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Is that Labor Release Form Valid?
By Diane Dennis © 2004

I was contacted recently by a reader inquiring on labor release forms...

Diane,

I took over the construction funding position for a general contractor. Procedures haven't been updated in a long time and I'm trying to find out what forms are still legally accepted and advisable. I know about the four releases but my boss who has been in the business for years requires an additional release for labor, from subs under contract on a job, prior to payment. I have subs tell me that currently the only legally recognized forms are the four releases. They also say no one asks for labor releases any more.

What can you tell me about labor releases?
Linda

Thank you for writing Linda! :)

Before I continue, first I have to say that because I'm not an attorney this article does not constitute legal advice. For specific questions please consult an attorney. This article contains general information about labor release forms.

Let's start with the info I read in the California Labor Code...

California State Labor Code
§ 206.5 - Wages

"No employer shall require the execution of any release of any claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of such wages has been made. Any release required or executed in violation of the provisions of this section shall be null and void as between the employer and the employee and the violation of the provisions of this section shall be a misdemeanor."

While the above labor code applies to all California employers, this next rule is straight from Section VI of The (California) Contractor's State License Board; License Law and Rules and Regulations...

Chapter 12 Contractors License Law
§ 7110.1 - Violation of Labor Code; Requiring Release of Claim for Wages

"The requiring of an execution of release of any claim or the causing of the execution of any such release in violation of Section 206.5 of the (California) Labor Code is cause for disciplinary action."

Chapter 12 Contractors License Law
§ 7110.5 - Violations; Disciplinary Action

"Upon receipt of a certified copy of the Labor Commissioner's finding of a willful or deliberate violation of the Labor Code by a licensee, pursuant to Section 98.9 of the Labor Code, the registrar shall initiate formal disciplinary action against any such licensee within 30 days of notification."

Minimum Penalty: 60 day suspension, stayed, 1 year probation

Maximum Penalty: Revocation

If warranted:

1. Actual suspension of 5 days or more.

2. Standard terms and conditions in cases of probation.

3. If not taken within the past 5 years, take and pass the CSLB law and business examination

4. Take and pass a course in Contractors License Law or a course related to construction law at an accredited community college. All courses must be approved in advance by the Registrar.

5. Pay CSLB investigation and enforcement costs.

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The reason General Contractors want a labor release form from their Subcontractors is to make sure that all the laborers on the job have been paid properly and that no one can come back and make claims against him or his customer. When a labor release is used properly everything is "hunky-dorey"...

What General Contractors sometimes don't realize though is that a Subcontractor will have his employee(s) sign the form even though the employee has not been paid what he is due.

We know this to be fact. Many times in the past, my husband Curtis was required to sign labor release forms for his past employers without being paid his full wage and we know other construction workers who have had to sign the forms for their employers even when they had not been paid their full wage.

On prevailing wage jobs (there are union and non-union shops that do this) when the employer does not want to pay the prevailing wage rate but, for obvious reasons, wants it to appear that he is paying prevailing wage, he'll manipulate his employee and the paperwork to do just that.

[And yes, these same employers also "knowingly provide false statements" on the prevailing wage/certified payroll report that they submit that states that they paid all of their employees properly.]

Then there's the contractor who has employees work overtime but doesn't want to pay those employees more than their normal straight time pay. He tells his employees that he's not paying them the overtime rate but he placates them by paying them in cash, as opposed to paying on a paycheck with taxes taken out.

He then has the employee sign a labor release form stating that he's been paid in full. The Subcontractor now has a signed labor release form that, unknown by the General Contractor, is not valid.

I should also mention that there are times when this happens and the General Contractor is fully aware of it but chooses to keep his mouth shut. Usually that's because the Subcontractor's allotted time to do the job has been cut short by the General Contractor, without compensation to the Sub for the overtime he has to pay to get the job done on the new shorter schedule.

For those who wonder, "But why would the employee sign the labor release form if he wasn't really paid his full wages?" the answer is simple really, he needs his job and he knows that if he doesn't do what his employer is demanding then he won't have that job for much longer. Less-than-full-wage is better than no-wage-at-all...

Next the Subcontractor "doctors" his labor report to indicate that his guys were on the job less than they truly were and he then submits that doctored paperwork along with the labor release form to the Superintendent.

Now at this point you'd think that the Subcontractor would be caught in his tracks right? Well sure, as long as the Superintendent on the job is up on his own paperwork. Unfortunately though, many Superintendents are not.

When the Super realizes that he hasn't kept his own paperwork up-to-date, and that he cannot remember after the fact who was on the job when, he just copies onto his own paperwork whatever labor info the Subcontractor has submitted. He does this because he doesn't want to admit to his boss that he wasn't doing his job.

So the General Contractor gets a labor release form from his Subcontractor and goes on about his business. Little does he know that A) his Subcontractor has just committed a misdemeanor on his job and B) the labor release form he has is, plain and simple, null and void.

Then, sometime down the road the employee who signed the release form gets upset with his employer (probably because he's been canned) and decides he's gonna get back at him by placing a complaint against him with the Labor Board.

I wonder how many General Contractors know that if a Sub cannot pay his employees then the Labor Board will look to the General to make those wage payments, even though he's already paid the Subcontractor in full.

The General may be able to use his copy of the Subcontractor's invalid labor release form to show that he had been misled to avoid being penalized by the Labor Board and the Contractors License Board, but the wages still have to be paid.

Sure the Subcontractor is in trouble with the Labor Board (and the License Board) and he'll be penalized and maybe even lose his license but no matter what, the employee still has to be paid. If the Sub doesn't have the funds, the Labor Board looks to the General Contractor as being next in line to "pay the bill".

Steps General Contractors can take along the way to try to protect themselves...

1. Thoroughly educate your Superintendent about how important it is that he keep his paperwork accurate and up-to-date, as well as why it's so important. If he knows what to look for he has a better chance of catching it if it happens.
2. Insist that the labor release form include a phone number for every laborer listed on the form. Call the laborers and verify with them that they've been paid. There's always the possibility that someone will speak up if there's something fishy going on.
3. Know your Subcontractors. Ask them for references and then follow through by verifying those references.

Requiring the Sub to have the employee signatures on the release form notarized won't help. All the notary does is verify that the person signing the form is who he says he is. The notary has absolutely nothing to do with the validity of the form itself, it simply verifies the signatures that appear on the form.

Unfortunately, no matter how vigilant you are in trying to protect yourself and your company from this kind of trouble, you may still become the victim of an unscrupulous Contractor. Keep good records so that, at the very least, you can show that you weren't in on the deception.

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