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General contractors are now obligated to pay the unpaid wages of a subcontractor’s employee, following recent amendments to the Illinois Wage Payment and Collection Act. The Act applies to all construction contracts executed after July 1, 2022, that exceed $20,000, subject to certain exclusions such as government work, single-family dwellings, and general contractors that are parties to collective bargaining agreements.
Primary contractors can incur significant risk of liability if a subcontractor – at any tier – fails to pay its employee’s wages and benefits. Like the original Act, the contractor’s risk not only extends to unpaid wages, final payments, and benefits, but also interest and penalties assessed by the Illinois Department of Labor, and attorney’s fees and costs.
Before filing a lawsuit, the unpaid employee must provide written notice to his employer and the general contractor. The general contractor and subcontractor then have 10 days after the receipt of the notice to resolve the claim.
General contractors are not without recourse, however. Under the law, subcontractors are obligated to indemnify the general contractor for any costs incurred, unless the subcontractor’s failure to pay an employee was due to the general contractor’s failure to make payment to the subcontractor in accordance with the subcontract.
A general contractor cannot contract around the requirements of the new statute. To mitigate any potential claims, general contractors should require their subcontractors to maintain employee timesheets along with proof of payment. In addition, subcontractors should submit affidavits at the conclusion of the project certifying that all employees have been paid. The general contractor can also shift the risk back to the subcontractors through insurance, performance bonds, or conditional payment terms in the subcontract.