Section 102 Contractor Licensing Law

Section 102Contractor Licensing Law By: Marion T. Hack, Esq. Gibbs, Giden, Locher & Turner, LLP

Who can become a Licensed Contractor? • Individuals over 18 years with the requisite experience • Corporations, Partnerships or Joint Ventures who have an RMO or RME • LLC’s cannot hold a license

Who is a Contractor? • Contractor = Builder (any person undertaking to construct, alter, repair, improve, move, wreck or demolish any building highway, railroad, excavation or other structure) • When in doubt, check to see if a license is required for the work

Who is Exempt from Licensing? • Work on a project less than $500 • Employees who are paid wages • Public personnel working on public projects • Material Suppliers • Owners/builders (if not building for spec)

Federal Projects • Do not need a license to perform work • BUT if a subcontractor is not licensed with the State, the employees of the sub are deemed the employees of the general for unemployment insurance, disability insurance etc. • Prudent practice: be licensed and require that your subs are

Reciprocity from other states? • Yes, for Arizona, Nevada, and Utah only • still must apply for a license in California --trade exam may be waived • Must have been licensed in good standing for the previous 5 years • Must be applying for license that appears on “Reciprocal Classification” list: see -- http://www.cslb.ca.gov/contractors/reciprocityLists.asp

License Classifications • CLASS A – General Engineering • principal business is in connection with fixed works requiring specialized engineering knowledge • EXCEPTION: Cannot build foundations • Public Works projects: Since this class overlaps with some specialty licensees; when Public Entities bid a project they can specify the specialty license and are not required to include this specification.

License Classifications • CLASS B – General Building Contractor • Contracting in connection with the building of a structure requiring the use of 2 unrelated building trades • Framing and Carpentry can be performed without limitation

License Classifications • CLASS B (continued) • Cannot take a contract for only one trade unless the Contractor holds the specialty license or subcontracts for that work. • BUT SEE --- Martin v. Mitchell Cement (1997) 74 Cal.App.3d: The court allowed recovery for a Class B contractor who subcontracted just for masonry work • Cannot perform Well Drilling and Fire Protection or work without specialty license • Cannot self-perform a contract just for Swimming Pool work without Class A or C-53 license, or subcontracting out to a C-53 subcontractor

License Classifications • CLASS C – Specialty Contractors • Limited to one trade only • EXEPTION: “incidental and supplemental” work that is essential to accomplish the work in the which the contactor classified • CLASS C-61: Limited Specialty • Class D licenses – very specialized licenses (see www.cslb.ca.gov/services/Gclass.asp)

Special Certifications • Must be specially certified by the CSLB to perform the following work: • Asbestos Abatement • Hazardous Substance Removal • Only Class A, B, C-36 Plumbing, D-40 Service Station Equipment, C-12 Earthwork/Paving or C-57 are eligible • Underground storage tank removal • Only Class A and C-36 Plumbing are eligible

New Developments in Classifications • No longer need Home Improvement Certificate • Split of Rough and Finish Carpentry into 2 classes • Landscaping contractors may subcontract out swimming pool work

Special Issues with Applications • Fingerprinting Requirements • The CSLB is requiring all new applicants requiring an exam to be fingerprinted including: • RMO, RME, each corporate officer, all partners • Also fingerprints required for • Current licensees applying for new additional classifications • Change in corporate officers on the license • See specific fees and requirements at --http://www.cslb.ca.gov/applicants/FingerprintQA.asp

Special Issues with Applications • Exam Waivers: No longer allowed for new applicants • Must use official forms to report licensing changes • Failure to notify board of changes within 90 days subjects licensee to discipline and changes the effective date of the change

Qualifying for a License • Individuals or Partnerships: either an owner or Responsible Managing Employee (RME) can be the qualifier • RME = • Employee • Actively engaged in the business • Working at least 32 hours a week

Qualifying for a License • Corporations: either an RME or Responsible Managing Officer (RMO) can be qualifier • RMO = • Officer of corporation • Actively engaged in the work • Exercises direct supervision and control • Even though an officer has a license – he must be designated as the RMO in order for the license to be valid.

