Hardware Store Referral Fees, Automatic Gates and Revocation Renewal

When the State Legislature ‘rains’ new law on the contractor parade making their intent clear can get a little murky.  Sometimes those rules and regulations for contractors are as clear as…mud! Let’s dig into this ‘legislative’ ‘mud’ to clarify some questions that seem to bubble up regularly! It may seem familiar, but consider it ‘continuing education’…

Q:  I have a scenario to run by you that I’m hoping you have some insight on.  There is a local hardware store which has contracts with tradespeople (mostly licensed contractors, some unlicensed ‘handymen’) that stipulate a fixed percentage fee to be paid from any jobs being referred to that tradesperson.

They are a licensed General Contractor. They are also a Hardware Store. Is it legal for them to accept referral fees from Licensed GCs?

If it’s not legal, would canceling the GC license make it legal?

A:  Referral fees exceeding $5 between two contractors for the procurement of a home improvement contract are unlawful. However, in discussions with the CSLB, if the hardware store is acting as a retail establishment and not a contractor the prohibition would not apply. The hardware store does not need to cancel their license, only not have contracted with the homeowner. For example, if they responded to a plumbing leak and then referred a general contractor to repair the water damage.

Q: We have a “C-61”/”D-28” (Doors, Gates, and Activating Devices) license and install automatic gate systems. I would estimate that at least 75% of our competition comes from contractors with licenses other than the correct one. These include Fencing, Structural Steel, Electrical, and Ornamental Iron licenses. They are even hired by GCs to install automatic gates. It seems to me that as long as a company has a license of some kind, the CSLB leaves them alone. This can easily be ascertained by looking at advertising and checking what license they have. We are not looking to create enemies, but the automatic gate industry has safety standards that these companies either ignore or don’t know about, creating the possibility of serious injury to the public.

A:  There are actually several classifications that are authorized to install all or part of automatic gate systems.  In addition to the “C-61”/”D-28” classification, a “C-28” (Locks and Security Equipment) can perform this work, and excluding the electrical components, a “C-13” Fencing Contractor can install the gates.  A

“C-10” (Electrical) contractor can install the motors that run the automatic gates.

If there are other contractors performing this work “out of classification”, the CSLB would need a formal complaint filed so they can investigate it. The public, including licensed contractors, are the ‘eyes and ears’ of law enforcement.

Q:  Several years ago my license was revoked for reasons that I won’t get into and since then I’ve been working for another licensed company.  I’d like to get my license back, is that possible?

A:  It’s possible.  You need to re-apply for the license and as long as it’s been under 5 years since the revocation you would not need to re-test.  To re-instate the license you would have to show proof that you have fully complied with the terms and conditions of the revocation.   In addition, you will likely need to post a Disciplinary Bond in addition to the Contractor’s Bond.  If you are applying under the same entity with the same personnel, and the entity is in good standing with the Secretary of State, you can request that the license number be re-issued.

Waiver Time Limit, Criminal History and Delinquent Renewals

Panic can be a good thing! It shows you’re thinking about whatever the problem may be and we might be able to find a solution together. Take a deep breath the next answer is unfortunately a ‘crime’ but hope remains for this and our last inquiry…

Q:  You helped us obtain our California and Arizona Contractor licenses a few years ago and I was hoping you could offer some advice.  Our CA contractor’s license expired 1/31/17 due to clerical oversight and we have requested a Delinquent Renewal form from the CSLB, which supposedly takes 7-10 days to receive.  We have a multitude of jobs we are currently on that are contracted under that license. Is there a way to expedite this renewal and reinstatement of our license?  I was considering flying in to Sacramento but then realized that our Responsible Managing Officer (RMO) would likely have to sign the Reinstatement at the CSLB.  I am a bit panicked.  Can you provide any advice?

A:  With permission from the licensee, we can typically pick up a Renewal for you in person same day and email it out to you which will reduce the 7-10 day waiting period for the CSLB to mail it to you.  You are correct in that the Renewal requires the (original) signature of your RMO.  Once you obtain the appropriate signature(s), you can send it back to my office and we will hand deliver it to the CSLB and obtain a stamped copy showing that it’s been submitted.  The CSLB always processes renewals in the order they receive them, and right now they are taking approximately 2-3 weeks to process a renewal application.

Q:  Hi, I’m reading that I’m required to get fingerprinted to obtain a California Contractors License.  I have two felonies on my record and I’m also currently on probation.  Will the felonies or the fact that I’m on probation prevent me from obtaining a Contractor License?

