Amendments to the codes of Virginia, Maryland and the District of Columbia generally become effective July 1 each year. There were no legislative changes in the mechanic's lien or public project bonding statutes in any of these states. There was, however, a significant change in what might be Virginia's trust fund statute. We will need the aid of the courts over time to clarify this. Va. Code. Ann. §43-13 has long been a criminal statute that now also provides a private claim for civil liability.
In other changes impacting the construction industry, any contract or subcontract provision is void as against public policy if it allows a debtor to withhold funds due under one contract for alleged claims or damages due on another contract.
An employee now has a private cause of action against an employer who fails to pay wages. This is similar to long-standing federal statute. Perhaps most significantly, and different than federal law, general contractors in Virginia are now liable to the employees of its subcontractors for failure to pay wages to employees.
Virginia Criminal and Civil Liability
Va. Code. Ann. §43-13 is now a criminal statute that also provides a private claim for civil liability. Va. Code. Ann. §43-13 requires that funds paid to a general contractor or subcontractor must be used to pay persons performing labor or furnishing material. Any contractor or subcontractor or any officer, director or employee of such contractor or subcontractor who, with intent to defraud, retains or uses funds paid by the owner, the contractor, or the lender for any purpose other than to pay persons performing labor upon or furnishing material for the construction, repair, removal, or improvement, is guilty of larceny and may be prosecuted upon complaint of any person who has not been fully paid any amount due them.
Any breach or violation of this section may now give rise to a civil cause of action against the general contractor or subcontractor. However, this code provision does not say whether the claimant would have a right to judgment against only the general contractor or subcontractor (which may be a corporate entity) or also the officer, director or employee of the contractor or subcontractor who may be criminally liable. There is no court case law yet to clarify this.[1]
Va. Code. Ann. §43-13 does not affect a contractor's or subcontractor's right to withhold payment for failure to properly perform labor or furnish materials on the project. It also provides that any contract or subcontract provision is void as against public policy if it allows a debtor to withhold funds due under one contract for alleged claims or damages due on another contract. It is not clear whether this impacts or eliminates common law rights to setoff.
Employer Liability to Employees for Wages, Liquidated Damages & Attorney's Fees
Va. Code. Ann. § 40.1-29 was amended, effective July 1, 2020, to provide that an employee has a private cause of action against an employer who fails to pay wages to recover the amount of wages due plus interest at eight percent annually. The court can award reasonable attorney fees and liquidated damages equal to triple the amount of wages due if the employer "knowingly" failed to pay wages to an employee.
a person acts "knowingly" if the person, with respect to information, (i) has actual knowledge of the information, (ii) acts in deliberate ignorance of the truth or falsity of the information, or (iii) acts in reckless disregard of the truth or falsity of the information. Establishing that a person acted knowingly shall not require proof of specific intent to defraud.
This amendment has made the Virginia statute similar to 29 USCS 216(b), which is the federal statute that addresses similar claims by employees against employers.
General Contractor Liability for Wages to Employees of Subcontractors
Va. Code. Ann. § 11-4.6 was added, effective July 1, 2020, and also makes general contractors jointly and severally liable to the employees of its subcontractors for failure to pay wages to employees, if the
general contractor knew or should have known that the subcontractor was not paying his employees all wages due, (ii) the construction contract is related to a project other than a single family residential project, and (iii) the value of the project, or an aggregate of projects under one construction contract, is greater than $500,000.
This new statute creates a great deal of new risk for general contractors, which will probably increase the cost of all projects to owners and taxpayers on public projects. Currently, there is no equivalent federal statute that grants the employees of subcontractors a right of action against the general contractor.
[1] Until 2020, Va. Code. Ann. §43-13 was only a criminal statute that did not provide any private right of action imposing civil liability. Vansant & Gusler, Inc. v. Washington, 245 Va. 356, 429 S.E. 2d 31(1993). Va. Code. Ann. §43-13 did require that funds paid to general contractor or subcontractor be used to pay persons performing labor or furnishing material. However, they were not funds held in trust, since the statute did not mention the creation of a legal trust. Kayhoe Construction Corp. v. United Virginia Bank, 220 Va. 285,257 S.E.2d 837 (1979). Va. Code. Ann. §43-13 was amended effective July 1, 2020 to create civil liability. However, it is not clear whether this is the creation of a trust, with bankruptcy protections.