In a controversial ruling, the Pennsylvania Supreme Court recently decided that property developers are not responsible for paying debts that their contractors owe to unions for the benefit plans of their unionized employees.
In the case, a property developer hired a contractor for a construction project. The contractor then hired workers through collective bargaining agreements with two unions. In the agreements, the contractor agreed to make contributions to the unions’ benefits plans. The agreement referred to the union workers as “employees” and the contractor as the “employer.”
When the contractor failed to pay the contributions, the trustees of the union benefit plans filed a mechanics’ lien against the property developer. Mechanics’ liens hold property owners responsible for making sure contractors and subcontractors get paid for labor and supplies. Under the Pennsylvania Mechanics’ Lien Law (MLL), only contractors and subcontractors can file mechanics’ liens.
The property owner refused to pay the debt, arguing that the union workers were employees, not subcontractors. The Superior Court ruled that the collective bargaining agreement was a contract to perform work, and therefore the union qualified as a subcontractor with full rights to file a mechanics’ lien.
The Supreme Court overturned the decision, ruling that the union workers were employees, not subcontractors. Since the MLL prohibits employees from filing mechanics’ liens, the property owner was not responsible for the payment to the union benefit plans.
By narrowing the definition of “subcontractor,” the Supreme Court’s ruling reduces property owners’ liability under the MLL. The mere presence of a contract or agreement will not qualify employees as subcontractors entitled to mechanics’ lien rights. Unions will likely respond by insisting on contract changes that will provide mechanic’s lien protection to employees by classifying them as subcontractors.
— Joshua R. Lorenz, Meyer, Unkovic & Scott, email@example.com
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