Today there are nearly 290,000 contractors licensed in California. This number continues to grow as California law requires businesses or individuals who alter any road or structure to be licensed contractors if the total cost of the project is $500 or more (including labor and materials). Complaints about improper and defective work performed by contractors are constantly filed with the California Contractors State License Board (“CSLB”) and any violations by those contractors could result in a license suspension. A contractor whose license is suspended by the CSLB or otherwise becomes unlicensed jeopardizes a contractor’s livelihood, compromises current insurance policies, and curtails an ability to obtain future insurance coverage. Moreover, being unlicensed could force a contractor to disgorge all money received on a project per California Business & Professions Code § 7031. What can contractors do to stay vigilant and avoid these scary outcomes? Stay tuned for a few suggestions.
- Stay Qualified
Contractors must make sure the correct person and/or entity is holding the contractor’s license. Contractors can obtain licenses as a sole owner, partnership, corporation, joint venture, or limited liability company. For any form of the business entity, one individual must act as qualifier to meet the CLSB license requirements. This qualifying individual must have the knowledge, experience, and skills to manage the daily activities of a construction business (including field supervision) or be represented by someone else with at least four years of experience within the past ten years as an unsupervised journeyperson, foreperson, supervising employee, or contractor in the trade being applied for.
When applying as a sole ownership, an individual must be the owner or a responsible managing employee (“RME”) permanently employed by the contractor and working 32+ hours each week. For partnerships, either general partner or RME will suffice. For corporations, officers designated as a responsible managing offer (“RMO”) or their RME can qualify. Limited liability companies are also allowed to have responsible managing members or managers to serve as the qualifier.
But wait, there’s more! Please note: The CSLB requirements for the qualifying individual became more stringent this year to ensure that bona fide, permanent, likely full-time, and senior employees are the ones seeking licensure. Additionally, one person cannot serve as the qualifier for more than one active license, except in specific conditions.
- Stay in Your Lane
Contractors must also make sure they are not acting outside of their license scope. Contractors in California can hold up to 44 different license classifications in 4 different license categories: Class A (General Engineering Contractor), Class B (General Building Contractor), Class B-2 (Residential Remodeling Contractor), and Class C (Specialty Contractor). Contractors are only allowed to perform work outside of their license classification in limited circumstances. For example, contractors only holding a Class B General Building Contractor license can self-perform the framing and carpentry work on the same project or self-perform two or more separate and unrelated trades other than framing or carpentry on the same project. Otherwise, a contractor holding the necessary specialty license must perform the work. It is always good to know your basic ABCs.
- Stay Covered
Contractors must ensure they have the proper insurance coverage – including workers compensation insurance. Nearly all construction contracts will include provisions requiring the contractor to maintain a certain type and/or level of insurance. Being a contractor with continuous Commercial General Liability insurance policy is key to protect a contractor’s current and future business. Additionally, California law requires contractors to maintain workers compensation insurance, with few exceptions. Under California Business and Professions Code § 7110, a contractor’s license may be suspended or revoked if the contractor fails to secure proper workers compensation insurance. Therefore, a licensed contractor could have its license revoked simply because it did not have the necessary workers compensation insurance coverage throughout the project.
- Stay in Touch
In sum, staying vigilant is a better than being in violation. Contractors should make sure they are compliant with their license status, qualifying personnel, and insurance requirements at all times. The CSLB website is a wealth of information for persons wanting to stay up to date on contractor licenses, updates to licensing requirements, and frequently asked questions. Staying in touch with the applicable rules and regulations will help contractors avoid licensing mistakes that can continue to haunt them for years to come.