Maintaining your California contractor’s license in good standing is essential. As for a contractor that performs work without a properly maintained license, the consequences can be severe. Consequences may include loss of the ability to pursue unpaid amounts and disgorgement of amounts previously paid. This article will cover the elements all contractors must pay attention to in order to ensure that their contractor’s license is properly maintained.
Why is maintaining a contractor’s license in good standing so important?
It is important to ensure that your contractor’s license is in good standing as failure to do so may result in a finding that you acted as an unlicensed contractor. There are harsh civil and criminal penalties for performing contractor services in excess of $500.00 without a properly maintained license.
What are the criminal consequences of failing to maintain a proper Contractor’s license in California?
Acting as an unlicensed contractor is California is a misdemeanor under Business and Professions Code section 7028(a) punishable by a fine not exceeding five thousand dollars or by imprisonment in a county jail not exceeding six months, or by both for the first offense.
What are the civil consequences of failing to maintain a proper Contractor’s license in California?
Under Business and Professions Code section 7031(a), a contractor found not to be properly licensed during any portion of a project is precluded from recovering any payment associated with that project for any period. Further, under Business and Professions Code section 7031(b) a contractor found not to be properly licensed during any portion of a project is liable to the customer for all amounts that the customer paid the contractor for the project. A contractor can be forced to return all amounts paid to it, irrespective of its costs.
Avoiding Pitfalls that Could Result in Inadvertently Being Improperly Licensed
Based on the consequences, it is clear that obtaining and properly maintaining a proper contractor’s license is of the utmost importance to contractors in California. But maintaining a California contractor’s license in good standing is not as simple as one would hope. There are several pitfalls for the unwary. These include issues with renewal, improper classification, workers compensation, entity licensing, and supervision. We each of these pitfalls below and how to avoid them.
Renewal – Ensuring That Your Contractor’s License is Timely Renewed
How Often Does a Contractor’s License need to be renewed?
To maintaining a California contractor’s license in good standing, it must be renewed with the CSLB every two years.
Does the CSLB provide Notice That a Contractor’s License Requires Renewal?
Renewal applications are mailed to the address on file with the CSLB sixty days prior to the contractor’s license expiration date.
When Must a Renewal Application be Submitted to Avoid any lapse or Delinquency Fee?
A completed renewal application and payment must be received by the CSLB prior to the expiration date of the contractor’s license to avoid a lapse in licensed status and assessment by the CSLB of a delinquency fee.
How Early Does the CSLB Recommend that a Contractor’s License Renewal Application be submitted?
To ensure you maintain your California contractor’s license in good standing, the CSLB recommends that contractors submit their renewal application and associated fee at least four weeks before the expiration date of the contractor’s license.
What are the Consequences of Failing to Timely Renew your Contractor’s License in California?
If you fail to renew your contractor’s license in time, there will be a lapse in your license and you will be considered an unlicensed contractor for all projects for which work was performed during the lapse period. Keep in mind that being unlicensed for even one day of a project will render you unlicensed for the entirety of the project. This may subject you to discipline by the CSLB, preclude you from collecting any payment for a project, and expose you to claims for disgorgement of all amounts paid. The CSLB also may assess a delinquency fee.
Classifications – Does Your Contractor’s License Cover the Services you intend to perform?
The CSLB provides licensure in contractor classifications (A) General Engineering Contractors, (B) General Building Contractors and (C) Specialty Contractors. It is essential to ensure that your contractor’s license covers the work that you plan to perform. If you expand the services that you provide, it is important to check that no additional license designation is required before doing so. Performing work not covered under your license classification is tantamount to performing work completely unlicensed.
What Type of Work does a Class “A” – General Engineering Contractor’s License Cover?
A Class “A” – General Engineering Contractor’s license allows fixed works that require specialized engineering knowledge and skill.
What Type of Work does a Class “B” – General Building Contractor’s License Cover?
A Class “B” – General Building Contractor’s license is primary license used by general contractors. This license allows work on any structure provided that at least two unrelated building trades or crafts are required for the work. This license also permits all framing and carpentry projects without limitation. A Class “B” licensed contractor also may take on projects involving a single trade, provided that the contractor also holds the appropriate specialty license associated with the trade in question. Alternatively, the contractor can subcontract with a licensed specialty contractor to perform the work.
What Type of Work does a Class “C” – Specialty Contractor’s License Cover?
A Class “C” – Specialty Contractor’s license has 41 separate subcategories representing different specialty licenses. Each specialty category permits the designated type of work. A specialty contractor may use subcontractors to complete any incidental and supplemental work, or may use its own employees to do so. A list of the various Class “C” license classifications can be found here.
Workers Compensation – Is Your Worker’s Compensation Adequate?
Business and Professions Code section 7125 requires that licensed contractors who utilize employees have on file at all times with the CSLB a valid Certificate of Workers Compensation Insurance or Certification of Self-Insurance. In the case of a C-39 license holder, workers compensation in always required.
How does the failure to obtain worker’s compensation insurance when it is required effect a California contractor’s license?
Failure to obtain workers compensation when it is required results in an automatic suspension of your contractor’s license under Business and Professions Code section 7125.2. Automatic suspension will render the contractor’s license in question invalid immediately, meaning that the contractor will not be considered licensed for the period in which the worker’s compensation issue exists.
