It is difficult to imagine a complex infrastructure project without the participation of subcontractors. In Poland, where large projects are often contracted to foreign companies, local subcontractors play an important role. This was also the case prior to the EURO 2012 football championships, when subcontractors were heavily engaged in the construction of roads and railways necessary to secure access to the newly built football stadiums. However, the EURO 2012 also resulted in a wave of bankruptcies and liquidations of Polish subcontractors, who suffered due to payment withholding, warranty deposits, contractors’ bankruptcies and lack of financial liquidity along the supply chain.
The Court’s decision in Khosh v. Staples Const. Co., Inc., Case No. 56-2014-00447304-CU-PO-VTA (Oct. 26, 2016) helps to further define the boundaries for whether a general contractor may be found responsible for worksite injuries suffered by an independent subcontractor’s employee.
In Khosh, the California Court of Appeal upheld the trial court’s decision that general contractor Staples Construction Company, Inc. (“Staples”) was not responsible for injuries sustained by an electrical subcontractor’s employee, who was severely electrocuted on the jobsite.
By Kimberly L. Karr, K&L Gates, Pittsburgh
On April 17, 2014, the Pennsylvania Supreme Court ruled that Pennsylvania’s mechanics’ lien law, 49 P.S. § 1101, et seq., does not allow trustees of union benefit funds to bring claims for non-payment as subcontractors against employers and owners. See Bricklayers of W. Pa. Combined Funds Inc. v. Scott’s Dev. Co., Case No. 36 WAP 2012 (Pa. April 17, 2014); Laborers’ Combined Funds of W. Pa. et al. v. Scott’s Dev. Co., Case No. 37 WAP 2012 (Pa. April 17, 2014). The decision reverses the Superior Court, which previously ruled in favor of the unions.
Under the Pennsylvania’s mechanics’ lien law, unpaid subcontractors can record a lien on an owner’s property. See 49 P.S. § 1301. If the primary contractor continues to withhold rightful payment, the subcontractor can foreclose on the lien and force the sale of the property in lieu of compensation. See id. at § 1701.
The question before the Pennsylvania Supreme Court was whether unions and benefit fund trustees could qualify as subcontractors under the mechanics’ lien law. The dispute stemmed from construction work performed by members of two unions on a property in Erie County. General contractor J. William Pustelak Inc. hired the unions using collective bargaining agreements. The agreements specified, among other things, that when the general contractor needed bricklayers and/or laborers, it would obtain them from the unions.
After the work in Erie County went unpaid, the unions filed liens against the property owner, Scott’s Development. The unions sought approximately $42,000 in contributions owed to a fund for the workers’ health, welfare, retirement, and fringe benefits. Scott’s Development objected on the grounds that unions and benefit fund trustees were not considered contractors or subcontractors under Pennsylvania’s mechanics’ lien law. The trial judge dismissed the case, but the Superior Court reinstated it on the basis that the statute should be liberally construed.
The Supreme Court ultimately determined that unions and benefit fund trustees could not be considered subcontractors. It reasoned that a “subcontractor” by definition is a person or business “who performs for and takes from the prime contractor a specific part of the labor or material requirements of the original contract,” as opposed to ordinary laborers. Quoting Clifford F. MacEvoy Co. v. United States for Use & Benefit of Calvin Tomkins, 322 U.S. 102, 109 (1944). The court also cited language from the statute’s official legislative comments, which make a similar distinction between subcontractors and employees. Moreover, according to the court, the trustees could not assert that an implied-in-fact subcontract existed, where the trustees’ claims were based on an express collective bargaining agreement.
The Supreme Court also seemed to consider the effect that the Superior Court’s decision would have if sustained. The court determined that if union workers could be considered “subcontractors” under the mechanics’ lien law, private property owners would then be forced to act as guarantors of contractors’ general employment obligations. According to the Supreme Court, the lower court’s decision would effectively create a new class of claimants that would saddle private property owners with an undue increased risk of litigation. Accordingly, union members and laborers in Pennsylvania are left to recover payment through more traditional theories of liability, such as breach of contract.