C-10 Employee Certification, new Worker’s Compensation rules and General Licensing

California electricians might be ‘shocked’, but a new no-holds-barred policy on certification may leave some contractors ‘grounded.’ The new calendar will bring new regulations, and ‘digging’ into the underground economy is one focus, particularly for contractors not providing insurance coverage to their workers. I’ll show a license Qualifier how to get his own individual sole owner’s license, at the same time..

According to the Contractors State License Board (CSLB), and effective immediately, it has established a zero-tolerance enforcement policy and will pursue legal action against any “C-10” Electrical contractor who willfully employs even one uncertified employee who is performing work as an electrician.

The CSLB is legally required to open an investigation and initiate disciplinary action against the contractor, which may include license suspension or revocation, within 60 days of receipt of a referral or complaint from the Division of Apprenticeship Standards (DAS). According to the CSLB, Labor Code Section 3099 clearly states that certification by the DAS is required for anyone who performs work as an electrician for “C-10” Electrical contractors (the law does not pertain to other license classifications such as “C-7”, “B”, “A”, or “C-20”).

Electricians are defined as all persons who engage in the connection of electrical devices for “C-10” contractors. It is the Board’s position that a certified electrician or an approved apprentice must perform all electrical work. The actual licensed contractor (Qualifying individual) does not need to be certified. For more information on these DAS requirements, including how to become certified, visit Capitol Services Online Resources page at www.cutredtape.com.

Q: I understand there is a new law, which deals with Worker’s Compensation requirements. Could you summarize this law and let me know what impact it may have on my business. I carry Worker’s Comp for my employees but it’s getting tougher every day to keep up with all these business expenses.

A: Effective January 1, 2011, the CSLB will be able to issue a “stop order” to any licensed or unlicensed contractor who fails to carry Worker’s Compensation Insurance coverage for his or her employees. Since you’re already complying with this requirement, this new law should not directly impact your business. However, if the law forces some of your competitors — that are not now covering their employees — an indirect effect will be to ‘level’ the playing field for licensees, like yourself, who are complying with the law The new law will be one more tool in the Board’s fight against the “underground economy”. The CSLB will now have unprecedented authority to stop unlicensed and/or uninsured activities. According to the CSLB, failure to comply with a stop order will be a misdemeanor, punishable by up to 60 days in jail and/or a fine up to $10,000.

Q: As a member of my local Builder’s Exchange, I enjoy your weekly questions and answers. Here’s one for you. I am the Responsible Managing Officer (RMO) for my corporation and hold a “B” and “C-17” license. I personally would like to have my own “Sole Ownership” contractor’s license to perform side jobs in the future. How would I go about securing a “B” license and would I have to go thru testing, fingerprinting etc? Thank you for your time and response.

A: As the RMO for your company, you can apply for a Sole Owner license for the same classifications you presently qualify (“B” and “C-17”) – with NO further testing. Fingerprinting may be necessary if you haven’t already gone through the Live Scan process with the CSLB (this was started in 2005). To secure an ACTIVE Sole Owner license you must own at least 20% of your present corporation; file a new application for Original License (7065 Waiver); post a new bond and carry Worker’s Compensation Insurance, if you hire any employees.

Electrical Contractor Alert & RME/RMO

In competition winning is what it’s all about. Winning the race or winning the contract bid. For many contractors, just getting ‘qualified’ to compete comes with a host of questions. We begin with important news for specialty contractors ‘wired’ into electrical work…

Electrical Contractor’s Alert: Specialty contractor’s that perform electrical work need to be aware that AB 2523 (Eng) would amend the law related to the electrician certification. According to a recent Legislative analysis, as it currently exists, the electrician certification program administered by the Division of Apprenticeship Standards ONLY pertains to “electricians” who are working for “C-10” Electrical contractors. This bill, if passed, would expand the applicability of the electrician certification requirements to include nearly all specialty contractors (licensed under B&P Code Section 7058) that “engage in the connection of electrical devices.” In other words, a “C-20” (HVAC), “C-38” (Refrigeration), “C-46” (Solar) or other “C” contractors that do any electrical work would also need to have their employees certified under this revised Labor Code.

Since the new language limits it to Section 7058 licenses, this would not include “A” General Engineering or “B” General Building contractors. The existing exemption for “C-7” Low Voltage, “C-45” Electrical Sign, and the qualifying individual for “C-10” (Electrical) contractors would also be retained. What is unclear is whether the qualifiers for the “C-20”, “C-46”, “C- 38” and other specialty contractors would be exempt. The bill has passed the Assembly and is due to be heard in a Senate Committee.