A:  Thank you for contacting Capitol Services Inc.  You cannot get your Contractor’s license while on probation or parole.  I don’t have a definite answer as to whether you will qualify once your probation is satisfied.  The CSLB reviews criminal backgrounds on a case by case basis and review to make a determination based on how long ago the crime occurred, the severity of the crime, and your rehabilitation efforts. Check back then, there is always hope.

Q:  Our corporation has had a Contractor’s License for over 10 years.  When we originally got the license, we hired an employee to act as our Responsible Managing Employee (RME).  About two years ago, one of our Officers replaced the RME and didn’t have to take the exams because he was an Officer for the company for over five years.  Now he’s retiring and we have another Officer who now wants to do the same thing.  Is that something you can help with?

A:  Normally that would be something we would assist with.  However, the rule is that once a license is granted a Waiver of the Exams under B&P Code Section 7065.1, the company must wait a full five years before they can again request a Waiver of the Exams.  We can still help you with the replacement process if your new Qualifier is willing to sit for the exams.

NV JV’s, Worker’s Comp & RMO Ownership Limit

The ‘long’ and ‘short’ of it in this edition of the Capitol Connection. We ‘own’ the answer for a ‘multi-tasking’ RMO to get us started. ‘Re-stock’ for another Qualifier and help a NV General come to terms with his ‘venture’…

Q:  I’m purchasing a company that will need to get a CA Contractor’s License.  I will be hiring an RMO (Responsible Managing Officer) who currently has his own personal license.  He wants to be able to continue operating his business while also helping me start my company.  As I understand it, he is required to hold 20% equity in my corporation.  Apart from the mutual understanding between the RMO and my corporation, is there anything that needs to be filed either with the CSLB or the IRS showing that he owns 20% of my company?  Secondly, how long do I need to keep the RMO on my license before I can Qualify the license myself without needing to take the exams?

A:  You are correct in that for your RMO to maintain two Active licenses at the same time he would need to own at least 20% of your company.  It is simply a question on the application asking what percentage of ownership the RMO has.  You do not need to submit any further proof, such as Stock certificates, to the CSLB.

I am not a tax advisor or familiar with whether you need submit anything to the IRS with regards to ownership as we don’t deal with that agency.  A CPA or Attorney will likely be of greater assistance in that answer.

B&P Code section 7065.1 allows for an individual to replace the existing Qualifier on a license with a request to Waive the exams if they have been listed as an Officer for five out of the last seven years.  This also applies to individuals who have been employed by the corporation or LLC in a supervisory capacity for five out of the previous seven years.

Q:  The President of our corporation is currently the RMO on our license and he is retiring and transferring his shares of the corporation to me.  I’ve always worked in the office side of the business so I won’t qualify to be the RMO.  We currently don’t have any employees and I need to hire someone to replace my partner, but I don’t want to have to start paying for Worker Compensation insurance.  If I decide to elect the new Qualifier as an Officer (RMO), is the RMO required to have a percentage of ownership?  If he doesn’t have any ownership, does that trigger the need for Worker Comp?

 

A:  No, an RMO is not required to have any ownership in the company.  With zero ownership, he/she can only Qualify one Active license.

Ownership does not play a role in the need for Worker’s Compensation insurance.  Worker’s Comp is only required for companies that have employees.

Q:  Can we form a Joint Venture in Nevada with another contractor if we have a “B-2” (Residential and Small Commercial) and the other contractor has a “B” (General Building) license, or do both contractors need to have the same classification?

A:  No, both contractors do not need to have the same classification to form a Joint Venture in Nevada.

Business Names, RME Limit and Joint Ventures Contractor Licensing

You can be licensed and still not be able to use ‘contractor’ in your name! I will ‘clarify’ an answer for a “C-9”. It’s one for all and all for one in a Joint Venture and pay extra attention as we ‘demolish’ the question on RME’s for another contractor…

Q:  We have a Joint Venture (JV) license made up of three companies.  We want to obtain another license number with a different business name, but with the same three entities.  Will the CSLB allow the same Joint Venture partners to have two separate license numbers with different business names?

A:  Yes, the CSLB allows for Joint Venture applicants to have two separate license numbers with two different business names even if they are made up of the same entities.

Q:  We are a “C-21” (Building Moving/Demolition) Contractor and we recently hired an employee who previously had a license for the “A” (General Engineering), “B” (General Building), and “C-8” (Concrete) classifications.  His license expired in 2014.  We’d like to use him as a Responsible Managing Employee (RME) to add those classifications to our license.  I assume we need to reactivate his license and then what paperwork would be required after that point?

