Summit Law Blog

On June 9, 2025, Governor Tina Kotek signed SB 426 into law, marking a significant change to wage liability for Oregon's construction industry. Aimed to combat wage theft, Oregon's new legislation introduces strict joint and several liability, making property owners and direct contractors legally responsible for unpaid wages owed to "unrepresented employees" (workers not covered by a collective bargaining agreement) of a direct contractor or subcontractor, regardless of their tier in the contracting chain. As a result, an unrepresented employee can seek payment from the property owner and the direct contractor, even if that party paid the direct contractor or subcontractor in full for the unrepresented employee's work on a construction project. With the law's effective date set for January 1, 2026, property owners and direct contractors should begin preparing now to mitigate risk and ensure compliance. 

What does SB 426 do?

SB 426 greatly enhances unrepresented employee protections by holding property owners and direct contractors jointly and severally liable with subcontractors for unpaid wages. This applies to unrepresented employees on construction projects, regardless of the number of subcontracting tiers involved. Unrepresented employees can seek to recover unpaid wages from property owners and direct contractors, even if the property owner has already paid the direct contractor (or the direct contractor has already paid the subcontractor) for the unrepresented employee's work. As a result, property owners and direct contractors face an increased risk of liability for wage violations at any level in the contracting chain. 

Who does SB 426 apply to?

SB 426 applies to unrepresented construction workers, meaning those not covered by union or contract-based grievance and wage recovery processes. Unrepresented construction workers, their authorized representatives, or the state Attorney General can bring a civil action against the owner, direct contractor, or subcontractor to recover unpaid wages and damages. Lawsuits must be filed within six years of the date the wages were due. Before a lawsuit can be filed, written notice describing the alleged wage violation must be sent by certified mail to the property owner and direct contractor, triggering a 21-day period to correct the violation. If the violation is not cured during this period, the lawsuit may proceed.

Who is excluded from SB 426?

Certain construction projects and workers are excluded from SB 426: 

• Union Workers: Workers covered by a collective bargaining agreement that includes a binding process for recovering unpaid wages are excluded.
• Small Projects: Projects involving five or fewer residential or commercial units on a single tract of land are excluded. 
• Owner's Primary Residence: Projects involving the construction, reconstruction, alteration, maintenance, moving, or demolition of an owner's primary residence are excluded. 
• Public Agencies and Financial Institutions: Public agencies are not considered "owners" under SB 426 and are therefore exempt from liability. Financial institutions that acquire ownership through foreclosure are exempt, as long as they do not take over the project. 

Mitigating risk under SB 426

Property owners and direct contractors should prepare now to mitigate the heightened legal and financial risks introduced by SB 426. If not, they may end up paying twice for the same work – first to the direct contractor or subcontractor and then again to the unrepresented workers. Although unrepresented workers may pursue reimbursement from the responsible subcontractor, recovery is not guaranteed.

Therefore, to mitigate this risk, property owners and direct contractors should consider implementing the following precautionary measures:

• Conduct Due Diligence: Conduct thorough screening of all contractors and subcontractors, including those at lower tiers, by assessing their financial stability and history of wage compliance. This process may include requesting financial records, reviewing past project performance, and conducting background checks to uncover any past wage violations. 
• Update Contracts: Update all contracts to include clauses requiring (1) regular payroll submissions, (2) disclosures regarding any prior wage violations, (3) the right to withhold payment from contractors for non-compliance or the direct payment of wages to their unrepresented employees, and (4) payment bonds from contractors to mitigate the risk of having to pay a contractor's unrepresented employees. It is impotant to note that SB 426 prohibits any contract terms that attempt to waive an owner's or direct contractor's liability by indemnifying them for unpaid wages and fringe benefit contributions. 
• Audit Payroll: Upon request from the owner or direct contractor, subcontractors are now required to provide certified payroll records, relevant worker information, and an affidavit disclosing any past wage violation proceedings they have been involved in over the prior five years. Procedures should be implemented to routinely request and review certified payroll records to verify that unrepresented workers are being paid accurately and promptly. 

SB 426 marks a significant shift in wage liability for Oregon's construction industry. Updating contracts and implementing risk mitigation measures are essential for protecting owners and direct contractors from costly legal exposure for unpaid wages of unrepresented workers on construction projects.