7031 Ruling Raises Stakes for Contractors

The Legislature creates the rules that comprise the laws contractors must follow to do business in California. However, that’s the easy part. When it comes to actual use – Board policy, staff interpretation and legal decisions can change or modify how that law applies. Such is the case with a serious new turn of events for every contractor in the state relating to the ‘monster’ which is sometimes known as B&P 7031…

After a series of legal decisions during the past few years, I didn’t think the courts could make it any more difficult for contractors. I was wrong! It now appears that a recent case decided by the Court of Appeal, will likely make it necessary for most contractors that are involved in litigation to produce a Verified Certificate from the CSLB proving they were duly licensed at all times during the performance of the contract.

For the most part, if you are a contractor suing for work YOU performed, and the opposing party claims that you were improperly licensed, the only way you can prove proper licensure is to produce a Verified Certificate. If you are unable to produce this document in time, you’ll likely lose the case – even if you had the proper license and were in good standing throughout the contract. The opposing attorney may even know this but can still challenge and force you to produce said document.

It is no wonder that my office has been receiving double the requests for assistance during the past 6 months in obtaining these Certificates. The CSLB is obligated to complete these documents and this case will certainly add to their burden in producing these Certificates in a timely manner. To date, the Board has done an excellent job at keeping on top of these requests, but I fear this case may cause a paperwork landslide putting legitimate contractors – with legitimate claims – in a real bind. Either way, it’s not likely to speed things up for individual contractors.

Q: Can someone who is a licensed sole owner also be a RMO of another company that they hold stock in? Thank you for the help.

A: Yes, it is common for someone with a sole owner license to also be the RMO on a corporate license. However, in order to be the Responsible Managing Officer (RMO) and keep your existing license active, you will need to own at least 20% of the stock.

Q: Would a contractor need a “C-6” license to do cabinets if he holds a “B”? A friend (who is a contractor) told me that I couldn’t install cabinets with my general license. Is he right?

A: NO, general builders can properly self-perform “C-6” finish (or “C-5”, rough) carpentry. In all other cases, a “B” would need to handle 2 or more unrelated trades. Framing and Cabinet/Millwork are the exceptions. The ‘B’ also has the option of taking a project for specialty work (plumbing, electrical, concrete, etc.) and subcontracting to a properly licensed specialty contractor.

Computer links Extend the Reach of Contractor’s Law

Hope you enjoy the celebration of our ‘labors’ to begin this September. I also will take time off to honor this Labor Day, and return the following week. Contractors often have a business name in mind but can run afoul of the law if someone else is already using that name. How can you check your choice? The increasing use of computers linking government agencies gives the ‘long arm of the law’ much longer reach when they look for problems…

Q: I know the CSLB goes after unlicensed contractors. I read about a sting operation in Yolo County and think I also read something in one of your columns. What I would like to know: are they going after “licensed” contractors who have employees but file a Worker’s Comp Exemption?

A: According to a new report highlighted in the Sacramento Business Journal, Worker’s Compensation fraud is “rampant” in professions where workers face a high degree of on-the-job injuries. Construction trades were one of the areas highlighted as underreporting or misclassifying workers.

Your question prompted me to contact the CSLB to see what activities they are pursuing to catch those that underreport Worker’s Compensation, payroll, etc.

The Contractors Board stated they conduct construction sweeps in addition to stings. They’re often done with partners from other government agencies like the Department of Insurance, EDD, US Dept. of Labor and State Industrial Relations.

During these sweeps investigators go over a construction site and carefully examine payroll records and other paperwork for inconsistencies. Each government agency will cite violators in their area of expertise (Payroll, safety, workers comp, licensing, insurance etc.)

And with computers linking State and Federal agencies, finding discrepancies like underreporting or exemption violations becomes much more likely.

According to a Board spokesperson, “It is also not unusual for investigators who are out in the field to conduct independent sweeps. If they find violations, they will either issue a citation or contact the other appropriate agency to step in”.

If you have a lead on someone who is abusing the system, contact the CSLB.

Q: I am interested in determining if a name has been licensed in California. Would you be able to help? I will need to get a license in my name with this ‘doing business as’, ‘dba’.

A: The CSLB does not restrict the number of companies that can use the same name in California — unless applying as a corporation. For example, there can be a dozen “xyz building” sole owner licenses but only one active “xyz building Inc. Fictitious business names – or ‘dba'” — are regulated at the local city or county level. Check with your local government agency to see if the name is taken. There may be other restrictions on the use of a business name, so please contact my office to further discuss this issue.

New Law to Tighten Rules and Raise Penalties for Using Unlicensed

In life there are winners and losers. Those working as, or working with an unlicensed contractor usually fall in the latter category. From contractors to consumers everyone loses when unlicensed construction work is sub-standard, violates codes or leads to significant lawsuits when an unlicensed contractor or his workers are injured on your job. I will also explore how the ‘simple things’ can sometimes be the most trouble for two contractors with questions…

I have written about unlicensed activities in a number of columns. Specifically, I have warned that licensed contractors can face penalties if they contract with an unlicensed person. Well, the CSLB is sponsoring legislation that would carry this one step further.