A:  In fact, you are not required to reactivate his license prior to adding him as the RME on your license for the three additional classifications.  Actually, an RME is only permitted to be on one active license at a time, so if you were to reactivate his license and then apply for him to be added to your license as an RME, the CSLB would respond requesting that he Inactivate his license.

With regards to the required paperwork you would need to submit the Application for Additional Classification.  Only one classification can be requested a time, and an individual can only have one application in process at a time so you will need to complete three separate applications, and space them out accordingly.

Q:  I applied for a “C-9” (drywall) license recently and the technician at the State who is handling my application contacted me and informed me that I cannot use the word “Contractor” in my business name.  When I let her know I had already registered my business name with the CA Secretary of State and it was approved, she said I would need to come up with a DBA (Doing Business As) name.  How is it my name is acceptable with the Secretary of State but not the CSLB?

A:  There are many times when a business name is acceptable with the Secretary of State but not the CSLB, however I think there may have a been a bit of a misunderstanding in your case.  Anyone applying for a Contractor’s License can use the word “Contractor” in their business name provided it meets B&P Code Section 7059.1, which requires the name style to be in line with the classification you hold.  If a word in your business name is vague, it needs to be clarified.  For example, a drywall contractor cannot use the business name “ABC Contractor Inc.”, but “ABC Contractor Inc. dba ABC Drywall Contractor” or simply “ABC Drywall Contractor” would be acceptable since you are describing the contracting work you are licensed to do.

 

License Continuance, Asbestos and Permissible Referral

While you may be an ‘agent’ a contractor has different rules that may not be ‘brokered’. While one way may be blocked, an expert guide often knows another way to get where a contractor is going. Finally, a corporate contractor discovers no help in reaching the ‘end of the road’ with his partners…

Q:  I am a Real Estate Broker and I have been reading some of your recent articles regarding referral fees and inducements and I don’t see that you have addressed whether a Contractor can pay a referral fee to a Real Estate Broker who refers the broker’s client to the contractor.  I would be furnishing a “lead”, nothing else.  Referral fees are common and legal in my industry.  I refer SBA loans to a lender and the lenders pay referral fees.  It’s the same with Apartment and commercial loans, in that lenders pay referral fees just for the lead.  Also, if I refer a buyer or seller to another Broker, the Broker pays me a percentage of the business.  I don’t understand why the Construction industry is any different.

A:  Thank you for contacting Capitol Services, I’m glad to hear you follow the weekly column.  The way I read the statute regarding prohibited inducements (B&P Code 7157) is that a contractor cannot offer compensation to another contractor or owner for the procurement or placing of home improvement business with others.  So if you are not acting as a contractor or owner, the referral fee seems permissible.

As to why they are treated differently? I can’t say, but the Legislature makes the laws and the root of that difference starts in how those rules are written by lawmakers. In my experience the CSLB seeks to create a ‘level playing field’ for licensed contractors giving consumers and contractors an equal choice on bids.

Q:  We are a General Building “B” contractor and occasionally when we do demo work we run in to asbestos.  Are we permitted to remove the asbestos as it’s part of our General Building project?

A: “B” contractors are not permitted to contract for any project which includes asbestos abatement work unless the contractor holds the “C-22” Asbestos Abatement and DOSH registration or the Asbestos Certification.  The Asbestos Certification allows you to remove asbestos in relation to your classification.  “B” contractors can also contract for asbestos abatement if they subcontract with an appropriately licensed contractor.

Q:  My partners and I have had our corporation for over 10 years.  Being that we have had our differences and it’s the first of the year, we are ready to part ways and do our own thing for various reasons.  Our problem is we have several ongoing contracts that we don’t want to abandon.  Is there any way we can shut down the corporation and request a continuance from the CSLB on our license to finish the work we have in progress?

A:  Unfortunately, Corporations and Limited Liability Companies (LLC’s), are not eligible for a continuance.

Sole Ownership licenses, Partnership, and Joint Venture licenses are permitted to request a continuance under certain circumstances.  These license continuance requests can only be considered when you submit the proper documentation within 90 days of the event which causes the cancellation.

