Contractor Refuses to Pay Subcontractor
When a contractor refuses to pay subcontractor, the subcontractor has grounds to pursue legal action to collect the money that is owed to them. Subcontractors can even file to obtain a mechanic’s lien on the owner's property if they were not properly paid. The owner has an obligation to make sure that payments flow downstream.5 min read
Construction Projects That Qualify
Although this is not an exhaustive list, building projects involve multiple subcontractors, such as:
If you are in any of these categories and you work with a construction company that has contracted you for a project, but you haven’t been paid for it, you have the right to file a lawsuit.
Keep reading to learn all you need to know about the legal implications of this situation.
Subcontractor Not Paid by Contractors
If you are a subcontractor who has not been paid by a contractor, you have a few avenues to take.
Subcontractors can report contractors to the appropriate state licensing board if they fail to pay. Exact rules and penalties associated with failing to pay a subcontractor will vary from one state to the next.
For example, in the state of California, a subcontractor can sue for the following:
- The original amount they are owed
- Legal fees
- Penalties of up to two percent of the original bill
Subcontractors are not restricted to taking such action only when they aren't paid. They can also pursue similar action when a contractor delays paying a subcontractor for longer than the state allows. One of the contractor's responsibilities involves making sure each of the involved subcontractors and suppliers is paid for their work.
How Long Does a Contractor Have to Pay a Subcontractor?
Depending on your state, you have 5 years to file a lawsuit to recover money owed under a written or oral work agreement.
If the contractor is not paid for five years, they can launch a case.
What Can You Do if a Contractor Won’t Pay You?
Another way to do this is to contact a lawyer for advice, but keep in mind that:
- Going to court costs money
- You’ll have to consider the attorney fee as well
- A lot depends on the agreement you made and whether there is a condition requiring subcontractors to submit to binding arbitration or allowing them to sue
On the flip side, if you’re a subcontractor and you haven’t been paid by a contractor, they are breaching the law and you are entitled to file a lawsuit.
It’s usually easier to pursue action against the owner of the property than it is to go after the contractor.
What is a Mechanic's Lien?
If a subcontractor doesn't get paid, they can file what is known as a "mechanic's lien" against the property they've been working on. The first thing they'll need to do is notify the property owner.
If the owner fails to pay, the subcontractor can file the lien. A mechanic's lien can be used to foreclose on the property in question as a means to collect the money the subcontractor is owed when the property sells.
In cases like this, it doesn't matter whether the property owner has paid the contractor in good faith. There are laws in place that are designed to protect a subcontractor and ensure they get paid, even if that means the property owner has to pay more than once for the work that's been done.
The mechanic’s lien should only be used if there is a major payment issue and the deadline for filing a claim is approaching. Still, if you are a lien claimant, you need to be aware of your lien rights and deadlines, as well as be prepared if something goes wrong.
Which Law Protects an Owner if the General Contractor Fails to Pay Subcontractors?
The owner may not even be aware of the specific terms of the agreement between the main contractor and subcontractors. However the owner has an obligation to guarantee that subcontractors are paid for the work in a timely manner.
An owner can reduce the risk of paying more than once for the same work, by asking the main contractor to prove that subcontractors are being paid on a regular basis. Main contractor should also provide lien waivers from each of his subcontractors.
There are requirements for a subcontractor to obtain a mechanic’s lien on your property. For example there is a 90 days deadline, and you have to pay close attention to whatever your specific state law requires. An UpCounsel Construction Law Attorney may help you to defeat the lien, just post a job in less than 2 min.
Contractors normally bid on large projects and then hire subcontractors to perform a significant portion of the work to be performed. Subcontractors usually specialize in niche areas such as:
- Electric work
Can a Contractor Refuse to Pay a Subcontractor for Bad Work?
If you're a contractor, it's only a matter of time before you end up working with a subcontractor that doesn't perform their portion of the job according to the standards of the contract you both agreed to.
If a subcontractor doesn't perform to the standards of the contract, the contractor is required to pay any current payments for work completed. However, the contractor is not required to pay the subcontractor for the remainder of the job.
Keep in mind, however, that this rule can only be applied if the subcontractor is at fault for the poor quality of work. If substandard work was performed due to some contributing factor that was beyond the subcontractor's ability to control, you will likely still be required to pay them.
Still, there are very limited conditions when you can withhold payments from your contractors. If you're not certain that your reasons for withholding payment are legal and legitimate, the subcontractor may be able to take action against you and win.
Can a Contractor Withhold Payment to a Subcontractor?
In most cases, you can't legally withhold payment from a subcontractor when the job you've been contracted on fails to pay on time or, even worse, doesn't pay at all. As a main contractor, you are still responsible for making sure your subcontractors are paid.
Subcontractors will likely be able to place a mechanic's lien against the property in question to recover the money they are owed, which, in turn, could cost you more money. To legally withhold payment in these scenarios, your contract needs to include a "pay-if-paid" clause that specifies you are not required to pay subcontractors if you don't get paid for the job.
Need Help Getting Paid By a Contractor As a Subcontractor?
If you need help with a contractor who refuses to pay you as a subcontractor, you can post a job to UpCounsel’s legal marketplace to find a lawyer to help you. UpCounsel accepts only the top 5 percent of lawyers on its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.