Pennsylvania Supreme Court holds that union workers are not considered subcontractors under Pennsylvania Mechanics’ Lien Law

Written by KWrenshall.

Pennsylvania Supreme Court holds that union workers are not considered subcontractors under Pennsylvania Mechanics’ Lien Law

Katherine M. Wrenshall, Esq.

Burke Cromer Cremonese

The Pennsylvania Supreme Court in Bricklayers of W. Pa. Combined Funds, Inc. v. Scott’s Dev. Co., unanimously reversed the Superior Court’s decision, which held that a union trust fund had mechanics’ lien rights as a subcontractor under the Pennsylvania Lien Law. In reversing that decision, the Supreme Court concluded that union workers hired by a contractor cannot be considered subcontractors simply because the union workers have a collective bargaining agreement with the contractor.   As a result, the union trust fund was prohibited from filing a lien claim against the owner for unpaid employee benefits.

In Bricklayers, the contractor, pursuant to Collective Bargaining Agreements, hired two unions to perform work on a project in Erie County. The Collective Bargaining Agreements required the contractor to provide the union workers with certain employee benefits. Despite the requirements of the Collective Bargaining Agreements, the contractor did not provide those employee benefits. This resulted in a Mechanics’ Lien Claim by the union trust fund against the developer.

The developer objected to the Mechanic’s Lien Claim at the Preliminary Objection stage, arguing that the union trust fund did not have standing to file a lien against the developer since the union workers did not qualify as “contractors” or “subcontractors” under Pennsylvania Lien Law. Such an argument is persuasive because, under Pennsylvania Mechanics’ Lien Law, only a “contractor” or “subcontractor” is permitted to file a lien claim against an owner of property. See 49 P.S. § 1303(a). A trial judge agreed with the developer and dismissed the case.

On Appeal, the Superior Court reinstated the claim holding that (1) the term “subcontractor” should be given a broad interpretation, and (2) under an implied-contract theory, the union workers should be considered “subcontractors” of the contractor. The Court reasoned that an implied in fact contract existed between the unions and the contractor because the unions agreed to furnish labor for the project, and the union workers agreed to perform the work with an expectation that the contractor would pay the workers’ employee benefits. According to the Superior Court, the implied in fact contract was enough to confer “subcontractor” status on the union workers based on the liberal interpretation of the term “subcontractor.” Also of note is the fact that the Superior Court relied on the implied-contract theory even though the union trust fund did not raise that theory in their complaints, their Rule 1925(b) statements, or their brief.

On April 17, 2014, the Pennsylvania Supreme Court reversed the Superior Court’s decision, stating that “the Legislature did not intend the term ‘subcontractor’ to subsume employees of the primary contractor.” The Supreme Court gave weight to the most natural meaning of the word “subcontractor,” which they stated “simply does not denote the employees of a contractor.” The Supreme Court also noted that giving the union trust fund lien rights would force private property owners to become guarantors of contractors’ general employment obligations, which would increase an owners’ exposure to liability on a project. In dismissing the Superior Court’s implied-contract theory, the Supreme Court stated that (1) that theory was not pled in the Complaint, and, thus, should not have been considered, and (2) “the concept that implied contracts were formed between the Unions and the Contractor in relation to the improvement on Developer’s property is too attenuated to withstand scrutiny.”

Going forward, it is still unclear whether the Superior Court’s holding has changed the way Lien Law is to be interpreted. As stated above, the Superior Court held that the term “subcontractor” should be given a broad interpretation, which would support a liberal interpretation of Lien Law. That conflicts with previous Pennsylvania precedent stating that Lien Law should be strictly construed. Since the Supreme Court’s reversal did not directly address the Superior Court’s liberal interpretation of Lien Law, lawyers will likely argue either way – liberal or strict construction – until that issue is clarified by the appellate courts.