Section 102 Contractor Licensing Law

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Section 102Contractor Licensing Law

• By Marion T. Hack, Esq.
• Gibbs, Giden, Locher Turner, LLP

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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
• LLCs cannot hold a license

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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

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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)

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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

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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/reciprocityList
  s.asp

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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.

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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

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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

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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)

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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

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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

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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

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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

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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

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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.

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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

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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

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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 Contractors violation of
  license law

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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

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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.

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Financial Requirements of Licensing

• Applicants must have more that 2,500 operating
  capital
• Bonding requirements
• Must have a Contractors 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.

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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

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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

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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. BP Code 7031(a)

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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. BP Code 7031(b)

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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

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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.

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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).

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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

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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

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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

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Checking on a License

• The public can check on any contractors license
  by knowing either
• Contractors name
• License number
• Personnel name
• http//www2.cslb.ca.gov/CSLB_LIBRARY/licensereque
  st.asp

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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

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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

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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 elses license
• Entering into contract with unlicensed contractor

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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 elses license
• Suspension of License for period of time

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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