractor on the project. The prime contractor and direct employer will be jointly and severally liable for damages, including back wages, benefits, and penalties.  This is all a dramatic change in the law.

The prime contractor’s liability cannot be waived except through a collective bargaining agreement. The prime contractor can also seek indemnification and reimbursement from the subcontractor that failed to pay full wages, though in many instances we expect the ability to obtain this recovery will be limited, at best.

The legislation also amends General Business Law § 756 to provide that, even without specific contractual provisions, subcontractors performing work on a project submit up the chain employee names and contact information, as well as wage and benefit details, so that the prime contractor can properly audit wages and benefits paid. The law also expressly makes the failure to provide this information justification for withholding of payments to any subcontractor at any tier.

With the right to obtain payroll, wage, and benefit details for subcontractor labor, prime contractors, even those that do not self-perform work, will have to become experts and learn to oversee  New York labor law requirements to determine where their subcontractors may have failed to meet their obligations.

The goal of the new law is to provide deeper pockets for workers seeking compensation for non-payment of wages and benefits, as well as to have the prime contractors police their subcontractors regarding payment of wages. It imposes an increased risk and administrative expense to prime contractors and heightened reporting costs to trade contractors. It also provides a benefit to trade unions in that a waiver of this liability can only occur pursuant to a collective bargaining agreement, and union contractors already engage in reporting requirements regarding wage and benefit details.

There are a myriad of questions relating the law’s coverage that will likely have to wait for courts to resolve, however. The law, for example, does not specifically provide for liability to project owners, intermediate subcontractors, advisory construction managers, or to hired developers. Will courts read liability for any or all of them? Would a court accept attempts to circumvent the law by having all contracts be held directly by the owner? If the owner contracts directly, does it assume liability as a general contractor if it is acting in that capacity?

In preparation for January’s changes, every prime and intermediate contractor should closely review and update its subcontracts to clarify its audit rights and to provide for indemnification rights against its lower-tier subs for any action brought under the new law.  All subcontractors should also familiarize themselves with their existing and future contracts to best understand how the new law will not only impact their potential liability for unpaid wage claims, but also their ability to obtain work on future projects while facing increased scrutiny from prime and intermediate contractors. Additionally, union prime contractors should consider seeking an addendum to their existing collective bargaining agreements to waive this new statutory provision.

Development incentives are nothing new in New Jersey. In fact, they have been part of the state’s process for attracting businesses for many years. However, when the 2013 Economic Opportunity Act was allowed to expire in July of 2019, no such programs were available for businesses moving to the state. Many were left wondering what, if anything, would take the place of the Grow NJ program or the Economic Redevelopment and Growth (”ERG”) grants. With the New Jersey Economic Recovery Act of 2020, which Governor Murphy signed into law in January of 2021, Grow NJ, ERG, and other programs have returned with new programs joining them.

The New Jersey Economic Development Authority (“NJEDA”) provides a detailed breakdown on each program here and will, as before, manage these programs.

Smaller programs are already underway, such as the Emerge Program, which announced its first award at the end of September. However, for the major programs, applications are still on the horizon.

The Aspire Program, intended as successor to the ERG, has published draft program rules for public feedback. The NJEDA projects that by the end of this month, the Main Street Recovery Finance Program, a fund to support micro businesses in New Jersey and their partnering entities, will have applications online, ready for submission.

With the return of development incentives, New Jersey is again poised to attract businesses and investment. The State’s hope is that these new programs will prove as effective as those that expired in 2019.

 

 

Construction contracts generally outline various scenarios in which a party can terminate the contract.  In one common scenario, a contractor is permitted to terminate its subcontractor “for cause” if the subcontractor provides deficient work or fails to meet the project schedule.  Contracts often describe this type of deficiency as a “failure or neglect to carry out the work in accordance with the subcontract.”  Similar provisions are found in contracts between owners and general contractors.

Importantly, most contracts require that, before terminating a subcontractor for deficient work, a general contractor must first provide the subcontractor with notice of the default and an opportunity to cure the deficiency (for example, seven days).  Only after providing notice and an opportunity to cure can the contract be terminated, and only if the default remains uncured.  This kind of termination “for cause” is significant because most construction contracts provide that the subcontractor will not be entitled to receive any further payment for work performed until the project is finished.  Even then, the subcontractor will usually be backcharged for the cost of completing and/or remediating its work, and in some cases, the subcontractor may actually owe money back to the general contractor if such costs exceed the balance unpaid to the subcontractor.

The New York Supreme Court, Appellate Division, First Department, recently issued a decision addressing certain key issues surrounding contractual notice-to-cure provisions and what happens when they are not strictly observed in connection with terminations.  See East Empire Construction Inc. v. Borough Construction Group LLC, 2021 NY Slip Op 05455 (Oct. 12, 2021).  There, the First Department held that notice-to-cure provisions for termination of construction contracts can only be ignored in “very limited and rare circumstances,” and that noncompliance can eliminate the general contractor’s right to setoffs for completion and remediation costs arising out of a subcontractor’s nonconforming work.

