Since 1931, general contractors in Nevada have borne the responsibility of ensuring that the laborers working for its subcontractors are paid. A general contractor that has not taken measures to make sure wages are paid is ultimately responsible to the laborers themselves, regardless of whether the general contractor has already paid the subcontractor. To avoid having to pay twice—once to the subcontractor and then again to the laborer directly—the general contractor has a strong incentive to police the subcontractors’ payment of wages.
The statute that imposes this burden in Nevada is NRS 608.150. It reads as follows:
Every original contractor making or taking any contract in this State for the erection, construction, alteration or repair of any building or structure, or other work, shall assume and is liable for the indebtedness for labor incurred by any subcontractor or any contractors acting under, by or for the original contractor in performing any labor, construction or other work included in the subject of the original contract, for labor…Consequently, general contractors in Nevada must be wage enforcers if they want to avoid becoming wage insurers.
Nevada statute authorizes a general contractor to enforce wage payment by withholding disbursement to the subcontractor for its work until the subcontractor can prove that it has paid its workers. If the subcontractor has not compensated its workers (or fails to furnish proof that it has), the general contractor has the option to pay the workers directly and then pay the subcontractor the balance.
In this scenario, the worker gets paid, the subcontractor gets paid, and the general contractor only has to pay once. As a practical matter, this scenario rarely occurs because subcontractors can usually be counted on to pay their employees—particularly in the wake of several federal wage enforcement laws that have been passed since Nevada’s 1931 statute.
Nevada courts have expanded the applicability of NRS 608.150 in at least two ways since it was enacted over eighty years ago: (1) it can now be used as a mechanism for collecting unpaid benefits in addition to unpaid wages, and (2) in addition to the workers themselves, union trust funds — the organizations responsible for collecting benefit contributions and disbursing union benefits — can bring collection cases.
In line with these judicial expansions, NRS 608.150 has become a tool used against union subcontractors with union employees that have paid the employees’ wages, but have either failed to pay the employees’ benefits or, either intentionally or negligently, underreported the hours worked and therefore underpaid the benefits earned by the employees.
In this scenario, which forms the backdrop for the most common NRS 608.150 case, the general contractor can no longer merely rely on proof of payment of wages, but must also confirm that the subcontractor has paid up on all the benefits. To do that, the general contractor can contact the trust funds before payment to the subcontractor is due and ask for verification that the subcontractor is paid up.
For most of NRS 608.150’s history, general contractor reimbursement has been sought under one of these two scenarios — workers seeking wages or trust funds seeking benefits. However, in recent years, trust funds — perhaps resulting from dwindling funds resulting from stagnant union enrollment—have begun collection efforts against general contractors in a novel and untested way, and one that if approved of by Nevada courts, would leave general contractors without defenses or effective preventative measures.
Nevada federal courts recognize a cause of action specific to union affiliation called alter ego. In a nutshell, it means that if a non-union company is affiliated closely enough with a union company, then for all intents and purposes, it is the same company as the union shop and should be bound by the collective bargaining agreement signed by its union alter ego.
This scenario arises in any of a number of situations. Sometimes a subcontractor may give notice of its intent to withdraw from the union, receive no objection, and then begin operating as a non-union shop, only to later discover that the union did not consider its withdrawal complete. The withdrawal process is exacting and difficult.
Sometimes a valid withdrawal requires that notice be sent in a thirty-day window that only opens once every five years. In some cases, the union does not even have to challenge the withdrawal for courts to consider it deficient and ineffective even years later. In other situations, a subcontractor may no longer want to be part of a union (or may have been unsuccessful withdrawing), so it closes up shop then opens another nonunion shop. If the transition is not clean enough, the new entity can be considered the same as the old one.
In yet another situation, the subcontractor may actually have little to do with the union shop, other than the fact that two family members own the two different businesses. And if this is all the two have in common, they would not likely be eventually deemed alter egos, but that would not necessarily stop the trust funds from making the allegation and litigating until the businesses are forced to close their doors.
To prove that a non-union company is an alter ego of a union company can take years and tens — sometimes hundreds — of thousands of dollars. And although each alter ego case is factually intensive and unique, one fact is constant: at the time the subcontractor performs work for the general contractor, the general contractor has no knowledge that the subcontractor might be an alter ego of a union company.
That lack of knowledge is significant because the law says that if a subcontractor is adjudged an alter ego (and therefore a union subcontractor), it becomes retroactively liable for all the benefits it did not pay as a non-union subcontractor but should have paid as a union subcontractor. Sometimes a subcontractor operates for years—either (1) with little if any affiliation with a union company or (2) with the belief that it has lawfully withdrawn from the union — before a trust fund alleges that the subcontractor is either still a member of a union or is a member by operation of law through alter-ego principles.
Unfortunately, because most subcontractors do not have deep enough pockets to defend these expensive cases, if a lawsuit is brought against them for back benefits, often their only recourse is shutting down their doors and going into corporate default. This leaves general contractors in a Catch 22 where they either have to roll over and pay the subcontractors’ debts or hire an attorney and engage in expensive litigation.
If the debts total less than ten or fifteen thousand dollars, it is more economically feasible for the general contractor to pay the debts than to litigate even though there were never any means available to verify or enforce the debts at the time labor was performed. Such verification or enforcement would have been impossible because none of the parties involved—not the subcontractor, not the general contractor, and not the union or the trust funds — knew that the subcontractor was potentially tied to a collective bargaining agreement.
This option is especially distasteful because in many cases, the employees of the subcontractor were not members of the union, which means they neither bargained for nor received benefits, but the trust funds are going to collect benefits on their behalf anyway—benefits that the workers will never see. That means that trust funds are collecting the bills without paying the expenses.
At least one court remarked in a similar situation, “[a] judgment for the Funds under these circumstances would be a pure windfall.” But a court’s opinion only matters insofar as a party has the funds and willingness to put up a defense. The law is meaningless to those who cannot afford justice because they lose the war of attrition that begins when the trust funds file a lawsuit.
The other option — preparing a defense, seems a more satisfying approach, but it is not without its disadvantages. For one, defending a case is expensive, and the trust funds can be relentless in their litigation strategies, sometimes inundating litigants with discovery requests and motions, which increases the cost of litigation exponentially.
To date, there is no case on record where a trust fund has been able to get a court to enforce NRS 608.150 against a general contractor where the subcontractor’s union status was questionable at the time the labor was performed. That also means that there is no case like this on record where the general contractor has lasted long enough for a judgment to be rendered one way or another. However, because union trust funds have deep pockets, and general contractors typically do not, these gaps in the law always favor the trust funds.
Zachariah B. Parry is a civil litigation attorney and partner at his firm, Pickard Parry Kolbe. He can be reached at email@example.com, 702-910-4300, or through his firm’s website at www. pickardparry.com, or https://plus.google.com/+