CALIFORNIA CONTRACTOR’S LICENSE LAW REQUIREMENTS FOR OUT-OF-STATE CONSTRUCTION CONTRACTORS

Unlike California, many states do not require construction contractors, subcontractors or builders to have experience, pass qualifying tests, have minimal financial resources, or obtain a State License to be able to engage in the construction contracting business in their state.

California, by contrast, has a very strict comprehensive, and long-established Contractors State License Law, which does require all persons or entities who perform construction work for others to have such demonstrated pre-qualifications.

The law requires anyone who acts as a "Contractor" to have a State License.

"(a) Unless exempted from this chapter, it is a misdemeanor for a person to engagein the business of, or act in the capacity of, a contractor within this state under either of the following conditions:

(1) The person is not licensed in accordance with this chapter.

(2) The person performs acts covered by this chapter under a license that is under suspension for failure to pay a civil penalty or to comply with an order of correction, pursuant to Section 7090.1, or for failure to resolve all outstanding final liabilities, pursuant to Section 7145.5.

(b) A first conviction for the offense described in this section is punishable by a fine not exceeding five thousand dollars ($5,000) or by imprisonment in a county jail not exceeding six months, or by both that fine and imprisonment. "(Emphasis added).

Bus. & Prof. Code § 7028.

As stated above, acting as a "contractor" without a license is a penal offence, a misdemeanor.

"Contractor" has a very broad definition under the California License Law:

"Contractor," for the purposes of this chapter, is synonymous with "builder"" and, within the meaning of this chapter, a contractor is any person who undertakes to oroffers to undertake to, or purports to have the capacity to undertake to, or submits abid to, or does himself or herself or by or through others, construct, alter, repair, addto, subtract from, improve, move, wreck or demolish any building, highway, road, parking facility, railroad, excavation or other structure, project, development orimprovement, or to do any part thereof, including the erection of scaffolding or otherstructures or works in connection therewith , or the cleaning of grounds or structures in connection therewith, or the preparation and removal of roadway construction zones, lane closures, flagging, or traffic diversions, or the installation, repair, maintenance, or calibration of monitoring equipment for underground storage tanks, and whether or not the performance of work herein described involves the additionto, or fabrication into, any structure , project, development or improvement herein described of any material or article of merchandise. "Contractor" includes subcontractor and specialty contractor. "Roadway" includes, but is not limited to, public or city streets, highways, or any public conveyance." (Emphasis added).

Bus. & Prof. Code § 7026.

Consequently, anyone who enters into a contract to perform construction work or who performs construction work for others - either under a direct contract or as a subcontractor - must have a license, even if they hire licensed subcontractors to do the actual construction work, or even if they are acting as a subcontractor to an otherwise duly licensed general contractor!

The principal exception to the California License requirement is for someone who acts as an Owner-Builder, constructing a building for one's self on one's own property, and not for commercial purposes or immediate resale.

"(a) This chapter does not apply to any of the following:

(1) An owner who builds or improves a structure on his or her property, provided that both of the following conditions are met:

(A) None of the improvements are intended or offered for sale.

(B) The property owner personally performs all of the work or any work not performed by the owner is performed by the owner's employees with wages as their sole compensation.

(2) An owner who builds or improves a structure on his or her property, provided that both of the following conditions are met:

(A) The owner directly contracts with licensees who are duly licensed to contract for the work of the respective trades involved in completing the project.

(B) For projects involving single-family residential structures, no more than four of these structures are intended or offered for sale in a calendar year. This subparagraphshall not apply if the owner contracts with a general contractor for the construction .

(3) A homeowner improving his or her principal place of residence or appurtenances thereto, provided that all of the following conditions exist:

(A) The work is performed prior to sale.

(B) The homeowner has actually resided in the residence for the 12 months prior to completion of the work.

(C) The homeowner has not availed himself or herself of the exemption in this paragraph on more than two structures more than once during any three-year period. . . ." (Emphasis added).

Cal. Bus. & Prof. Code § 7044.

The License Law does not - and Constitutionally cannot - apply to contractors working for the U.S. government on Federal property, although their contracts with the U.S. could require California licensure as a means of demonstrating competence or experience in a trade.

And, of course the License requirement does not apply to entities who only furnishes materials or equity to the proect, and who does not install them or affix them to the property. Another exception is for a person who acts only as a "Construction Manager" on a private project, and only supervises or manages a construction project being performed or built by others, and who does not perform or contract to perform any construction work (See related article).

