Would you like to pay three times for the same work? If you are a property owner entering into a construction contract with a contractor, you may be required to do just that. Senate Bill 426, passed by the 2025 Oregon Legislature and signed by Governor Kotek contains the following provision:
“An owner that enters into a construction contract with a direct contractor shall be jointly and severally liable with the direct contractor for any unpaid wages, including fringe benefit contributions and penalties, owed to any unrepresented employee of the direct contractor and any unrepresented employee of a subcontractor at any tier for labor performed on a project within the scope of the construction contract.”
On its face, the above language indicates you may have to pay twice for the same work. However, if you take Oregon’s lien law into consideration, having to pay a third time is possible. For example, if you pay the general contractor and the general contractor fails to pay a subcontractor, the subcontractor may file a lien against your property. If you pay the subcontractor to remove the lien, and the subcontractor or any of its subcontractors fail to pay employees their wages for working on your project, those employees will have a direct right of action against you “to recover unpaid wages, including fringe benefit contributions, interest and penalty wages, damages, attorney fees and costs.”
The legislation has one significant exception – it does not apply to employees represented by a labor organization. It also has a couple of minor exceptions. For example, it excludes construction contracts on your personal residence.
I am concerned that this legislation will result in property owners and general contractors being reluctant to include small businesses on their projects and it will make development and re-development more expensive. The additional expense results from the need to institute sophisticated and time-consuming monitoring systems to ensure compliance at all contractor/subcontractor tiers or being compelled to use unionized contractors or subcontractors. While the Legislature passed some legislation to facilitate development, particularly housing, adding costs undermines its goals.
It is interesting to note the two liberal democrats (Isadore and Watanabe) filed special statements in the House of Representative voting records voicing concerns about the adverse impacts this legislation will have on small and minority owned businesses.
This legislation will be effective January 1, 2026. Your favorite lawyer should be consulted before then to assist with measures that will mitigate risks related to this new law.