Out of State LLC Licensing, Electric Lines and Referral Fees or ‘Gifts, Inducements and Kickbacks’

Still have not seen a Sasquatch, but urban legend says it’s out there. What you hear or believe may not always be the right answer as our Delaware contractor learns. We ‘shock’ a Nevada contractor and help another in California understand why two ‘rights’ written in the rules make one wrong…

Q:  We are a Delaware Limited Liability Company (LLC) looking to obtain a California license.  Being that we are not at all familiar with California’s licensing requirements, we contacted our attorney for more information and he informed us that even if you hire somebody who has the requisite license (we are looking at the “B” General Building license), you have to go the Secretary of State and the State Licensing Board, and go through what sounds like a 6-8 month qualification program, which would include financial auditing of the company, before the State will recognize the license as being credited to the company. After further research, I found your website and just wanted to confirm my attorney is giving us correct information.

A:  It is true that even if you have an employee who has the appropriate license, you will still register with the Secretary of State and apply with the Contractor’s State License Board (CSLB).  While it’s possible for the licensing process to take 6-8 months for various reasons, the standard process usually takes closer to 2-3 months.  Further, the CSLB does not perform any financial auditing of the company when you apply for a Contractor’s License.

Q:  In Nevada, my company holds an “A-17” (Lines to Transmit Electricity) license.  What type of license is required for erecting cell towers in California?

A:  The “A” or General Engineering classification would be the most appropriate license for installing cell towers in California.

Q:  If my past customers like my work and refer me to one of their friends and I end up closing a sale, it appears that I can pay them a referral fee of let’s say 500.00; because they are not under any licensing authority and not another contractor. I just want to make sure this is ok. While B&P Code Section 7157(d) clearly states that it is not legal for one contractor to pay any type of inducement (i.e. kickback) to another contractor, the law apparently does not include non-contractors.

A: You are correct that referral fees, sometimes called inducements or kickbacks, are not permitted from one contractor to another.  However that being said #1, if you refer to the rest of Code Section 7157, specifically 7157(a), a contractor cannot give compensation or reward of any kind (except as referred to in subsection (b)) to an owner for referring sales involving Home Improvement Contracts.

#2, Subsection (b) allows a contractor or salesperson to give “tangible items to prospective customers for advertising or sales promotion purposes where the gift is not conditioned upon obtaining a contract for home improvement work if the gift does not exceed a value of five dollars ($5) and only one such gift is given in connection with any single transaction.”  Therefore, the scenario you suggested in which you give your customers compensation of $500 for referring your services is wrong and not permitted.

Home Improvement Sales or HIS Primer

Having assisted contractors from across the west over more than 30 years this is new. As it is likely to affect many and currently ongoing it bears taking time to share this contractor’s issues, although not in a question form…

Q:  The new HIS Home Improvement Salesperson regulations has created a bad situation: Basically, an HIS salesperson can work for as many contractors as they want, and they must be ‘W-2’ and be on my Worker’s Compensation Insurance. They (ie,the Legislature) have created a brokerage potential which is happening all over CA with past mortgage guys exploiting this. Now an HIS can represent 10 contractors and take control over the market. This gives the HIS control with no skin in the game, no general liability, no workers comp of their own, etc. This takes all control away from the contractor that has experience, studied, took a test, licensed, bonded, insured, etc. In So Cal these guys have brokerage with 10 or 15 HIS reps and have deals set up with lots of contractors and its making a mess with over pricing and taking deals with whoever will pay them the most. I feel this needs to be just like Real Estate, there should be testing and a license required. They should work for one contractor and the contractor maintains control over the employees. I don’t allow my HIS to work for anyone but us, but it is really causing issues in the market, especially solar.

 

A:  Let’s see if I can help. You referred to the “new” HIS (Home Improvement Salesperson) regulations. The only “new” law, which took effect on January 1, 2016, removed the requirement for an HIS individual to register separately with the CSLB for each contractor that employs them.  So, they basically register with the CSLB once, and then they are permitted to work for as many licensed contractors as they’d like.  The new law also rests the responsibility of notifying the CSLB with the licensed contractor.  The licensed contractor is required to notify the CSLB with the appropriate form prior to employing a registered HIS, and within 90 days after their employment ends. Okay?

As you likely already know, Home Improvement Salespeople (HIS) serve the purpose of soliciting, selling, negotiating, or executing home improvement contracts for licensed contractors.  There are no experience or educational requirements because they are not permitted to perform any contracting/construction work.  Because there are no qualifications for an HIS employee (besides being 18 years of age), I’m not sure what they would be tested on.  Essentially HIS employees are just like any other CA resident in that we are all free to work for as many employers as we’d like and our time allows (with the exception of course, of contract employees). What do you think about this?

If other contractors share this concern please contact Capitol Services so we can gauge the affects this may have, and other issues that may arise on this issue and update our readers.