SB 354 (Margett) would amend B&P Code Section 7114 to authorize the Registrar of Contractors to order a licensee to make restitution to an injured party if he finds that the licensed contractor has aided or abetted an unlicensed person. In other words, hire an unlicensed sub and you could be hit with a citation including an order to pay for damages caused by the unlicensed person. This legislation has passed the State Senate and is awaiting a vote in the Assembly.

Among those items covered at the CSLB’s recent meeting in Sacramento, was an update on the Board’s response to the recent Lake Tahoe Wild Fire. The Board’s Enforcement Unit and Public Affairs Office coordinated their efforts to get the word out to fire victims and help protect them from being victimized a second time. These efforts resulted in numerous media events and the arrest of half a dozen unlicensed individuals who were looking to take advantage of burned-out homeowners who had just lost everything.

Q: Can we file an application for a new contractor’s license and list two individuals as RME?

A: As we discussed, in your situation, the answer is NO. Since one of the qualifiers is licensed and the other one must take an exam, you cannot file an application listing both individuals. I recommend filing the application with the currently licensed person, securing the new license number and then adding the RME who must sit for the exam.

If both RME’s were already qualified, then it would be acceptable to use one application. However, a note of caution: the CSLB application is not set up to list more than one qualifier — even with no testing. For example, if you’re forming a new corporation and have one person who holds the ‘B’ and a second person who holds a ‘C-10’ electrical, you will have trouble listing both separately on their standard form. Should you be faced with this dilemma, call me and I’ll walk you through how to best deal with this situation.

Q: I’ve had a contractor’s license in my own name for 21 years. My accountant recommends that I incorporate. Can I simply transfer my old sole owner license number to the new company? I went on the CSLB web site and downloaded an application to change business name. Is this the correct form I use?

A: Although, you will ‘simply’ be adding the word ‘INC’ to your existing business name, the ‘name change’ application is NOT the one you use. You will need to file a new original license application, post a new bond and Worker’s Comp certificate, complete a form transferring the license number and pay the CSLB a $400 fee. No testing will be required.

California Contractors Licensing for Corporations

Like the seasons, some of the questions I get from contractors sometimes seem to fit into a pattern. For instance, as hard as I try to get the word out to contractors and attorneys regarding LLC’s, this question surfaces on a weekly basis. I also get a regular run of calls about corporate name changes and the use of a ‘DBA’. To help answer some of those questions I often refer callers to my website where they can ‘keyword’ search a topic and get answers from past columns like these…

January 06

Q. I saw two active CSLB license numbers listing what appears to be the same Corporation name. Is this legal? Can a California Corporation be assigned more than one Contractor’s License number at the same time? Does the CSLB tie the State Corporate number to the License? PS: Keep up the great columns!

A: Thank you for the compliment. I am glad you enjoy the columns.

Regarding your questions: It is perfectly legal for a corporation to have more than one license number. In fact I am aware of some companies that have four or more licenses for the same corporation. These are tied to the same corporate number and can be structured in several ways.

If a corporation wanted to be separately licensed in several different classifications, they could have a different license number for each entity. In this way the company could sign contracts under different names yet be part of the same corporation. For instance they may want to identify their plumbing operations separately from their HVAC business. It is my understanding that the CSLB will not allow a company to simultaneously have two license numbers for the same corporation with the SAME classification.

A second reason a corporation might want to have more than one license number is to retain the business names of companies they purchase. For example, an existing company purchases three businesses. They retain their existing license and apply for three new licenses each with a ‘Doing Business As’, or ‘DBA’ designation. The end result is four license numbers for four separate entities under one corporation (and one corporate number).

Finally, if a company wanted to divide themselves into divisions so each would have a separate license number, they could apply for multiple licenses in order to bid under these different names. In this case rather than a ‘DBA’, their business name would, for example, read: XYZ Construction, a division of USA Building Company, Inc.

October 02

Q: What are the first steps to obtaining a general contractor license?

A: To secure a general contractor’s license your first step should be to determine that you have 4 years full time experience in the building trades. This means having a background that includes framing, plumbing, concrete, roofing, etc. If this basic requirement is met, you’ll need to file an Application with the appropriate state-licensing agency. In California, this is the Contractors State License Board (CSLB). Someone who is familiar with your employment must certify your experience qualifications. A two-part exam will be required covering the law and building trades. After you pass these tests, a bond will be required as will a Certificate of Workers Compensation (or exemption if you have no employees). Fees to the CSLB will total $400.00.

September 2006

Q: I understand that the CSLB will not issue a contractor’s license to an LLC. In addition, I heard the CSLB won’t issue a license to a partnership (general or limited) where an LLC is a general partner. Any changes to this status? Any pending legislation?

A: There is no pending legislation that I am aware of. The CSLB still will not issue a contractor license to an LLC or a license to a partnership (general or limited) where an LLC is a general partner. It’s status quo for Limited Liability Companies.