“Renting” a CA contractor’s license, RMO & RME Qualifiers

Abe Lincoln first wrote about fooling some of the people all the time and all the people some of the time. About the only person who can ‘fool’ you anytime is…you. When you seek out advice going to the source is the best way to learn. However, some people get ‘fooled’ by ignoring the facts to hear what they want to be true…

 

I regularly visit The Contractor’s Board Headquarters in Sacramento.  While hand-delivering applications for clients, I often overhear discussions taking place between contractors and CSLB staff.  Sometimes these discussions also take place among contractors waiting in line.  On a recent occasion, one contractor conversed with both and herein lays the question:  When should I listen to the CSLB and when is it advisable to instead listen to the fellow contractor?

 

In this particular case the person at the public counter gave the contractor correct information.  The question related to an unsolicited mailing the contractor received promising a waiver of the license exam.  The skeptical contractor was rightly told what was required; when he can make application and what the law is regarding an exam waiver.

 

Yet, not two seconds later, he begin talking to another contractor in receipt of the same letter who basically told the first contractor to ignore everything he was just told by the CSLB employee.  As contractor #1 is exiting the building he thanks contractor #2 for “all the great information” and tells him he’ll go with his suggestions.   The problem as “contractor #1” will soon discover, is that by listening to “contractor #2” his application and request for a waiver will almost certainly be denied.

 

The CSLB is not perfect; they have been known to make errors; however, beware the contractor who is sure they have all the answers.  In my many years assisting the construction industry, I cannot count the times I’ve heard the words:  “A contractor friend of mine told me….” only to learn they were given incorrect information.

 

Q:  I am familiar with a contractor who is renting his license to a company however, I don’t think he’s the least bit involved with any of their projects.  I know this because he tried to recruit me to do the same thing.  He told me there are a few agencies on the Internet that line up Responsible Managing Officer’s (RMO), and set them up with contractors that may not otherwise qualify for a license.  Is this legal?

 

This contractor has his own active license and I know he uses it daily.  Aren’t RMO and RME qualifiers supposed to oversee the contract?  How can the CSLB let contractors get away with this?

 

A:  Contractors can qualify more than one license at a time if they own at least 20% of each entity.  This would explain how this contractor could qualify as a RMO yet continue to use his own personal license.  If he owned less than 20%, the State would have required that his license be inactivated.  This inactivation would be required in almost all instances if he were a RME.

 

I believe the vast majority of qualifiers are legitimate; however, “renting” a license in the way you describe does happen. The CSLB is aware that some contractors are likely abusing the system and I believe they are investigating. You may want to pass this information on to the CSLB who can determine if the arrangement is allowed.

Unlicensed Enforcement, LLC’s Licensed & Work Comp exemptions

We have been busy at Capitol Services helping contractors discover new opportunity in Nevada and Arizona, a ‘rush’ that is reflected in recent news of their leading the nation in state population growth over the last decade. Meanwhile, licensed contractors may find greater opportunity within the borders of California as government focuses on creating a ‘level’ playing field by cracking down on the unlicensed operators ‘bending’ the rules…

 

The CSLB Enforcement Committee met in Sacramento last week to discuss a wide variety of topics related to contractors and the construction industry.  Of particular note was their emphasis on increasing proactive enforcement aimed at the underground economy.

 

The Contractors Board will be stepping up partnering with other state agencies including the Employment Development Department (EDD) and Department of Industrial Relations (DIR), among others.  The focal point will be the newly created DIR Labor Enforcement Task Force (LETF), which was launched on January 1st.  According to the DIR, “this is a collaborative effort between state agencies to combat the underground economy and to improve California’s business environment where legitimate employers can thrive.”

 

The primary partners of the LETF include DIR, the Employment Development Department, Contractor’s State License Board, Board of Equalization, and the Bureau of Automotive Repair.  “The goal of LETF is to ensure fair and safe working conditions in all workplaces and promote a level playing field for employers through education and enforcement of state laws,” said Labor and Workforce Agency Secretary Marty Morgenstern. “Labor law violators endanger workers and have an unfair market advantage over law-abiding businesses”. The goals of the task force will be to:

1) Ensure workers receive proper payment of wages and are provided a safe work environment; 2) Ensure California receives all employment taxes, fees, and fines due from employers; 3) Make efficient use of state and federal resources in carrying out the mission of the Labor Enforcement Task Force; and 4) Eliminate unfair business competition by ‘leveling the playing field’ so that employers who comply with the law do not have to compete with employers who break the law.  According to DIR Director, Christine Baker, “By joining forces with other agencies conducting inspections, we can have a greater impact on stopping labor violations and the underground economy.  Collaboration will also save time and money by avoiding overlapping inspections and focusing our efforts on the egregious violators.”