One who acts as a "contractor" without having a proper license during the entire job may not use the Courts to collect any money owed, and the License Law also allows someone

who has hired and paid an unlicensed contractor to bring a legal action to recover all money paid to the unlicensed contractor.

"(a) Except as provided in subdivision (e), no person engaged in the business or actingin the capacity of a contractor, may bring or maintain any action, or recover in lawor equity in any action, in any court of this state for the collection of compensation forthe performance of any act or contract where a license is required by this chapter without alleging that they were a duly licensed contractor at all times during the performance of that act or contract regardless of the merits of the cause of action brought by the person,. "

"(b) Except as provided in subdivision (e), a person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction inthis state to recover all compensation paid to the unlicensed contractor forperformance of any act or contract "

(Emphasis added).

Bus. & Prof. Code § 7031.

These provisions apply even if the other party knew from the beginning that the builder was unlicensed, and intended to cheat or defraud the unlicensed contractor.

In one case the unlicensed out-of-state material supplier and installer who was unfamiliar with the California License Law requirements was hired by an owner to install certain equipment, which it also made and furnished.

The owner refused to pay due to the non-licensed status of the supplier, and the supplier sued, alleging the owner intended from the beginning to not pay, and to defraud them.

The Court rejected this attempted end run around the provisions of Section 7031, and held:

Hydrotech Sys., Ltd. v. Oasis Waterpark, 52 Cal. 3d 988, 997-98 (1991)

The contractor licensing requirement also cannot be circumvented by subcontracting with a licensed construction contractor to perform the actual construction work, or by the unlicensed entity acting as a subcontractor to a licensed contractor.

"The fact that VDC subcontracted with licensed contractors to provide the actual labor, equipment and materials to construct the infrastructure improvements is irrelevant. Section 7026 plainly states that both the person who provides constructionservices himself and one who does so "through others" qualifies as a "contractor." The California courts have also long held that those who enter into construction contracts must be licensed, even when they themselves do not do the actual workunder the contract . (See Currie v. Stolowitz (1959) 169 Cal.App.2d 810, 815-816 [338 P.2d 208]; Hollywood T. C. Co. v. Structural P. C. Bd. (1949) 95 Cal.App.2d 56, 58-59 [212 P.2d 278].) Indeed, if this were not the rule, the requirement that general contractors be licensed would be completely superfluous. VDC cannot hide behindthe fact that licensed contractors installed the site improvements which it agreed to complete ."

"It is also irrelevant that respondents knew all along that VDC was not a licensed contractor. (Hydrotech, supra, 52 Cal.3d at pp. 997-998.) Indeed, section 7031 bars even an unlicensed contractor's claim for fraud when the deceit alleged was a false promise by the consumer of construction services to obtain a contractor's license for the party seeking compensation. (Hydrotech, supra, 52 Cal.3d at pp. 993.)"(Emphasis added).

Vallejo Dev. Co. v. Beck Dev. Co., 24 Cal. App. 4th 929, 941 (1994)

To obtain a contractor license, an owner or permanent employee of a business (the "qualifying individual", sometimes referred to as the "qualifying" or "Responsible Managing Officers" or "Responsible Managing Employee", or "RMO" or "RME") must meet the state experience requirements, pass a test on technical and legal matters (except for limited speciality licenses), and post a $25,000 license bond to protect consumers.

"(a) Under rules and regulations adopted by the board and approved by the director, the registrar shall investigate, classify, and qualify applicants for contractors' licensesby written examination. This examination shall include questions designed to showthat the applicant has the necessary degree of knowledge required by Section 7068and shall include pertinent questions relating to the laws of this state and thecontracting business and trade .

(b) Contractors' licenses are to be issued to individual owners, partnerships, corporations, and limited liability companies in accordance with this chapter.

(1) Every person who is an officer, member, responsible manager, or director of a corporation or limited liability company seeking licensure under this chapter shall be listed on the application as a member of the personnel of record.

(2) Every person who is a member of a partnership seeking licensure under this chapter shall be listed on the application as a member of the personnel record.

(c) An applicant shall qualify for licensure in accordance with this subdivision as follows:

(1) An individual owner may qualify by examination for a contractor's license uponthe appearance of the owner or a qualifying individual appearing as a responsiblemanaging employee on behalf of the owner.

(2)A partnership may qualify by examination for a contractor's license upon the appearance of a partner or a qualifying individual appearing as a responsible managing employee on behalf of the partnership.