How does the failure to maintain worker’s compensation insurance when it is required effect a California contractor’s license?
Under Business and Professions Code section 7125.2, failure to maintain workers compensation when it is required results in a suspension on the day that the worker’s compensation insurance lapses. However, the contractor is entitled to notice from the CSLB regarding the suspension and will be given a 45-day grace period to bring the California contractor’s license back to good standing. Uncured, suspension will render the contractor’s license in question invalid as of the day the worker’s compensation insurance lapsed. Thus, it is all or nothing. If the worker’s compensation issue is addressed in time, the contractor’s license will be considered to have been valid for the whole period in question. But if the issue is not addressed, the contractor’s license will be considered invalid retroactive to the date required worker’s compensation lapsed.
Entities – Who Hold’s the California Contractor’s License?
Another important issue often overlooked by contractors is failure to ensure that the contractor’s license is issued to the entity conducting the contracting business. Many contractors start out as sole proprietorships but later switch to a corporate entity, LLC, or LLP for liability, tax, or other reasons. But as these entities are considered separate individuals under the law, they need their own contractor’s license. Failure to obtain a license for a business run through a corporation will mean that the business is unlicensed even if the individual running the corporation holds an individual license.
Must a partnership always hold its own Contractor’s License in California?
With respect to partnerships the CSLB is a little more forgiving. Although a partnership should hold its own contractor’s license, the CSLB finds substantial compliance if both partners have an individual license. However, if either partner is not individually licensed, then the partnership is considered unlicensed.
Direct Supervision and Control – Does a Qualifying Individual always Oversee the Work?
In the case of an individual contractor’s license, to maintain the license in good standing, the licensee must be engaged in direct supervision and control of all work performed under the contractor’s license in question. In the case of an entity the responsible managing officer (“RMO”) or Responsible Managing Employee (“RME”), must be engaged in direct supervision and control of all work performed. While these rules are not difficult to adhere to, it is important to ensure that you are meeting the requirements as failure to do so can invalidate a contractor’s license.
What is the difference between and RMO and an RME?
An RMO must be and officer of the licensed entity in question. An RME is only an employee. Both must be actively engaged in the operation of the contracting business in question.
What level of participation in the contracting business is required to qualify as an RMO and an RME?
An RMO or RME must be actively engaged in the operation of the licensee’s contracting business for at least 32 hours or 80 percent of the total hours per week such business is in operation, whichever is less. (See Bus. & Prof. Code § 7068.)
What qualifies as direct supervision and control of the work?
For purposes of Business and Professions Code section 7068.1, “direct supervision and control” includes any one or any combination of the following activities:
– supervising construction;
– managing construction activities by making technical and administrative decisions;
– checking jobs for proper workmanship;
– or direct supervision on construction job sites.
(See CSLB Rules & Regulations, Ch.13, Art. 2, §§823(a)-(b).)
Direct supervision and control entails ensuring that the building, safety, health and lien laws of the state are complied with, as well as the administrative principles of the contracting business as set forth by the contractor’s board for the safety and protection of the public. (Bus. & Prof. Code § 7068.)
Can an RMO or RME act in that position for more than one license?
Although it is not completely prohibited, an RMO must be very careful in deciding to act as RMO for multiple entities. An RMO or RME may act in that position for up to three separate firms within a one-year period per Business and Professions Code section 7068. But, under Business and Professions Code section 7068.1, an RMO may not act in the capacity as an RMO for an additional individual or firm unless one of the following conditions exists:
– there is a common ownership of at least 20 percent of the equity of each individual or firm for which the person acts in a qualifying capacity;
– the additional firm is a subsidiary of or a joint venture with the first. To qualify as a subsidiary, 20% of the equity of must be owned by the parent firm; or
– with respect to multiple corporations, the majority of the partners or officers must be the same.
What is the effect of disassociation of and RMO or RME on a California contractor’s license?
When an RMO or RME disassociates from a contractor’s license, it is required to notify the CSLB in writing. The license holder is then required to replace the RMO or RME within 90 days of the date of dissociations to keep the license active. (Bus. & Prof. Code § 7068.2.)
What are the consequences of failing to replace the RMO or RME within 90 days of disassociation?
If a licensee fails to replace the RMO or RME within 90 days of disassociation, the license is automatically suspended or the classification removed at the end of the 90 day grace period.
How is the date of dissociation of an RMO or RME determined?
The CSLB relies on the representations of the former RMO or RME in their notice regarding dissociation to determine the date of dissociation. However, if the licensee disputes the date asserted, it is entitled to challenge the date via a petition. Upon receipt of such a petition from a licensee, the CSLB may review and accept any correction upon a showing of good cause by the contractor. But this petition must be received within 90 days from the date of the CSLB’s notice that the license will be suspended if the qualifier is not replaced. The CSLB has discretion to
grant one 90-day extension to replace the RMO or RME.
Judgments – Are there any Judgments that Could Affect Your License?
Business and Professions Code section 7071.17 requires licensees to notify the CSLB of any unsatisfied “construction related” civil court judgment within 90 days of the judgment date. If the judgment relates to the contractor’s business in any way, it is “construction related”. Once the CSLB becomes aware of a construction related judgment, it will suspend the license in question until the judgment is paid or otherwise disposed of.