In October 2017, California Governor Jerry Brown signed AB 1701 into law. Effective January 1, 2018, it fundamentally changed the risk profile of every General Contractor operating in California. The premise is simple and the consequences are serious: if your subcontractor fails to pay their workers, you — the GC — can be held directly liable for those unpaid wages.
What AB 1701 Actually Says
Under Labor Code Section 218.7, a direct contractor (the GC) is jointly and severally liable for any unpaid wages, fringe benefits, and payroll taxes that a subcontractor at any tier fails to pay to their workers. This includes not just your direct subs, but sub-subcontractors further down the chain.
Who Can Make a Claim Against You
- Individual workers — through the Labor Commissioner or civil action
- Labor unions — on behalf of their members via collective bargaining agreements
- The Labor Commissioner — directly through enforcement proceedings
Your Right to Audit
AB 1701 gives GCs the right to request certified payroll records from every subcontractor at any tier, within 10 business days. If a sub refuses, the GC can withhold payments equal to the potential wage liability. This audit right is your primary defensive tool.
What This Means Day-to-Day
- Include AB 1701 indemnification clauses in every subcontract
- Require certified payroll submissions as a condition of payment
- Verify that all subs are registered with the California DIR
- Track sub compliance status actively, not just at project start
