Another Look at ‘Finder Fees, Rewards, Inducements or Kickbacks’

Having assisted contractors with licensing and other industry issues for more than 30 years, the questions that come into the office remain interesting and unpredictable. Sometimes the question comes from rumor, mistaken understanding or simple wishful thinking. In this instance, despite our appreciation at being asked, the answers can sometimes be clear, but also disappointing when we have to set the record straight…

Q:  What an amazing resource! Thank you for all of the information you’ve provided over the years. I have referred innumerable industry professionals to your services -some of whom you have helped become licensed contractors.
Which is apropos my point. I would like to begin procuring work for a contractor with whom I have worked as a skilled carpenter in the past (it should be noted that I am not a licensed contractor). As a Sole Proprietor,  he does not have the financial means to employ me as inside sales so what is the best way to be remunerated for these sales endeavors if “kick backs” and “finder’s fees” are illegal? I understand that the current governance by CSLB does not prohibit fees paid to non-contractors for such services, but it is unclear if a) this is considered ‘unethical’ and b) what the industry standard fee would/should be/is.

Your clarification/tutelage/perspective/guidance on this point is GREATLY appreciated!

A:  Certainly appreciate your enthusiasm and those referrals, but this may not be what you want to hear. Nonetheless, B&P Section 7157 has the answer. That section, Prohibited Inducements, addresses your question. This is also commonly referred to as a “kick-back,” as example when it was used in a 2010 CSLB Newsletter headline:

“Remember that it is illegal for contractors or subcontractors to accept or pay referral or “kick-back” fees in order to secure construction or remodeling projects. Violators may face fines or disciplinary action against their license.”

Now the question is at what point are these ‘inducements’ proper or illegal from the contractor’s and your standpoint as his “representative”.  Subsection (b) prohibits a contractor from giving anything to prospective ‘customers’ that is more than $5.00 and subsection (a) does not allow a person to “promise or offer to pay, credit, or allow to any owner, compensation or reward for the procurement or placing of home improvement business with others.”

Since you are neither a ‘customer’ or ‘owner’, so far so good. However, when looking at Subsection (c) I would say that both you and the contractor would be on very shaky ground.  In part, this states: “No salesperson or contractor’s agent may accept any compensation of any kind, for or on account of a home improvement transaction, or any other transaction involving a work of improvement, from any person other than the contractor whom he or she represents with respect to the transaction”.

You say you will be going out and about (maybe even door-to-door) in your words “procuring work for a contractor”, yet will NOT be a registered Home Improvement Salesperson (HIS) or employee of any sort. It has always been Capitol Services opinion, and I believe the CSLB opinion, that kickbacks or referral fees or finder’s fees, whatever they may be called, are improper regardless of how you couch them.  Nevertheless, if you decide to move forward with this endeavor, I would recommend that you consult with a construction attorney who could provide you and the contractor with legal advice.