Qualifier on more that one license • A person may act as a qualifier on more than one active license only if one of the conditions exists: • Common ownership of at least 20% of the equity of each firm • Additional firm is subsidiary or joint venture of the first • A majority of the partners and officers are the same • Cannot be a qualifier for more than 3 firms

Qualifying for a License • Joint Venture – Both parties must be licensed and the joint venture must be licensed • the joint venture can be licensed in any classification that one of the joint venture members is licensed • LLC – cannot hold a license

Responsibility of Qualifier • Qualifier assumes, by law, the responsibility for the direct supervision and control of the entities construction operations to ensure compliance with law. • Can be held liable for Contractor’s violation of license law

When a Qualifier Leaves • Qualifiers sometime disassociate WITHOUT informing management • Must replace the qualifier within 90 days • License automatically suspended if not replaced within 90 days • Can expedite applications – request application review from “Expedite Committee”

Transfer of License • Sale of Corporation: If corporation number with the Secretary of State stays the same, then same license can be used. • Except for the above, the license cannot be transferred if ownership of the business changes.

Financial Requirements of Licensing • Applicants must have more that $2,500 operating capital • Bonding requirements: • Must have a Contractor’s Bond in the amount of $10,000 • If you have a RME or RMO, need a Bond of Qualifying Individual in the amount of $7,500 • Not needed if RMO owns 10% or more of the company; or if the qualifier is the proprietor, a general partner, or joint licensee.

Length of License • Initially issued for 2 year period • Expires 2 years from the last day of the month in which it was issued THERE IS NO GRACE PERIOD FOR RENEWAL OF LICENSE $450 penalty

Why do Licenses Matter? • Only licensed contractors maintain an action to collect unpaid contract balances • Only licensed contractors have mechanic lien, stop notice and bond claims • NO LICENSE = NO RECOVERY (even in arbitration) • NO LICENSE = Owner can sue Contractor to recover all sums paid

The Death Penalty • No person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract, regardless of the merits of the cause of action brought by the person. Cal. B&P Code §7031(a)

The Death Penalty Squared • A person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract. Cal. B&P Code §7031(b)

MW ErectorsRecent Supreme Court Decision • Appellate Court held that Contractor could recover for time that he was properly license even though he was not licensed for the whole job. • Supreme Court reversed – to recover damages a contractor must allege and prove that he was licensed AT ALL TIMES during the construction of a project • Contractor does not have to be licensed at time of execution of the contract just at all times during performance

Substantial Compliance • duly licensed as a contractor in state prior to the performance; • acted reasonably and in good faith to maintain proper licensure; • did not know or reasonably should not have known that he or she was not duly licensed when performance of the act or contract commenced; and • acted promptly and in good faith to reinstate his or her license upon learning it was invalid.

Fair? Equitable? ABSOLUTELY NOT THE COURTS DO NOT CARE • Even if the party who hired the contractor knew that the contractor was not licensed, and specifically hired him with no intention of paying the contractor, the contractor still is not allowed to seek recovery in court. Hydrotech Systems Ltd. v. Oasis Water Park, 52 Cal. 3d 988 (1991).

Violations of License Law • Contractor performs work without valid license • Contractor, although licensed, performs work outside his classification • Contractor performs work while under suspended status due to lack of Workers Comp, a valid qualifier, lapse in bonds

Licensing in Public Works • Public Entity must specify the type of license required at the time of bid • Must be included in all plans prepared for bid • Cannot award to specialty contractor whose classification constitutes less than a majority of the project • Public entity has wide latitude in determining classification for projects

Licensing in Public Works • Contractor must be licensed prior to award of contract • If not licensed at time of award, contractor is deemed non-responsible contractor and the contract is void • If the contract is void, contractor cannot recover monies owed but also may have to repay monies obtained under the illegal contract

Checking on a License • The public can check on any contractors license by knowing either: • Contractor’s name • License number • Personnel name • http://www2.cslb.ca.gov/CSLB_LIBRARY/license+request.asp

Checking a License • When in doubt – order a certified license history from the CSLB • CSLB: Record Certification, 9821 Business Park Drive, Sacramento, CA 95827-3564 • Ask for expedited service if you need it as evidence in a legal matter

Home Improvement Contract Changes • Legislature did a complete overhaul of Home Improvement contract requirements • Article outlining all the changes included in Powerpoint materials • Prudent practice – have counsel redo your standard Home Improvement Contracts

Grounds for Disciplinary Action • Abandonment of contract • Misapplication of funds • Failure to pay subcontractors timely unless there is legitimate dispute • Willful departure from plans and specs • “Using”, “borrowing” or “paying for use of” someone else’s license • Entering into contract with unlicensed contractor

Penalties for Violation of Licensing Laws • Jail time: new law requires a repeat unlicensed offenders confined in jail for at least 90 days • Monetary: $5000 for each violation; $10,000 for using someone else’s license • Suspension of License: for period of time

Terminix Defense • Contractor can avoid Disciplinary penalties if the owner is made whole on legitimate claims • Prudent Practice: send a written settlement offer that makes the Owner whole

Section 102 Contractor Licensing Law