General Conditions of the Home Improvement Contract: Subcontractors

Non-exempt home improvement contractors must be registered with the State of New Jersey regardless of whether they are working directly for the homeowner or as subcontractor on the job. N.J.A.C. 13:45A-17.3 (b). Employees do not have to be separately registered while acting within the scope of employment, but they do have to be registered if they moonlight.

A home improvement contractor can bring in registered independent subcontractors, but if anyone other than the seller of the job will act as general contractor or assume responsibility for performance of the contract, the name and address of that person has to be disclosed in the oral or written contract, except as otherwise agreed, and the contract can not be sold or assigned without the written consent of the buyer. N.J.A.C. 13:45A-16.2.13.i. For a home improvement contractor to do otherwise is to commit consumer fraud.

Misconduct is not always on the side of the prime contractor, however. Unethical homeowners may conspire with subcontractors (or even the contractor’s employees) to cut out the middleman, by side deals where the subcontractor or employee agrees to perform extra work on the cheap directly for the homeowner. Paid extras and changes in the scope of the work that might have otherwise gone to the prime contractor go instead to the moonlighting employee or to the disloyal sub, whose overhead – including costs to get the work and to manage its successful completion – may be significantly lower or even nonexistent. Such separate agreements constitute homeowner breach of the implied covenant of good faith and fair dealing in the prime contract, as well as interference with contractual relations between the contractor and its subcontractors, actionable interference with the employment relationship, and interference with prospective economic advantage by the employee or subcontractor. Aside from tortious misconduct, if an unregistered, uninsured employee makes a side deal, he is breaking the law in many respects, at the very least violating the Home Improvement Contractor Registration Act and related regulations, as well as the Home Improvement Practices Regulations. As often happens, the need for a separate permit may be ignored, and neither the permitting municipality nor the prime contractor will be the wiser unless something goes wrong.

Since the same regulations require that all terms of a contract over $500.00 be in writing, and the toast always falls buttered side down, the role of subcontractors and employees should be fully considered and expressly stated. Here is a specimen clause concerning subcontractors and employees:

7. Subcontractors and employees. A subcontractor is a person who has a direct contract with the Contractor to perform any of the Work. Contractor may at its sole discretion employ any subcontractor to perform any of the Work. Owner shall refrain from directly engaging any subcontractor or employee of the Contractor to perform work on the Property until Completion of the Contract Work. Owner understands and agrees that such separate agreements constitute tortious misconduct and a major breach of this Agreement by Owner. Absent Contractor’s written consent, Owner shall not allow work to be performed by any subcontractors, contractors, laborers, craftsmen, distributors or other persons on this project or the site except as provided by Contractor pursuant to the terms of this Agreement until Contractor has completed all of his/her work and been paid in full.