Amendment of Illinois Wage Payment and Collection Act Makes Certain Illinois Primary Contractors Responsible for Paying Subcontractors’ Unpaid Wages

The Illinois Wage Payment and Collection Act (the “Act”) was recently amended to include a new section that makes certain primary contractors in the construction industry responsible for paying unpaid wages, fringe or other benefit payments or contributions, including interest owed, and reasonable attorney’s fees of a subcontractor’s employees under all contracts entered into on or after July 1, 2022 relating to the erection, construction, alteration, or repair of a building, structure, or other private work in the State of Illinois.

Under the amendments, “primary contractor” is defined as a contractor that has a direct contractual relationship with a property owner and may have the same meaning as a “general contractor”, a “prime contractor”, or a “construction manager.” A property owner who acts as a primary contractor related to the erection, construction, alteration, or repair of his or her primary residence, however, is exempt from liability under the amendments. “Subcontractor” is defined as a contractor that has 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 include contractors who solely provide goods and transport of such goods related to the contract. “Construction” means building, altering, repairing, improving, or demolishing any structure or building or making improvements of any kind to real property.

The amendments do not apply to work performed under a contract by a contractor of the federal government, the State of Illinois, a special district, or any other political subdivision of the State of Illinois (such as a city or county). In addition, primary contractors who are parties to a collective bargaining agreement on the project where the work is being performed are “exempt” from any liability under the amendments.

The amendments afford employees a right to commence a civil action against primary contractors 10 calendar days after they first provide a detailed written notice of their claim to their employer and the primary contractor. Employees are not required to sue their employers or otherwise exhaust efforts to collect from their employers before suing primary contractors.

Primary contractors are prohibited from evading the requirements of the amendments to the Act by seeking to contract away their liability. However, the amendments do permit primary contractors to include contractual indemnification provisions in their contracts with subcontractors that require subcontractors to indemnify primary contractors for any wages, fringe or other benefit payments or contributions, damages, interest, penalties, or attorney’s fees owed as result of the subcontractor’s failure to pay wages or fringe or other benefit payments or contributions, unless the subcontractor’s failure to pay was due to the primary contractor’s failure to pay sums due to the subcontractor in accordance with the terms of their contractual relationship. The amendments effectively shift the burden and risk of litigation to primary contractors, who will practically be required to promptly pay employee wage claims and then sue subcontractors to recover the amounts paid out. Consequently, covered primary contractors should give particular attention to requiring performance bonds, letters of credit, personal guarantees, insurance protections and other security remedies, as well as enhancing prequalification requirements of subcontractors, so as to mitigate their liability under the Act amendments.

If you have any questions about how the Act amendments may affect your business operations or contractual obligations, please contact one of the authors of this client alert or any other member of our construction law practice.