A contractor license in California is a valuable credential that carries with it certain responsibilities. It is important for a contractor to be aware of the laws connected with their license.
The First Rule for a Licensed Contractor
Rule number one for contractors is: no license = no money. To be entitled to sue for compensation, a contractor must be “duly licensed” at all times during the performance of the work (Business & Professions Code 7031).
“Duly licensed” does not simply mean having the proper license for the type of work you are performing. You can be considered “unlicensed” if you fail to obtain or maintain workers compensation insurance, or perform work outside the scope of your license, or continue to act as the contracting party with an expired contractor license.
CSLB License Requirements for Business Entities
Corporations, limited liability companies (LLCs) and partnerships must use a licensed individual to qualify the business for a license. Individuals can act as a license qualifier by being a Responsible Managing Employee (RME), Responsible Managing Officer (RMO) or in the case of a limited liability company, a Responsible Managing Member (RMM).
Business and Professions Code section 7068.1 states, in part, that the person qualifying on behalf of an individual or firm shall be responsible for exercising that direct supervision and control of his or her employer’s or principal’s construction operations as is necessary to secure full compliance with the laws, rules and regulations relating to the construction operations.
“Direct supervision and control” includes any one or combination of the following activities: supervising construction, managing construction activities by making technical and administrative decisions, checking on jobs for proper workmanship, or direct supervision on construction sites.
If you are a licensee qualifying a business for a license, make sure you are aware of all contracting activity and that your involvement in business operation meets the minimum state requirements.
Disassociation of a License Qualifier
Contractors who obtain a license using an RMO, RME, or RMM as a qualifier for a license have 90 days after the date of disassociation of the qualifier to replace the qualifier. Upon failure to replace the qualifier within 90 days after the date of disassociation, the license will be automatically suspended, or the classification removed. The statute provides limited exceptions.
Simply hiring a new RMO, RME, or RMM will not automatically requalify the license. An application to replace the qualifier must be filed with CSLB along with the application fee.
Fictitious Business Names (DBAs) Should Be Registered with the CSLB
In a limited exception to the general rule, a mechanics lien recorded using the contractor’s DBA (fictitious name) was not invalid even though the licensed contractor did not list his DBA with the CSLB (Ball vs. Steadfast-BLK 196 Cal.App.4th 694).
The best practice is to ensure that all business documentation, including stationary, contracts, invoices, and advertising materials reference the exact business name and license number as listed on the CSLB’s license records, and to notify CSLB of any changes to DBA name, see B&P §7083 for details.
Licensing for LLCs
Limited Liability Companies can apply for contractor licenses in California.
The license requirements for an LLC are more onerous than they are for corporations and include a $100,000 surety bond, which is in addition to the license bond for $15,000 and a minimum of $1,000,000 in general liability insurance.
Note that the requirement for LLCs to post a $100,000 bond may make LLCs more attractive litigation targets for plaintiff’s attorneys.
Contractors Must Be Properly Licensed at All Times During Performance
MW Erectors, Inc. v. Niederhauser Ornamental and Metal Works Co., Inc. (2005) 36 Cal.4th 412,425.
A subcontractor was barred from collecting construction funds owed to it, despite the fact it was only improperly licensed for a short time during performance of its work on the project at issue. This case confirmed the requirement that contractors must be properly licensed “at all times” during contract performance.
If you have any questions or comments regarding this article, please do not hesitate to contact Scott Green at The Green Law Group, LLP.
Please note that this article is only intended to provide some general educational information. For your legal questions, be sure and consult with an attorney.
Scott Green | (805) 306-1100 ext. 114 | scott@thegreenlawgroup.com