Labour shortages: implications for contractors and subcontractors

By Michael Cope, Special Counsel – Cornwalls Brisbane

Currently, the building and construction industry is beset by labour shortages.

As a result, contractors may face a situation where their subcontractors cannot obtain the necessary labour to maintain the program, and the contractor must step in. On the other hand, subcontractors may face a contractor who insists on taking over their work to maintain the program.

What are the rights of the contractor who seeks to recover the cost of the labour provided or the subcontractor who faces a claim they consider to be exorbitant?

This article considers what can be recovered, assuming the contractor was entitled to step in. However, this article does not consider the issue of the power of a contractor to take over the works from a subcontractor faced with a labour shortage.

As a contractor, you might think that the simplest and least expensive way to approach this issue is to send your employees to do the work, as this won’t require you to pay any money out of your pocket. But there’s the rub. The starting point of the courts is that because you would have had to pay the staff regardless, you have not suffered a loss. In light of this logic, the easiest way to prove your claim is to pay someone else to do the work. So long as your pay is reasonable, then it should be recoverable.

But what if you cannot pay someone else to do the work or there is no one else? What do you have to prove?

First, it should be noted that they are recoverable if you must pay your employees overtime or other penalties.

Outside of that, there is a line of cases that say that you must demonstrate that because of the diversion of resources, you lost business opportunities. In this case, your claim is for the loss of profit on those business opportunities, which is challenging to prove.

Other cases will permit a claim for the cost of salaries and wages paid to your employees if you show that:

there has been a diversion of your employees’ time and the extent of it; and
the diversion of the employees’ time caused significant disruption to the business.

Suppose you can establish both of these propositions. In that case, a court can infer that if the labour had not been diverted, it would have generated revenue for your business to the equivalent cost of employing the labour with the result that you would recover the amount paid to your employees.

The keeping of accurate records concerning what the employees did and how long they spent doing it is fundamental to successfully making these claims.

One way of proving disruption is to point to backfilling in other parts of the business. Otherwise, what is needed is proof of disruption that is likely to have reduced profits, even if an actual loss of profits cannot be clearly demonstrated. In other words, evidence is needed that you, as the employer, have lost the benefit of the productive capacity of the employees diverted to help the subcontractor.

Key takeaways

As you can see, these claims are more complex than you might think.

If you are a contractor, consider taking legal advice at the beginning of the process regarding the type of records you would need to keep to support such a claim.

On the other hand, if you are a subcontractor, with legal advice, you may be able to avoid or significantly reduce such a claim.

Queries

If you require further information on the above, please contact the author, or any member of Cornwalls Building & Construction team.

Cornwalls disclaimer

This information and contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.

MORE FROM MEA