 

According to the DIR, and echoed by the CSLB, businesses operating underground typically violate many laws designed to protect workers and our state’s economy. These include: not paying income taxes, unemployment insurance or disability insurance; not carrying (or under-reporting) Workers Compensation coverage; not paying proper wages; and not registering for required licenses or permits. These underground operators subsequently pay lower overhead costs, which give them an unfair competitive advantage over legitimate, law-abiding businesses.

In addition to discussing the goals of the LETF, the Enforcement Committee heard from the Chief of EDD’s Compliance Development Operations, Dan Kurttila, who emphasized their commitment to the construction industry and the Board’s strategic objective to combat the underground economy.

 

Like the ‘synching’ on your individual mobile, computer or server, State government networks are talking, ‘pushing’ data sharing and improving the odds unlicensed contractors will be caught in California.

CA License Transfer to LLC, Corporate Licenses & Gift Card Kickbacks

The waiting is over after more than a decade of demand contractors can form a new ‘structure’ for licensing their business. For many years in CA the State refused to allow Limited Liability Companies (LLC) to be licensed as contractors. With this pent-up demand now released the rush is on at Capitol Services…

 

 

Q:  Now that a LLC can be licensed, we would like to transfer our corporation number to the new LLC.  Can this be done?

 

I have received many questions during the past few weeks related to the new LLC license.  I am familiar with several corporations that were formed for the express purpose of doing business in CA until such a time as the state allowed LLC construction companies to become licensed.  The new law amended Section 7075.1 to allow the transfer of a corporate license “to a limited liability company that is formed by a corporation to continue the business of the corporation subsequent to the cancellation of the corporate entity’s license, provided the personnel listed for each entity are the same.”

 

A potential for problems with this transfer is the corporation will cease to exist and this may call into question ongoing contracts.

 

Q:  We are looking into the dissolution of our present corporation, and would like to know if we can transfer our contractor’s license to the new corporation.

 

A: According to B&P Code Section 7075.1, if forming a new corporation you’re only allowed to transfer the current license number to the new entity under the following conditions: “…when the parent corporation has merged or created a subsidiary, the subsidiary has merged into the parent corporation, or the corporation has changed its filing status with the Secretary of State from a domestic corporation to a foreign corporation or from a foreign corporation to a domestic corporation.”  For any of these scenarios the formation of the new entity must be to continue the business of the formerly licensed corporation.

 

 

 

Q:  We’re considering offering a gift card to any homeowner who signs up for new flooring during the month of February (amount to be determined).  Do you think this would be acceptable under CSLB rules?

 

A:  According to B&P Code 7157(b), A contractor or his or her agent or salesperson may give tangible items to prospective customers for advertising or sales promotion purposes if the gift is not conditioned upon obtaining a home improvement contract and does not exceed five dollars ($5).

 

Unless the offer involves a very minimal gift card, you may instead want to offer a rebate or reduction in contract price because it is not considered “tangible”.

 

This is based on an Attorney General opinion from 1985.  In response to a question from an Assembly member, the AG concluded, “as an inducement to contract, a home improvement contractor may offer a homeowner cash rebates or discounts on the purchase of products or services”.  This “non-tangible” rebate could include carpeting, painting, cabinetry, or any of several other ‘home improvement’ trades.

 

 

Construction News: According to the Associated General Contractors of California (AGC), Governor Jerry Brown’s recently released budget contained welcome news for transportation as it proposed a significant structural change to transportation agencies and continuation of Proposition 1B projects.  For years the AGC has contended that spending on infrastructure has been inadequate to allow for growth and business in CA.  However, according to the AGC’s chief Executive Officer Tom Holsman, “It appears the governor is moving in the right direction in putting California on a path to recovery.”

Suspended Corporate License & Worker’s Compensation Update

Like the tide lifting all boats, trouble with a corporate license can also ‘suspend’ an individual’s personal work.  New California law will make no distinction in the size of a contractor’s business when it comes to providing compensation insurance coverage for employees on the job…

Q: As indicated in the attached CSLB notice, my son’s license will be suspended next month because of an issue involving my corporate license.  I understand that although a VP is an Officer and part of the corporation this position isn’t required to be listed with the Secretary of State or Contractors Board.  I am the Responsible Managing Officer (RMO)/President, Secretary & Treasurer and my son has no authority to control license events. Wouldn’t I be solely responsible for any CSLB actions…?

The basic question would be – What is the least painful way to remove him from the claim troubles on my license?  Please advise.
A:  I cannot say if you’re “solely responsible” for all CSLB actions.  However, I can tell you the CSLB is giving your son the opportunity to remove himself from your license so his Sole Owner license will not be suspended.  I recommend that he file a Notice of Disassociation with the CSLB effective immediately, which in turn will remove him from the corporate license and lift the pending suspension on his personal license.

