Labor Law Provision Allowing Employees to Sue General Contractor as Third-Party Beneficiaries Trumps Contract's No Third-Party Beneficiary Clause

On November 27, 2018, the First Department issued a decision in Wroble v. Shaw Envtl. & Infrastructure Eng'g of N.Y., P.C., 2018 NY Slip Op. 08061, holding that the Labor Law provision allowing employees to sue a general contractor as third-party beneficiaries trumps a contract's no third-party beneficiary clause, explaining:

Labor Law § 220(3) provides, in pertinent part, that wages paid to laborers, workers, or mechanics on a public works project shall be the prevailing rate of wages in that locality, and that the public works contracts, including subcontracts there under shall contain a provision that each laborer, workman or mechanic, employed by such contractor, subcontractor or other person about or upon such public work shall be paid the wages herein. This statute has as its entire aim the protection of workingmen against being induced, or obliged, to accept wages below the prevailing rate and must be construed with the liberality needed to carry out its beneficent purposes. In keeping with this liberal reading of the statute, the courts of this state have consistently held that, in public works contracts, a subcontractor's employees have both an administrative remedy under the statute as well as a third-party right to make a breach of contract claim for underpayment against the general contractor. Given these precedents, the contract clause prohibiting third-party actions for violation of prevailing wage payments would be void as against public policy.

(Internal quotations and citations omitted).

Sometimes, statutes limit the things to which people can agree by contract. This decision is one example. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding the effect of a statute on contractual rights.