Q: I am considering going to work for a company as their Responsible Managing Employee or RME. My question is: By accepting this position could I possibly be responsible for any unpaid wages or debts of the company? I will not be an officer, director, stockholder, or signatory on a payroll or checking account. The only information I currently have is that I would not be responsible for unpaid wages under any conditions. Your assistance in this matter would be greatly appreciated.

A: To the best of my knowledge, a RME would not be responsible for unpaid wages or company debts. However, your email uses the word “possibly”. While highly unlikely, if there is a legal action against the company for which you are the Qualifier, a court could “possibly” find you responsible for some sort of debt. I am familiar with a recent court case whereby nearly three hundred companies AND individuals were named as defendants.

I would suggest contacting an attorney to discuss this situation and whether a ‘hold-harmless’ agreement makes sense.

Q: I have three questions regarding our application for Original Contractor’s license. 1.) One of our officers, an assistant secretary, will become our Qualifier. It seems to me that it would be better if he were a Responsible Managing Officer (RMO) and not an RME. That way, we stay away from the 80% time rule. Is there any reason NOT to use him as an RMO? 2.) Besides the bond for the company itself, please confirm that an RMO does NOT need a bond but an RME does? 3.) Does CSLB put it’s required bond form and amount online?

A: By definition, an “assistant secretary” is a Responsible Managing Officer (RMO). A $12,500 Bond of Qualifying Individual is required if the RMO owns less than 10% of the corporation and is always required for a RME. You can order these bond forms online from the Contractors Board; but they are not available to download. For your information and a courtesy for a reader, I have emailed both forms in an attachment so you can pass them on to your bonding company.

Articles of Incorporation & LLC Licensing

I’m getting lots of questions about changing business structures in the ongoing recession and recovery. What do you need to know to get the Secretary of State to ‘inc’ your paperwork as a corporation?..

Q: I sent my Articles of Incorporation to the Secretary of State a few weeks ago. They have not been processed and I am in a great hurry to get this done so I can apply for a new corporate contractor’s license. I understand it is probably going to take several weeks to process. Do you know of any way to speed this up?

A: The Secretary of State has what I would call a four-tier processing system. They will issue a corporate number ‘super fast’ (4 hours); ‘fast’ (24 hours), ‘very slowly’ (4-6 weeks) or ‘unbelievably slow’ (10+ weeks). Unfortunately you fall into the last category.

According to my research, sending Articles of Incorporation to the Secretary of State is currently taking more than 10 weeks to process. Since you are in a big hurry, I would recommend going with the “fast” 24-hour option. This would involve redoing the articles and personally filing them in the Sacramento Office or hiring a service company to do this on your behalf here in the Capitol. The total cost will run $450.00 due to a recently enacted $350.00 “expedite fee”. Assuming there is no problem with the document, you’ll have a corporate number the next day and can then file your Application for a new Original Contractors License. When they finally get to the initial Articles you sent in, these will be rejected and returned with your original $100 fee.

A word of warning though for anyone who has filed articles over the counter (the 4 or 6 week option) and then changed their mind to go with these “super fast” or “fast” options. Forget about it. The Secretary of State will keep the extra expedite fee of $500 (“super fast”) or $350 (“fast”) and will not allow you to swap out the new articles for those filed. This “trick” only works if you filed your articles, amendment or Statement and Designation by Foreign Corporation by mail.

I know this all sounds a bit confusing so please call me and I’ll be happy to further explain the entire process.

Q: I attended a recent meeting where I heard that the Contractors Board would soon be able to issue a license to a Limited Liability Company, or LLC. What can you tell me about this?

A: As readers of this column know, the CSLB can only issue a license to a Sole Proprietor, Corporation, Limited Partnership, General Partnership or Joint Venture. However, as you heard, this may change in the next year or so if a bill pending in the State Legislature is passed and signed by the Governor. SB 392 (Florez) would authorize the Board to begin issuing a contractor’s license to a Limited Liability Company (LLC) no later than January 1, 2012.

California contractors have been unable to avail themselves of the limited liability corporate status since this type of entity was created in 1994. In fact, California is one of about 30 states that require some form of contractor’s license but is the only state that does not allow a license to be issued to a LLC.

The argument that licensing a LLC would be a detriment to consumers and employees helped defeat several prior attempts to pass this type of legislation.

The Florez bill would require applicants for a LLC license to file a $100,000 Surety Bond for damages arising out of specified employee claims and would also require the entity to maintain a policy or policies of insurance against potential damages arising out of a claim.