In East Empire Construction, a general contractor terminated a steel work subcontractor based upon the claim that the subcontractor provided faulty work and had a poor safety record.  The contract required the general contractor to provide a 10-day cure period before terminating the contract for “failure or neglect to carry out the Work.”  The general contractor, however, terminated the subcontractor after providing only a 72-hour cure notice.  The parties’ subcontract permitted the general contractor to backcharge the subcontractor for costs and fees incurred in connection with the subcontractor’s failure to perform and, on that basis, the general contractor withheld payment on certain of the subcontractor’s outstanding invoices.

The terminated subcontractor thereafter sued the general contractor for breach of contract and sought recovery on its outstanding invoices, alleging that it was terminated without appropriate notice and opportunity to cure the alleged default.  The subcontractor also sought to dismiss the general contractor’s claim for setoffs, which the general contractor had asserted as an affirmative defense to the subcontractor’s complaint.

The First Department held that the general contractor’s termination of the subcontractor was “ineffective” because the general contractor failed to provide the contractually required 10-day notice and cure period.  The court described contractual notice-to-cure provisions as “strict” and stated that there are “very rare” and “limited circumstances” where a contractually required notice to cure is not necessary.  Specifically, those cases are limited to cases in which (1) “the other party expressly repudiates the contract or abandons performance” or (2) “the breach is impossible to cure.”

The court found further that neither of those situations was present, and that the general contractor was required to comply with the contractual notice to cure provision.  First, the court found that the subcontractor did not “repudiate” or “abandon” its work.  Second, regarding whether the subcontractor’s breach was “impossible to cure,” the court found that the alleged faulty work constituted nothing more than “defective performance” which is “the very situation to which the cure provision was intended to apply.”  The court also found that a “poor safety record” was also not “impossible to cure.”

As a result, the termination was improper and the subcontractor was entitled to payment on its outstanding invoices.  In addition, because the termination was deemed ineffective, the general contractor was not permitted to backcharge the subcontractor for costs incurred in remediating the allegedly defective work.  The general contractor’s failure to terminate the contract properly was particularly significant because, as noted above, the general contractor would have been permitted to backcharge the subcontractor for fixing the subcontractor’s faulty work, but the general contractor lost that right when it did not comply with the contract’s notice-to-cure provision.

The decision in East Empire Construction is a reminder that parties to construction contracts are well-advised to carefully review and comply with contractual termination provisions and associated notice-to-cure requirements.  As reiterated in this case, it is well-established under New York law that termination procedures in construction contracts are strictly enforced as written.  Therefore, careful adherence to a contract’s termination procedures is crucial to protecting a party’s rights and avoiding the negative consequences that flow from improper termination.

The construction industry, like many others, was hit hard by the COVID-19 pandemic. As the industry adjusts to the new normal, not everyone is on the same page.

Many project owners, rather than risk site shutdowns and potential inefficiencies from social distancing, are beginning to require that all project site personnel show proof of vaccination in order to work on site. Vaccine hesitancy, however, is relatively high among the labor force of the construction trades leaving contractors stuck in the middle between their clients and their workers.

Does a small to medium sized trade contractor risk alienating its clients, whether they be owners directly or general contractors, who require that everyone working on site be vaccinated, or risk upsetting its employees who may not want to be vaccinated?

For contractors with 100 or more employees, this conflict will arise whether or not the project owner demands vaccination for workers at the project site. The forthcoming OSHA Emergency Temporary Standard spearheaded by the Biden Administration will almost certainly mandate either vaccination or weekly testing for all companies that size or larger. For them, there will be no negotiation or discussion with the project owner. The costs imposed by regular weekly testing – assuming that tests will even be available on the scale required – will be significant.

Employers who are also federal contractors already have a mandate under Executive Order 14042 to ensure that all employees working in connection with a project covered by that order and not entitled to an exemption are vaccinated by December 8, 2021. The business requirements of staffing and workforce allocation effectively necessitate that all worksite employees be vaccinated by the deadline. This is the case whether or not the project owner would accept unvaccinated construction personnel.

Ultimately, we have seen across industries and across the country that threats of mass employee refusals to accept vaccine mandates have generally sputtered out. Holdouts have caved in hospitals, hospitality, and airline industries, where nearly all employees who are required to get vaccinated do so in the end. What we are seeing across the board is that people typically comply with mandates. So while contractors may feel the need to phase in vaccination requirements over time, having an owner that demands vaccination can provide the contractor cover to require its workforce to be vaccinated and help to minimize sick time and promote public health at the same time.