On June 10, 2022, Illinois Governor J.B. Pritzker approved HB 5412, which will now enter into law as Public Act 102-1076, as well as a follow-up measure entering law as Public Act 102-1065 and amending Public Act 102-1076. These amendments to the Illinois Wage Payment and Collections Act, 820 ILCS 115 et seq., (Wage Act) render owner-retained “prime” contractors entering into construction contracts in Illinois liable for claims brought under the Wage Act against their subcontractors at any tier.
Specifically, this newly created liability includes claims for:
- Unpaid wages;
- Fringe or other benefit payments or contributions;
- Interest owed;
- Penalties assessed by the Illinois Department of Labor; and
- Attorney’s fees and costs.
The Act amends the Wage Act by adding section 13.5, Primary Contractor Responsibility for Wage Claims in Construction Industry. This amendment takes immediate effect and applies to “all contracts entered into on or after July 1, 2022.” The Act does not specify whether or how it will be applied in the event of preexisting contractual relationships (such as ongoing contracts modified by amendment or master-project agreements).
Section 13.5 applies to all primary contractors with a direct contractual relationship with the property owner and who enter into a contract “for the erection, construction, alteration, or repair of a building, structure, or other private work in the State where the aggregate cost of the Project exceeds $20,000” including general contractors, prime contractors or construction managers. It does not, however, apply to the alteration or repair of existing single-family dwellings or existing single-units in multiunit structures.
The section only applies to subcontractors with “a contractual relationship with the primary contractor or with another subcontractor at any tier, who furnishes any goods or services in connection with the contract between the primary contractor and the property owner,” but does not extend to suppliers and transportation companies that do not provide labor. The section excludes from its scope contracts performed for federal, state or local government entities, as well as primary contractors party “to a collective bargaining agreement on the project where the work is being performed.” The Act, however, does not specify whether this protection applies to open-shop subcontractors on projects subject to a collective bargaining agreement.
Barring contrary contract terms, Section 13.5 creates a reciprocal obligation on subcontractors to indemnify the primary contractor for any amounts owed as a result of the subcontractor’s failure to comply with its Wage Act obligations unless the nonpayment is a result of the primary contractor’s failure to pay amounts due under the terms of their subcontract.
The amendment also imposes a notice provision on claimants, requiring a claimant to provide written notice of wage claims to the employer and primary contractor at least 10 days prior to the initiation of a civil action. Claims brought pursuant to the section must be filed with the Department of Labor or Circuit Court within three years after the wages, final compensation or wage supplements are due.
What Contractors and Subcontractors Should Do
Like similar legislation implemented in New York and other jurisdictions, Public Act 102-1076 poses additional risk to primary contractors on private, nonunion projects that may adversely impact project costs. As was noted in our prior Alert concerning New York’s law, the most effective approach to mitigating this added liability and risk is a combination of information gathering and risk management. Robust prequalification measures can help avoid payment risk in the first place, while auditing of subcontractor labor payment status can minimize unexpected liabilities. The risk of claims under this amendment can also be shifted back to the underlying subcontractors through the use of performance bonds, insurance protections, conditional payment terms or corporate guarantees.
In the event of a wage claim, contractors should consult counsel before making any direct payments to subcontractors’ employees as such payments could raise other employment liability concerns and there may be legitimate reasons the wages were not paid.
Although subcontractors may already be in compliance with the Illinois Wage Payment and Collection Act, this law creates additional reasons to ensure full compliance and proactively avoid disputes that might impact working relationships between primary contractors and subcontractors. Subcontractors would also be well served to consider how this will impact the selection of subcontractors on future jobs and what measures can be taken to ensure favorable market positioning.