Capitol Steel Fabricators, a subcontractor, sued its general contractor Mega Construction over a "pay-when-paid" clause in their subcontract for a public school construction project. The clause said Capitol would only get paid after Mega received payment from the school district. California's Court of Appeal ruled that pay-when-paid clauses are illegal and unenforceable because they strip subcontractors of their legal right to file liens and claim payment bonds. This decision protects subcontractors by ensuring they can't be forced to wait indefinitely for payment.
Pay-when-paid clauses are void in California—don't accept them in your subcontracts, even if the general contractor insists. You have the right to payment regardless of whether the GC gets paid.
You can still file a lien and pursue a payment bond claim even if your subcontract contains a pay-when-paid clause. These statutory rights cannot be waived away.
If a GC tries to enforce a pay-when-paid clause against you, cite this case immediately. It applies to both public and private construction projects in California.