In the never-ending battle between construction industry employee benefits funds and delinquent employers, every possible avenue must be explored to assist Trustees in fulfilling their fiduciary duties to collect unpaid contributions. Employers are obligated, pursuant to their respective collective bargaining agreements, to remit payments (usually on a weekly basis) to employee benefit funds for hours of covered work performed by members. Unfortunately, there are a myriad of employers that chronically fail to make timely benefit contributions for their employees. Generally, delinquencies arise when the contractor who hired the signatory employer (whether it be a general contractor or subcontractor) fails to timely pay the lower tier subcontractor. If collections efforts against a signatory employer prove fruitless, whether because of bankruptcy or otherwise, Article 3-A of the Lien Law can provide a useful alternative.
Article 3-A of the Lien Law provides a statutory method for collecting delinquent wages and benefits due to workers on construction projects in New York State. In short, Article 3-A seeks to ensure that all work performed on a construction project is properly compensated. It does so by creating “trustees” out of owners, general contractors, and subcontractors who have received money for labor or materials. As trustees, these owners and contractors must hold such money in a constructive “trust account” for the sole purpose of reimbursing workers and suppliers. For example, if a subcontractor received $10,000 from a general contractor for labor and materials, Article 3-A would require that subcontractor to reserve those funds, in trust, for the purpose of compensating its retained workforce. Once the subcontractor has fully paid its workers from the trust account, any remaining funds can be used at the subcontractor’s discretion. However, if the subcontractor uses any of that $10,000 instead of fully compensating its workers, then it has diverted trust assets and violated Article 3-A, potentially incurring personal and criminal liability.
In addition to requiring the creation of trust accounts, Article 3-A also places strict recordkeeping obligations on these statutory trustees to prevent trust diversions. Specifically, Section 75 of the Lien Law obligates all trustees to maintain careful and accurate books and records of all transactions from the constructive trust. Further, Section 76 establishes that a trust beneficiary, such as a worker or pension fund, has the right to examine the books and records of the trustee. This examination can be a powerful tool, especially when failure to maintain proper records creates a legal presumption that the trust laws have been violated.
Advising the contractor that you intend to assert your rights under Article 3-A can be useful in collecting delinquent contributions. In many instances, the mere mention of such a request to examine the contractor’s books and records can be enough to collect. Finally, if there is sufficient evidence that monies were misdirected, there is case law to support the proposition that the funds can sue under Article 3-A for the benefits. Significant issues relating to the preemption and the nature of the benefits in dispute must be examined before employing Article 3-A. Consult with a capable and qualified attorney prior to taking any such action.