Illegal Immigrant & Partnership Licensing

Who is and who isn’t a ‘real’ American citizen is one of the top issues of our day. As a nation largely founded by immigrants how we share our freedom with people who dream of coming here, legally or not, is not easy to answer. We often need people for many jobs our citizens can’t fill or don’t want. Contractors often find themselves confronting these issues and questions of citizenship as they hire laborers. Is a non-citizen, here illegally, able to become a licensed California contractor? Does becoming a corporation give new life to your old license?…

Q: It has come to my attention that The Contractors State Licensing Board approved a man who is not even in the states legally. This is a real problem for me because I am a legal citizen with my contractor’s license who is fighting the economic recession. I can¹t understand how this can happen. He was deported for the third time and now is back in the states, and still his California license is valid. I would like input on how this could possibly happen?

A: According to the CSLB, “Licensing Boards do not have citizenship or residency requirements for applicants, but do require every applicant to supply his/her Social Security number for tax and family support purposes. In addition, the Contractors Board requires all applicants to undergo fingerprinting and criminal background checks.”

I was advised that you could submit a complaint to CSLB’s Enforcement Division for investigation to determine if the licensee has violated any laws under the Board’s purview.

I also ran your question by an industry leader who pointed out that there is a fundamental question of fairness to those in our industry who try to practice their trade and follow the rules of the game. The other side of the issue is whether driving undocumented immigrants, including undocumented business owners, back underground is the right thing to do.

He also rightly and astutely pointed out that “It would be a far better world if we had a rational immigration policy in this country”.

Q: We are a General Partnership looking to change our entity to an S-Corp and need to know how to change our contractor’s license and how long the process takes. Can we change to S-Corp and operate on our old license while the paperwork is going through or do we need to wait to get our new license before switching the business structure? Also, will we be able to keep our same license number? Thank you for your attention to this matter.

A: To change your licensing from a partnership to a corporation, you must complete a new Application for Original Contractors License. I would strongly recommend waiting until your new corporate license is issued before doing any work or signing a contract under this new entity. Unfortunately, you cannot transfer your current partnership number to a corporation under any circumstances.

Assuming there are no problems with Live Scan fingerprinting and the same qualifier is used for the new license, you should have a number in hand within 4-5 weeks.

Replace a Qualifier, C-12 and Corporate Licenses

Let’s apply some ‘anti’ –septic advice to a contract an attorney says ‘stinks’. After getting ‘down to earth’ with that answer, I will share expert advice on how incorporation can affect your current license if you are considering some reorganization in the current economy…

Q: I have a client who holds a “C-12” Earthwork and Paving license. They are under the impression that their license allows them to also install septic systems and make water and sewer line connections.

They stated that the CSLB told them this was acceptable as long as the work was all related to the grading and excavation they were doing. I believe this is incorrect and that they need to have a Class “A” license. Please advise.

A: In my opinion, based on your explanation, it would appear the “A” rather than “C-12” is the correct license classification. If the project involves installing a septic system, hook-up of water and sewer lines, and piping, these fall under the “A” — or in many cases the “C-42″ (Sanitation systems) or “C-34” (Pipeline) classification. While contractors can perform work that is incidental or supplemental to their contract, this does not appear to be the case here.

The “C-12” contractor “digs, moves, and places material … to cut, fill excavate, trench, grade, backfill or tunnel”. Nowhere does this classification mention hooking up water or sewer lines or installing sanitation systems. Your client may have it backwards; whereby installation of a septic tank or drainage system, water or sewer line hook up, or laying pipe, would allow for the incidental earthwork and subsequent paving but NOT visa versa.

Q: I have formed a California corporation and wish to use my existing “B” contractors license. Can I do that? Will the corporate liability umbrella cover my license or not?

A: You must apply for a new contractor’s license and can choose to assign your sole owner license to the corporation or have the CSLB issue you a new number. Check with your insurance company regarding whether your current liability policy will cover this new license.

Q: As a follow-up to our discussion, how does my company seek to extend the 90-day “grace period” for replacing a Qualifier with an additional 90 days? I assume that must be requested in writing? Are there forms that need to be filled out and sent in?

A: The first 90-days is automatic from the date your Qualifier leaves a license. The only exception is a Partnership where a “qualifying PARTNER” disassociates thereby causing the license to be CANCELLED. The additional 90-day extension must be requested in writing within this “grace period”’ and must be accompanied by an Application to Replace the Qualifying Individual. While this is not addressed in the law, it is the Board’s policy to only grant this additional time if the company is attempting to qualify someone new.