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Legal Q & A

Matthew Weng
Matthew Weng
League Staff Attorney

The Prompt Payment Law and Salary Requirements for Tenured Borough Clerk/Administrators

Q Is it true that if a municipality does not pay a contractor on time the municipality faces penalties? If so, what kind of penalties?

A In  2006, then Governor Corzine signed into law the “Prompt Payment Law,” found at N.J.S.A. 2A:30A-1. It pertains to all construction related contracts entered into on or after September 1, 2006.

The law affects contracts for any “improvements” to real property and structures, regardless of dollar amount. Thus, even those projects that fall under the bid threshold may be impacted by the Prompt Payment law.

Under the statute, a “structure” is any part of a building or other improvement to real property. Real property includes not only buildings but also infrastructure such as roads and bridges. To “improve” a “structure” under the law means to:

• build, alter, repair or demolish any structure upon, connected with, on or beneath the surface of any real property;

• to excavate, clear, grade, fill or landscape any real property;

• to construct driveways and private roadways on real property;

• to furnish construction related materials, including trees and shrubbery, for any of the above purposes;

• or to perform any labor upon a structure, including any design, professional or skilled services furnished by an architect, engineer, land surveyor or landscape architect licensed or registered pursuant to the laws of this state.

Note that this definition is expansive, and likely pertains to almost any change to almost any public property in a municipality.

The required payment procedures differ depending on whether a municipality requires governing body approval for the payment of bills or not. If council approval is not needed, a municipality must pay within 30 days of the billing date specified in the contract. If council approval is needed, the bill must be paid within the next billing cycle following the next public meeting.

If the bills are not paid on time, the contractor may charge interest. The interest is set at the prime rate plus 1 percent until the bill is paid. The prime rate is calculated through a survey of large banks and is published in the Wall Street Journal. Further, a contractor may suspend any further work until a bill is paid



Q Do  you know if a tenured Borough Clerk/Administrator can have their hours reduced and/or lose tenure via making the job a “part-time” position? If so, can you refer me to the appropriate statutory authority?

A According to NJSA 40A:9-165: “No such ordinance shall reduce the salary of, or deny without good cause an increase in salary given to all other municipal officers and employees to any tax assessor, chief financial officer, tax collector or municipal clerk during the term for which he shall have been appointed.”

It is important to remember that this encompasses more than just monetary compensation. Courts have found that “salary” includes paid leave for vacation, sick and personal days. A town could therefore violate the above statute by revoking a protected officer’s paid leave. A municipality also may not reduce work hours in an attempt to reduce compensation. A municipality may not unilaterally reduce the salary of protected officers even during difficult economic times. Indeed, there is no cause, good or bad, that will permit a reduction in salary. However, a municipality may impose additional duties on a protected official without increasing their salary. In 1978, a tax collector argued that additional duties imposed without a commensurate increase in salary amounts to a salary reduction. The Court rejected this argument.

This column is for informational purposes only, and is not intended as legal advice.

First published in New Jersey Municipalities,
Volume 88, Number 8, November 2011

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