Q:   I read in one of your columns months ago about a new law that will affect small contractors like myself.  It had to do with Worker’s Compensation.  Could you let me know which law this was and how I can get more information?

A: I believe I referenced Assembly Bill 397 a number of months ago.  This bill was passed by the Legislature and signed by the Governor in October and will impact all contractors large and small.  The new law which took effect January 1st, requires a contractor who has previously certified that he/she has no employees and is exempt from carrying a Worker’s Compensation policy to submit a new certification, or proof of employee insurance coverage.

The new law states:  “At the time of renewal, all active licensees with an exemption for Worker’s Compensation insurance on file with the board, submitted pursuant to subdivision (b) of Section 7125, (of the Business and Professions Code) shall either recertify the licensee’s exemption by completing a recertification statement on the license renewal form, as provided by the board, or shall provide a current and valid Certificate of Worker’s Compensation Insurance or Certificate of Self-Insurance, whichever is applicable.”

There are many contractors who certified they were exempt from Worker’s Compensation when their license was first issued; however, some now have employees.  If a contractor, under penalty of perjury, must recertify they are exempt or produce the required Certification of Workers Comp, this will put them on record, either way.  With this new re-certification requirement, contractors will produce the necessary Worker’s Comp Certificate; obtain Worker’s Comp if required; or at least eliminate any questions should they be found in violation of this statute.

A second bill (AB 878), also signed into law last October, requires a Workers’ Compensation insurer to report to the Registrar of Contractors any licensee whose Worker’s Compensation insurance policy is canceled by the provider if the insurer has completed a premium audit or investigation.

“Lease-back”, Joint Venture & “C-39” Roofing Licenses

Real world problems can sometimes be easy to solve. At other times, the complex nature of the problem seems to require a ‘by the numbers’ approach if you expect to reach your goal successfully. A contractor looking at a new ‘venture’ shows everyone the route to ‘jointly’ profiting…

 

 

Q:  I’m the president of our company and we’ve had a “C-39” (Roofing) License for four years.  It will expire at the end of this month and my Responsible Managing Officer (RMO) is leaving the company.  We don’t have another RMO.  What will happen to the corporation?

 

A:  Once the RMO disassociates, your company will have 90 days to replace him.  Normally, during this time, the license would remain in good standing.  However, you may have problems renewing the license until the new Qualifier is officially on board since the current RMO cannot sign the renewal application.  Nevertheless, for a number of reasons I would suggest sending in the renewal prior to the end of the month.

 

Unless you have someone who already holds the “C-39” classification an Officer or supervising employee will need to sit for the exam.  Upon passing the law and trade test, and meeting the Board’s other licensing requirements, this person would become the new Responsible Managing Officer or Employee (RMO/RME).

 

 

 

Q: Is it your understanding that an organization (likely an LLC) that contracts with a public entity for a lease-leaseback project needs to hold a contractors license?

 

A: Based on my understanding of a “lease-leaseback” arrangement with a public agency (such as a school district), the contractor would be required to hold a CA contractors license. By year’s end the rush will be on to obtain contractor licensing for Limited Liability Companies or LLC’s in California. If you are considering this licensing avenue, getting in ‘line’ now is advised as a high volume of applications is expected. Capitol Services is already getting requests to help with this completely new application for LLC licensing.

 

 

Q:  I have asked you several questions previously regarding my current company and our pursuit in securing a contractors license.  You and your staff have been very helpful and I thank you for all the assistance.   A couple more questions have come up that I am hoping you can answer.

 

We are in preliminary talks with a couple firms for a Joint Venture (JV) arrangement on a pending project.  One of the entities is not a licensed contractor. They are a manufacturer and equipment supplier but have done some contracting.  My understanding is that all partners on a JV must be licensed contractors.  Is that accurate even if one of the proposed team members would not be involved in the “construction” activities, but only manufacturing and equipment supply?

 

My second question with regard to the license — is there any issue with applying for a JV license too soon after we secure our corporate license?

 

A: 1) You’re correct; all entities must have an active CA contractor’s license in good standing.  2) If the manufacturer were only a material supplier, they would not independently require a license.  If a company were both a supplier and “contractor” a license would be necessary.  Regardless, since the JV will be handling the actual construction their inclusion or exclusion as the “material supplier” is up to you. 3) Once your license # is issued, you can apply for the JV license the next day.  This application can be prepared ahead of time for your review and signatures and be ready to submit to the Contractors Board.

 

Finally, The Governor has lifted the CSLB hiring freeze so they can begin filling long-vacant positions in both Enforcement and Licensing Divisions. At a recent CSLB meeting the Board publicly thanked all those who may have played a part in securing this policy change.  Good work.