(3) A corporation may qualify by examination for a contractor's license upon the appearance of a qualifying individual appearing either as a responsible managing officer or a responsible managing employee on behalf of the corporation.

(4) A limited liability company may qualify by examination for a contractor's license upon the appearance of a qualifying individual appearing as a responsible managing officer, a responsible managing manager, a responsible managing member, or aresponsible managing employee on behalf of the company "(Emphasis added).

Bus. & Prof. Code § 7065.

Thus, it is an individual who must apply for and obtain the appropriate license for the work to be performed, and a corporation, partnership or Limited Liability Company obtains a license by having one of its owners or permanent employees obtain a personal contractor's license.

California residence is not required, and even undocumented immigrants may obtain a contractor's - and other professional - license in California. (See related article).

California has a number of license categories for which a license can be or must be obtained, depending on the nature of the construction work to be performed by the business. https://www.cslb.ca.gov/About_Us/Library/Licensing_Classifications/C-61_Limited_Speciality/Default.aspx

"A" license, or a General Engineering" license, which authorizes one to perform contruction work typically designed by civil engineers, such as highways, public utility systems such as sewer and water, dams, bridges, etc.

"B" License, or General Building Contractor's license, which authorize one to build commercial or residential buildings and appurtenances thereto, provided that the work involves at least two trades, other than framing or carpentry.

A "C" license or Speciality Contractors License allows the hold to perform special trade work only, such as plumbing, electrical, HVAC, fire protection systems, landscaping, etc.

A "D" or a type of C-61 license is a very narrow sub- subspecialty which is restricted to very very narrow scopes of work such as scaffolding, mechanical equipment installation, etc

Although California does not have reciprocity with other states that have licensing laws, having a license in another state may make it easier demonstrate the experience needed to get a California license.

The RME must actually work for the company at least 32 hours per week.

"(c)(1) For purposes of this chapter, "a responsible managing employee" means an individual who is a bona fide employee of the applicant and is actively engaged in the classification of work for which that responsible managing employee is the qualifying person on behalf of the applicant.

(2) For purposes of this subdivision, the following definitions apply:

(A) "Bona fide employee of the applicant" means an employee who is permanently employed by the applicant.

(B) "Actively engaged" means working 32 hours per week, or 80 percent of the total hours per week that the applicant's business is in operation, whichever is less."

(Emphasis added).

The RMO or RME must actually "supervise", at least to some extent, the California Construction projects of the business.

(a) The person qualifying on behalf of an individual or firm under paragraph (1), (2), (3), or (4) of subdivision (b) of Section 7068 shall be responsible for exercising supervision and control of their employer's or principal's construction operations tosecure compliance with this chapter and the rules and regulations of the board . . . . "(Emphasis added).

Bus. & Prof. Code § 7068.1.

"A variety of activities can constitute direct supervision and control, including "‘one or any combination of the following activities: supervising construction, managing construction activities by making technical and administrative decisions, checkingjobs for proper workmanship, or direct supervision on construction job sites .'" (Acosta v. Glenfed Development Corp. (2005) 128 Cal.App.4th 1278, 1299 [28 Cal. Rptr. 3d 92], quoting Cal. Code Regs., tit. 16, § 823, subd. (b).)" (Emphasis added).

Jeff Tracy, Inc. v. City of Pico Rivera, 240 Cal. App. 4th 510, 519 (2015).

"[A] party to a contract [may] challenge the bona fides of a contractor's RME in a civil suit. If the RME was a sham, the contractor is barred from recovery because heor she is, in effect, acting outside the license, just like a specialty contractor wholabors at a task for which he or she has no expertise nor license . ( Rushing v. Powell, supra, 61 Cal. App. 3d at p. 606 ["Anderson did not participate in the business at all, thus violating the statute and rendering the purported C-53 license a nullity"].) In such case the contractor has evaded the skill and knowledge requirements, leaving the consumer unprotected. That is the evil targeted by section 7031, which is designed to be used as a shield by consumers of contracting services. Further, upon disassociation of the RME, the license is automatically suspended (§ 7068.2) therefore the contractor is no longer "duly licensed" and may not bring suit. (§ 7031, subd. (a).)."(Emphasis added).

Buzgheia v. Leasco Sierra Grove, 60 Cal. App. 4th 374, 386-87 (1997)

Consequently, if the RMO or RME fails to perform this supervisory function, a Court may determine that he or she was just a "sham", and that the business was therefore not properly licensed, with all the consequences discussed above regarding Section 7031 of the License Law.