We are a steel subcontractor in California and we constantly run into general contractors who don't want to pay us until they get paid from the owner. Isn't this illegal? Is it illegal in both public and private jobs?
1 Answer from Attorneys
The law of "pay when paid" clauses has a long and complicated history. Last I researched this issue I concluded that in California they are highly disfavored and strictly construed against the general, but they are not entirely illegal. Pay IF paid clauses, on the other hand, are illegal in California, and in at least one case a "pay when paid" clause was found on close analysis actually to be a pay IF paid clause, and was voided on that basis. But a carefully worded pay when paid clause is probably legal on public and private jobs. Of course if your subcontract doesn't even have such a clause, it is totally illegal to withhold payment until the owner pays, and it is also totally illegal not to pass through payments promptly when the general receives them.