The CSLB protects California’s consumers by regulating the construction industry to promote consumer and employee health, safety, and its general welfare. The CSLB accomplishes this through laws and regulations which sometimes can be strict and carry serious consequences. The reissuance and reinstatement of a contractor’s license is one such area and should be carefully planned and executed. Existing contracts or even the signing of new contracts could be impacted by a change in the license’s status. Whether a contractor is trying to reissue a license from one entity to another or get a license reinstated after suspension or revocation, failing to properly “maintain” the license could have potentially fatal consequences, including being treated like an unlicensed contractor, losing the ability to assert a claim, and, even worse, form the basis for a disgorgement claim under Business and Professions Code section 7031 (where the contractor pays back all monies it received without any offsets for labor, material, or equipment it provided).
To avoid these potential scenarios, contractors considering reissuing their license to a different entity must fully understand the options legally available to them so that they can create a successful plan to operate under the correct license and avoid unnecessary, and potentially fatal, consequences. Contractors considering getting their license back after suspension or revocation must be careful to diligently prove the completion of specific reinstatement requirements ordered in their case. Doing these things will help ensure that a contractor’s right to be paid is preserved and not lost on a technical license issue.
Why Must a Contractor Properly Maintain Its License?
Pursuant to Business and Professions Code section 7028, unless exempt, it is a misdemeanor to act as an unlicensed contractor in California. Performing work worth $500 or more carries a penalty of incarceration and/or substantial financial penalties. Moreover, if the contractor fails to maintain its license “at all times” during the performance of the work or contract, then it is unable to bring or maintain any action, or recover in law or equity in any action, in any court of California for the collection of compensation, and may be sued for disgorgement, i.e., the return of all money paid without any offsets for labor, material, or equipment provided. (Bus. & Prof. Code, § 7031.) As for the benefits of properly maintaining a contractor’s license, it enables the contractor to sue for compensation owed, lawfully record a mechanics lien on a private project, and to assert stop payment notice and bond claims on public and private projects.
How Can a Contractor Lose Its License?
Contractors are subject to disciplinary action by the CSLB, which, depending on the situation, can range from a simple warning to revocation or suspension of a contractor’s license. The following are some of the major reasons a contractor might lose its license, either permanently or temporarily, depending on: (1) the severity of the situation; (2) if they’re a repeat offender; and (3) any criminal convictions:
- Failure to comply with a CSLB citation
- Failure to have a contractor’s license bond
- Failure to maintain worker’s compensation insurance
- Unsatisfied final judgments
- Changes in personnel without proper RMO or RME
- Outstanding liabilities
- Abandonment of a project
- Departure from work standards or plans
- Failure to reimburse license bond surety
- Failure to keep an active and good standing joint venture license
How Can a Contractor Reinstate Its Contractor’s License?
To reinstate a contractor’s license, the contractor must file an Application for an Original Contractor’s License. If it had its license revoked, suspended or has been expired for 5 years or more, it must file an Application for Original Contractor’s License and take and pass the law and trade(s) section of the contractor license examination.
When the contractor applies for reinstatement of its license:
- It must prove that it complied with the Registrar’s decision resulting from accusation
- It must provide proof of rehabilitation
- In addition to the license bond, it must post a disciplinary bond in an amount determined by the Registrar for at least two (2) years. A disciplinary bond may be as low as $15,000 or as high as $100,000
In certain situations where the CSLB issues a citation, the citation may contain a civil penalty up to $2000 and/or an order of restitution to pay the financially injured party. If a contractor is issued a citation and does not comply with the terms and conditions, its license will be automatically suspended. If at the end of ninety (90) days the citation is still not complied with, the license will be automatically revoked. After revocation, the original contractor’s license cannot be reinstated or reissued. Moreover, a license cannot be issued to any member of the revoked licensee’s firm who knew of or participated in the acts or omissions constituting grounds for revocation, within a minimum of 1 year and a maximum of 5 years after revocation, and then only on a showing that all losses caused by the act or omission for which the license was revoked have been satisfied and all conditions imposed by the decision have been met pursuant to Business and Professions Code section 7102. The contractor must provide documented evidence showing: (1) all loss that resulted in the revocation or suspension of the license has been fully satisfied and the contractor has compiled with all terms and conditions imposed by the revocation; (2) the contractor has ensured that all monetary obligations and/or debts have been taken care of, if not discharged in a bankruptcy proceeding; and (3) the contractor has resolved all possible injuries that its work may have caused.
Why Would a Contractor Reissue Its Contractor’s License?
Among other reasons and circumstances, an individual might have its license reissued if it was a sole owner applying for a corporate or limited liability company license and wanted to keep using the same contractor’s license number. California Business and Professions Code section 7075.1 allows an existing sole owner license number to be reissued to a corporation or LLC if all of the following requirements are met: (1) The existing sole ownership license is in good standing; (2) The corporation or LLC was formed by the same individual licensee as the sole ownership license; and (3) The licensee maintains ownership directly or indirectly of shares or membership interest evidencing more than 50 percent (%) of the voting power of the new corporation or LLC. Despite this relatively straight forward process, many contractors fail to have their sole owner license reissued to their corporation or LLC entity yet contract and perform work under the new corporation or LLC. Without the proper reissuance of the sole owner license to the new entity, the corporation or LLC is technically an unlicensed contractor.
How Does a Contractor Reissue Its License?
In the case of a sole owner reissuing its license to a corporation or LLC, the form to re-issue a contractor’s license (Request for License Number Reissuance) must be completed by the existing sole owner who is applying for a license reissuance, or by an existing corporation applying for a LLC license, and must be submitted to the CSLB alongside a completed application for an Original Contractor’s License, unless an examination waiver is present. Once a license number has been reissued, it belongs to that new corporation or LLC.