Request By:
Thomas E. Roma
Parker & Partin
Starks Building, Suite 1496
455 Fourth Avenue
Louisville, Kentucky 40202
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Martin Glazer, Assistant Attorney General
You state that your office represents a number of general contractors doing business in Kentucky and that one of them received notice from the Bureau for Social Insurance informing them that one of their subcontractors had failed to pay unemployment contributions. The Bureau had cited KRS 341.260(2) as authority for filing a lien.
You also cite KRS 341.310 and 341.315. The latter statute refers to KRS 376.010.
You specifically ask the following:
"1. Is the Bureau for Social Insurance required to give notice to a general contractor upon which they propose to file a lien under KRS 341.260(2) for unpaid contributions of a subcontractor?
"2. If the Bureau is required to give notice, when must that notice be given?
"3. If the general contractor has already released its subcontractors, as is common upon a reasonable period of time after completion of the contract, may the Bureau impose a lien upon it without giving notice prior to the release?
"4. Are the notice provisions of KRS 376.010 applicable to KRS 341.310 and KRS 341.315; and, if so, when is a general contractor deemed to have not contracted directly with the Commonwealth of Kentucky, ex rel, Division for Unemployment Insurance? "
At the outset, we need to clarify a point. KRS 341.260(2) creates a primary liability on the contractor's part for the unpaid employment liability of his subcontractors. The lien provisions of KRS 341.310 and 341.315 affect third parties who may deal with the contractor and/or his subcontractors and are some of the mechanisms by which the Bureau of Social Insurance may recover its monies. The notice in lien provisions are merely there for purposes of priority of liens.
KRS 341.260(2) provides:
"Any contractor, who is or becomes a subject employer under the provisions of this chapter, who contracts with any subcontractor, who also is or becomes a subject employer under the provisions of this chapter, shall withhold sufficient monies on said contract to guarantee that all contributions, penalties, and interest are paid upon completion of said contract, or shall require of said subcontractor a good and sufficient bond guaranteeing payment of all contributions, penalties and interest due or to become due with respect to wages paid for employment on said contract. Failure to comply with the provisions of this section shall render said contractor directly liable for such contributions, penalties and interest due from said subcontractor and the wages paid by said subcontractor shall be deemed wages paid by the said contractor with respect to the same periods for all purposes under this chapter, and liens of the same nature are attachable and enforceable in the same manner as liens under KRS 341.310 and 341.315."
That section creates a liability on the prime contractor's part irrespective of any notice. It is the contractor's duty to ascertain whether his subcontractor owes the state unemployment insurance monies before releasing monies to such subcontractor. He can protect himself by withholding monies until he is sure there is no liability for a certain period or require a bond from the subcontractor to protect the prime contractor.
KRS 342.310 creating a lien on subject employer property begins ". . . from such time as the contribution, interest or penalties become due." (Subsection (1)).
Subsection (2) states, in part, that the "Secretary may file a notice of this with the county clerk of any county where the subject employer has property." The purpose there is to give actual or constructive notice to other persons dealing with the contractor or subcontractor that any property they purchase from such contractor or subcontractor is subject to such lien. That notice will be important for determining priority of competing liens.
Likewise, KRS 341.315 creates a form of mechanics lien on such property. Again, that is to notify third parties dealing with such subject employer.
To answer your specific questions.
1. No. Again, the lien provisions address persons other than the contractor who, for purposes of KRS 341.260, is the subject employer.
2. Not applicable, since the Bureau is not required to give notice to the contractor.
3. Yes, the general contractor has a duty to see that his subcontractor has paid such taxes before the general contractor releases monies owed to his subcontractor.
4. KRS 341.310 and 341.315 are applicable to persons dealing with general and subcontractors. 341.310 is not the same lien cited in 341.315. We understand the Bureau seldom uses 341.315. The notice provision set out in KRS 376.010(3) would be applicable, except that they start running after the last contribution became due. But, again, unless the Bureau were to file a lien under KRS 341.315, notice is not required.
As a practical matter, the Bureau does notify the general contractor when a subcontractor defaults or fails to pay his liability, but notice is not a sine qua non (except under 341.315) in order for the general contractor to be liable.