Unpaid Subcontractor Walks Off the Job and Wins

Make the following inquiry of your constructional lawyer, watch him/her sit up in his/her chair and give your question immediate attention: “I haven’t been paid, can I walk off the job?”  The answer to this question is a strong “maybe, but it’s risky.”  Walking off the project has a significant downside.  The risk is that the judge who reviews your decision, sometimes years after the event, may not agree that the non-payment was a material breach and, thus, suspension of performance (walking off) is not justified.

A breach of contract occurs where, without legal justification, a party fails to perform any promise that forms a whole or part of the contract.  Not all breaches are equal.  Some failures to perform a promise are “nominal,” “trifling” or “technical.”  These breaches do not excuse performance under the contract by the non-breaching party.  If the breach is “material,” that is, goes to the essential purpose of the agreement, is a question that only a judge decides, and only after the decision was made as to whether to walk off the job or not.  Therefore, before deciding whether to walk off the job, you have to second guess what a judge may decide under the circumstances.  Since not all judges see things the same way, the decision is fraught with uncertainty and risk.

In H&H Glass, Inc. v. Empire Bldg. Co. LLC,[1] the general contractor, Empire, undisputedly failed to pay its subcontractor, H&H, amounts due and owing under the subcontract.  Empire withheld more retainage than was allowed by the contract.  Here, the court determined that Empire’s breach (its non-payment) was “material” and, therefore, H&H’s performance under the contract was excused and it could “walk off the job.”  The court held that the wrongful and consistent withholding of payment were breaches that went to the “essence” of the parties’ agreement.

Empire, the general contractor, nevertheless, insisted that it was entitled to a setoff in damages because it had to pay a replacement subcontractor to finish H&H’s work.  The court ruled that because the subcontractor, H&H, was excused from further performance under the contract due to the material breach, the general contractor was not entitled to take advantage of the contractual provisions providing for a setoff of amounts due to the subcontractor to complete the work.

Comment:  In this instance, the subcontractor’s decision to leave was upheld by the judge.  When I read the case I thought it was a close call.  Another judge may have decided the issue differently.  Before determining whether to walk off the job, you should carefully weigh the risks.  If the judge in this case had decided that the non-payment was “trifling” or “nominal,” the subcontractor would have been in breach, in which case the general contractor would have been entitled to all of its re-procurement cost damages, including the costs of the replacement contractor and any other damages that the general contractor incurred as a result of the breach.  That downside is what often tempers a decision to abandon the project.  In many instances, it is wiser to continue performance than to take that significant risk.


[1] H&H Glass, Inc. v. Empire Bldg. Co., LLC, 2016 WL 2968071.

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