Oregon’s SB 426: A New Era of Wage Accountability in Construction

On June 9, 2025, Governor Tina Kotek signed Oregon Senate Bill 426 into law, ushering in a significant shift in liability for unpaid wages within the state’s construction industry. Effective January 1, 2026, this landmark legislation purports to combat wage theft by holding both property owners and direct contractors jointly and severally liable for unpaid wages owed to employees of subcontractors at any tier. Here’s what this new law means for you and your business.

1. What has Changed?

Senate Bill 426 creates strict joint and several liability for “unrepresented employees” (those not covered by a collective bargaining agreement) for unpaid wages and fringe benefit contributions. Under this new law, both the project owner and the direct contractor are now jointly and severally liable for unpaid wages and fringe benefits to unrepresented employees of any subcontractor, regardless of their tier in the contracting chain. This means a worker can seek payment from the owner and the direct contractor, even if that party paid the subcontractor in full for the employee’s work.

2. Who is Covered? How Does it Work?

Unrepresented employees, their authorized representatives, or the Attorney General can bring a civil action against the owner, direct contractor, or subcontractor to recover unpaid wages, interest, penalty wages, damages, attorney fees, and costs.
Before a civil action can be initiated, a claimant must send notice via certified mail to the owner and direct contractor, describing the alleged wage violation. The recipients then have 21 days to correct the violation. If not cured, the employee can sue for damages.

3. Who is Excluded?

Not all construction projects or workers are subject to SB 426:

• Unionized Employees: The law specifically applies to “unrepresented employees,” meaning workers covered by a collective bargaining agreement that includes a binding mechanism for recovering unpaid wages are generally excluded.
• Owner’s Principal Residence: Projects involving construction, reconstruction, alteration, maintenance, moving, or demolition of the owner’s principal residence are exempt.
• Small-Scale Residential/Commercial Projects: Projects involving five or fewer residential or commercial units on a single tract of land are also excluded.
• Public Agencies and Financial Institutions: Owners who are public agencies are generally excluded from the “owner” definition for the purpose of this liability. In addition, financial institutions that acquire ownership through foreclosure are exempt, so long as the financial institution does not take over the project.

4. What does it mean for Contractors and Owners?

For project owners and contractors, SB 426 significantly increases their exposure and responsibility. Owners and direct contractors could find themselves paying twice for the same labor – once to the direct contractor or subcontractor and then again to a subcontractor’s unpaid workers. While the law allows for owners and directors contractors to seek reimbursement from the responsible subcontractor, there is no guarantee of recovery. To mitigate risk, owners and contractors should be aware of the following considerations:

• Enhanced Due Diligence: Rigorously vet all contractors and exercise greater scrutiny in selecting contractors, including subcontractors at lower tiers, to assess their financial stability and history of wage compliance. This may involve requesting detailed financial records and conducting thorough background checks.
• Implement Robust Payroll Auditing: Subcontractors are now required, upon request from the owner or direct contractor, to provide certified payroll records, relevant worker information, and an affidavit detailing any prior involvement in wage violation proceedings within the last five years. Establish systems to regularly request and review certified payroll records to ensure employees are being paid correctly and on time. This moves beyond simply confirming work completion to verifying actual wage and benefit payments. But note that this is not a shield. Even if a subcontractor falsifies or withholds payroll records, owners and direct contractors can still be liable.
• Update Contracts: Revise all subcontracts to reflect the new legal landscape, including provisions for mandatory payroll submissions, affidavits regarding past wage violations, and the right to withhold payments in case of non-compliance or direct payment of wages. Also note that SB 426 explicitly invalidates any contractual agreement that attempts to waive or release an owner or direct contractor from this liability or to indemnify them for unpaid wages and fringe benefit contributions.
• Proactive Risk Management: Consider requiring payment bonds from subcontractors to mitigate the financial risk of having to pay a subcontractor’s employees.
• Increased Administrative Burden: Expect more paperwork and administrative overhead related to tracking and verifying subcontractor payrolls.
• Withholding Payments: Owners and direct contractors are permitted to withhold payments to a subcontractor if the subcontractor fails to provide the requested payroll records, or to the extent the owner or direct contractor has paid wages owed by the subcontractor to their employees.

5. What’s Next?

While SB 426 provides a framework, it’s unclear how the industry will adapt to this change, and some aspect may require clarification from court interpretation, regulatory guidance, or further legislative action:

• Scope of “Fringe Benefit Contributions”: While the law broadly defines these, specific examples beyond those listed (e.g., profit-sharing, retirement, medical insurance, severance, holiday/vacation/sick leave) may need further clarity.
• Practicality of Payroll Auditing: The effectiveness and feasibility of owners and direct contractors consistently auditing subcontractor payrolls across multiple tiers, particularly for smaller projects or less sophisticated subcontractors, remain to be seen.
• Enforcement Mechanisms and Resources: While the law provides a private right of action, the extent to which the Attorney General or other state agencies will actively enforce these provisions is yet to be fully understood.
• Impact on Project Costs and Bidding: It’s unclear how the increased liability and administrative burden will translate into overall project costs and bidding practices within the Oregon construction industry. Opponents of the bill have voiced concerns about potential cost increases and stifled competition.

Oregon’s SB 426 represents a significant legislative effort to protect construction workers from wage theft. While its intent is clear, the full practical implications for owners and contractors will unfold as the law takes effect in 2026 and as the industry adapts to these new, stringent accountability measures. Proactive preparation and revised contractual agreements will be crucial for navigating this evolving landscape.