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In Oregon, unpaid workers can sue their employers directly or file administrative complaints with the U.S. Department of Labor or its state counterpart, the Oregon Bureau of Labor and Industries (BOLI). Workers often file administrative complaints with BOLI because Oregon law generally has more protections than federal law, and BOLI can pay wage claims out of Oregon鈥檚 Wage Security Fund.

Yet BOLI has only about 10 labor standards investigators tasked with investigating all wage-related complaints, which have increased 208 percent since 2020 to about 3,500 annually. These staffing issues have resulted in a massive backlog of active wage complaints. In response, Gov. Kotek recently proposed increasing BOLI鈥檚 budget by about $20 million to enable the agency to hire more staff, including investigators.

Like most industries, construction is not immune to wage theft. A 2023 investigation found that BOLI failed to recover approximately $700,000 in unpaid wages and penalties in residential construction between 2015 and 2022. Construction, however, already has industry-specific tools to protect workers from wage theft.

One tool is a payment bond, a form of security provided by a third party (generally, a surety) that protects subcontractors, suppliers, and laborers from nonpayment on specific public and private construction projects. These parties can recover directly against the bond if wages are not paid.

Another tool is a mechanic鈥檚 lien, a form of security interest in the real property on which a project is located. Such a lien is generally available to anyone contributing labor to a private construction project that satisfies specific notice requirements. If wages go unpaid, they can be recovered from selling the underlying property.

Oregon also imposes licensing requirements on all contractors. They must be licensed with the Oregon Construction Contractors Board (CCB) and maintain a license bond, letter of credit, or cash deposit (between $15,000 and $80,000). If a contractor fails to pay wages, the CCB can suspend the contractor鈥檚 license. Subcontractors, suppliers, and laborers may also be able to pursue wage claims against the contractor鈥檚 license bond, letter of credit, or cash deposit.

Notwithstanding these robust, industry-specific tools, the Oregon Legislature has considered imposing strict liability on owners and general contractors for unpaid employees of all lower-tier subcontractors on private projects during the three most recent legislative sessions. These 鈥渨age theft鈥� bills have an exception for union employees and employees covered by project labor agreements (PLAs).

During the 2023 and 2024 legislative sessions, the Legislature heard competing testimony from contractor and subcontractor associations on this issue. Generally, union contractor and subcontractor associations supported the change, noting that wage theft was a growing concern in construction. In contrast, many nonunion contractor and subcontractor associations and business organizations opposed the change, noting that the 鈥渨age theft鈥� bills were not targeted and would have substantial unintended consequences, including that owners and contractors would likely mitigate the risk of strict liability by hiring familiar and established subcontractors to the detriment of new and less-established subcontractors. Minority contractor associations expressed particular alarm.

The Legislature is again considering similar legislation. The present effort, Senate Bill 426, has been referred to the House of Representatives, and the Legislature has again heard competing testimony. If SB 426 were to pass, it would likely have significant effects on construction within Oregon, including:

• Increased cost 鈥� The construction industry uses price to mitigate risk. The contemplated strict liability will create new risks that must be priced. And those risks are substantial, as penalty wages alone can quickly swell to 30 eight-hour days of wages per employee. While this risk may be mitigated with tools like payment bonds, they can already cost up to 5 percent of the contract price without strict liability. It is also unclear how strict liability for 鈥減enalty wages鈥� will be priced, as the penalty cannot be determined until after a violation occurs. Notably, the 鈥減enalty wages鈥� multiplier could, in aggregate, require an owner or general contractor to remit payment exceeding an agreed-upon fixed price.

The proposed exception for union employees and employees covered by PLAs may not prevent increased construction costs. Oregon does not have enough union contractors to construct all private projects. But even if it did, such contractors are generally more expensive. For example, in 2022, the Oregon Department of Transportation completed a comprehensive cost-risk assessment to evaluate the effect of PLAs on public projects. The conclusion was striking: project labor agreements were 鈥渟trongly correlated鈥� with increased construction costs of 鈥�10鈥�20 percent.鈥�

• Increased market concentration 鈥� Owners and general contractors could increasingly rely on existing relationships with established contractors. Reliance on such relationships is a practical way to mitigate risk without incurring additional administrative costs (e.g., payment bonds) or project management costs (e.g., reviewing lower-tier subcontractor payroll records, monitoring construction site personnel, etc.). However, relying on existing relationships could discourage use of smaller, less-established contractors, many owned and operated by underrepresented groups. Market concentration could also reduce competition and further increase the cost of construction over time.
• Other practical consequences 鈥� SB 426 would apply to almost all private construction projects regardless of size and sophistication. All subcontractors of any tier, with or without a written or oral contract, would be required to provide certified payroll reports. However, there is no enforcement mechanism if subcontractors do not provide adequate records. This form of required record-keeping may pose administrative difficulties for smaller, less sophisticated subcontractors. And as a practical matter, the lack of an enforcement mechanism means that owners and general contractors may be forced to pay unpaid wage claims without adequate records to avoid strict liability for 鈥減enalty wages.鈥�

Without legislative and executive action, wage theft will likely continue to harm construction workers. However, the solution is not to increase costs and market concentration. Instead, the Legislature should adequately fund BOLI to fulfill its mandate. The CCB is also well-positioned to ensure construction workers are familiar with their rights. Such solutions are not controversial and have broad support among owners and contractors.

Matt Berry is a Schwabe, Williamson & Wyatt shareholder. Contact him at 503-796-2085 or [email protected].

Nick Lauren is a Schwabe, Williamson & Wyatt associate. Contact him at 503-796-2471 or [email protected].

This column is intended to provide readers with general information and not legal advice. Consult professional counsel for help regarding specific situations.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither author nor the 91视频 guarantees the accuracy or completeness of any information published herein.