As we ring in the new year, we welcome new laws, some of which will impact California contractors. In August 2013, California Governor Jerry Brown signed SB 262 into law (effective January 1, 2014), which is intended to curtail abuses in California’s licensing system. Recently, California has been plagued with licensed contractors “renting” out their licenses to unlicensed construction companies and then failing to supervise and control the construction, leading to substandard work.

In California, under the Contractors’ State License Law, an applicant for a contractor’s license can obtain a license from the Contractors State License Board (CSLB) even if that applicant has not met the licensing knowledge and experience requirements (this includes, for example, entities like limited liability companies which, by virtue of being an entity, do not have such required knowledge and experience). The applicant can become licensed through a “qualifier” (someone who does meet the licensing knowledge and experience requirements and passes a written examination), so long as that qualifier exercises direct supervision and control of the applicant’s construction operations. In other words, the person who furnishes the knowledge and experience that is required for licensure has the responsibility to ensure that construction work performed by the licensee complies with all relevant laws and building codes.

Unfortunately, CSLB has determined that many qualifiers allow home improvement or other contracting operations to use their license (sometimes for a monthly fee) without having direct participation in or active involvement with such operations. According to the CSLB Registrar of Contractors, Stephen Sands, “The licensees haven’t been involved in day-to-day operations or projects, and in some cases, have no knowledge whatsoever of the company’s activities.” This has led to negligent, illegal and fraudulent activities being carried out by companies in which the qualifier was unaware of the activity because he or she wasn’t overseeing the job, as required.

An amendment to the California Business & Professions Code now enables CSLB to take strong action against qualifiers who fail to exercise their duty to directly supervise and control construction activities being performed under their license. The amendment (to Section 7068.1 of the Code) authorizes CSLB to discipline a license qualifier, not only with administrative penalties, but by misdemeanor prosecution (punishable by up to six months in county jail, a fine of $3,000 to $5,000, or both). A representative from the California Spa & Pool Industry Education Council, an association whose lobbying efforts are to thank for the amendment, supported the new law by stating that “Consumers will be confident if they know a qualifier is ultimately responsible for job supervision, managing construction activities, making technical and administrative decisions, checking jobs for proper workmanship, and is directly supervising the work site.”

California contractors who choose to be a qualifier should be aware of other restrictions under California law, which are as follows:

• A California contractor cannot act as a qualifier for an additional individual or entity unless there is a common ownership of at least 20%.
• An additional entity may be a subsidiary or joint venture of the initial licensed company so long as at least 20% of the equity in the subsidiary is owned by the initial licensed company.
• A qualifying individual cannot act as the qualifier for more than 3 entities in any one year period.