Oregon Owners and Contractors Liable for Subcontractor Wage Theft

On June 9, 2025, Oregon enacted Senate Bill 426, a significant new law aimed at protecting construction workers from wage theft by imposing strict joint and several liability on both property owners and direct contractors for unpaid wages owed to unrepresented employees of subcontractors at any tier. The law takes effect on Jan. 1, 2026.

While this law is part of a broader legislative trend to enhance accountability in the construction industry and ensure workers are paid fairly and promptly, Oregon’s wage theft law is an outlier. The new law places significant compliance and liability burdens on property owners and direct contractors for a subcontractor’s failure to properly pay their own employees, even though the subcontractor was paid for the project and neither the owner nor the director contractor had knowledge of wage theft.

Joint and Several Liability

SB 426 adds new sections to ORS Chapter 652 making both an “owner” and “direct contractor” strictly jointly and severally liable for any unpaid wages and fringe benefit contributions owed to “unrepresented employees” of the direct contractor or subcontractors (at any tier) of a “construction contract.” 

Affected workers or their authorized third-party representative may file suit against owners and direct contractors. The Oregon attorney general is also authorized to accept assignment of claims from affected workers and bring civil actions in the name of the state. The statute of limitations is two years from the date on which the wages and fringe benefit contributions were due.

Scope and Exceptions

SB 426 broadly defines who qualifies as an “owner” or “direct contractor,” as well as what constitutes a “construction contract.” For example, an “owner” includes any person or entity with various types of ownership interests including a “lessee.” The law does not apply to owners who are public agencies or financial institutions that acquire ownership through foreclosure unless they direct construction work beyond activities necessary to preserve or secure the property.

“Director contractor” includes, among other things, “any person,” as well as their “successors, heirs, or assigns,” who enters into a “construction contract.”

An “unrepresented employee” is defined as the direct contractor or subcontractor’s employee who is either not represented by “a bona fide labor organization that represents employees in the building or construction trades,” or is covered by a collective bargaining agreement without a grievance procedure ending in a final and binding arbitration with a mechanism for recovering unpaid wages and fringe benefit contributions.

The law defines “construction contract” expansively, covering agreements — express or implied— for both construction and the mere maintenance of buildings or structures, as well as the excavation of land. The law applies to most private construction projects but excludes:

• Work on an owner’s principal residence.
• Projects involving five or fewer residential or commercial units on a single tract of land.

Rebuttable Presumption of Employment

In any civil action for unpaid wages under the law against an owner or direct contractor, there is a rebuttable presumption that a person performing labor within the scope of a construction contract is an employee of the direct contractor or subcontractor, not an independent contractor. The burden is on the party claiming otherwise to prove independent contractor status. This can be a difficult standard to meet, especially when the owner has no direct knowledge of the degree of control a lower-tier subcontractor exercised over the worker in question.

Notice and Cure Period

Before initiating a civil action, a notice must be sent via first-class certified mail to both the owner and the direct contractor. The notice must:

• Describe the alleged wage violation.
• Provide 21 calendar days from certified delivery for the parties to correct the alleged violation.

Invalidity of Indemnification Agreements

The law invalidates indemnification clauses in construction contracts that attempt to shift liability for unpaid wages and fringe benefit contributions from a direct contractor or owner to a subcontractor or from an owner to a direct contractor. The law does not address insurance procurement clauses with additional insured language in construction contracts, which may provide an avenue for risk management.

Despite invalidating indemnification clauses, owners and direct contractors are permitted to sue subcontractors to recover actual and liquidated damages for the amounts paid for unpaid wages— including fringe benefit contributions; interest and penalty wages; damages; attorney fees; and incurred costs. Additionally, owners may sue direct contractors for the same recovery.

Payroll Transparency Requirements

Subcontractors must provide the direct contractor or owner, upon their request, the following records:

• Certified payroll records and other relevant information, such as the names of all workers and any subcontractors at further tiers.
• An affidavit attesting whether the subcontractor or any of its current principals have “participated” in any civil, administrative, or criminal proceeding involving wage law violations and the outcome of such proceedings.
• These records must also be provided to an authorized third-party representative of unrepresented employees in certain circumstances.

A subcontractor’s failure to provide these records does not relieve an owner or direct contractor of liability for unpaid wages and fringe benefit contributions owed to the subcontractor’s own employees. 

If the owner or direct contractor has already paid wages owed on behalf of the subcontractor, the law permits an owner or direct contractor to withhold payment from a subcontractor up to that amount. 

Implications for Employers and Contractors

SB 426 significantly increases the legal and financial risks for owners and contractors involved in Oregon construction projects. To help mitigate liability, stakeholders can:

• Conduct thorough due diligence on direct contractor and subcontractors, especially those who employ unrepresented labor.
• Implement robust payroll auditing and compliance systems, including but not limited to requesting certified payroll records, as provided by the new law.
• Consider appropriate insurance coverage for wage claims, including additional insured language in insurance procurement provisions of construction contracts.
• Ensure timely and accurate recordkeeping.
• Respond promptly to any wage-related complaints or notices.

Employers and contractors should consult legal counsel to review their contracts and compliance practices in light of SB 426. Training for project managers and HR professionals on the new requirements is also advisable.

Paul E. Cirner is an attorney with Littler in Portland, Ore. © 2025 Littler. All rights reserved. Reposted with permission.