Relief for Licensed Contractors

California's Fifth Appellate District has finally clarified a long-standing rule that often punished contractors who changed their business organizational structure during the course of the execution of a contract.  Until now, Business & Professions Code section 7031, which precludes an unlicensed contractor from pursuing an action for recovery of sums due, was often utilized by owners who didn't want to pay their contractors.  Prior cases have been interpreted to argue a contractor who changed from, for example, a sole proprietorship to a corporation during the term of a contract with a gap in the transfer of the license by the CSLB, was not licensed "at all times" during the performance of the contract, and therefore, could not pursue payment due.

No longer.  In E.J. Franks Construction, Inc. v. Bhupinder K. Sahota, et al. (6/5/14, 5th District case no. F066327, certified for partial publication), Franks became a licensed general contractor in 1995 and operated a sole proprietorship named E.J. Franks Construction.  He entered into a construction contract with Sahota in September 2004, and began work promptly thereafter.  During construction, Franks incorporated under the name E.J. Franks Construction, Inc., and had his license transferred to the corporation.  When the Sahota project was about 90% complete in the spring of 2006, the Sahotas refused to let Franks complete the work, and hired another contractor to finish the job.

The claim pertinent for discussion here was the Sahotas' claim that Section 7031 was a complete bar to Frank's recovery of sums due.  The Court of Appeal analyzed the statute extensively, commenting its purpose was directed at precluding unlicensed contractors from maintaining actions for compensation; that is, the statute is a deterrent to the practice of unlicensed contracting. 

Here, however, the Court of Appeal held that "at no time was the work on the Sahotas' home performed by any unlicensed contractor."  All of the cases cited by the Sahotas involved execution of construction during periods wherein the contractor was briefly unlicensed, or the license lapsed during construction before being reinstated.  That was not the case here:  "this case involves a licensed contractor and a change in business entity status...applying section 7031 to the circumstances here would lead to absurd results."  The purpose of the statute is to deter unlicensed contractor activity, not to deter "licensed contractors from changing a business entity's status, and obtaining a reissuance of the license to the new entity, during a contract period."

This is good news for contractors struggling with the timing of changing entity status, and securing transfer of the license to the new entity, all while ensuring construction contracts are entered into with the proper entity.  With this important clarification, contractors who are diligent in getting their license transferred with the CSLB should be relieved from this distraction.

Interested in incorporating or establishing an LLC?  Questions?  Comment, or send me an email, and let’s discuss. 

Nothing in this blog is intended to create an attorney-client relationship.  This article is intended to provide a general overview of the current status of the law for informational purposes only, and is not intended to constitute, or serve as a substitute for, a professional legal consultation.  Laws change every day; please consult an attorney regarding the current status of the law, and how the law affects your specific circumstances. Thank you.

New FEE to Do Business in the State of California

Every contractor, whether you are a general or specialty subcontractor, will now be required to pay an annual $300 fee to the Department of Industrial Relations if you wish to bid on or perform work upon any public work project anywhere within the State of California.  This fee is purportedly to compensate the State for the time spent monitoring your jobs to ensure labor/hours/wage compliance.

The new "registration fee" was part of a trailer bill attached to the budget recently signed by Governor Brown.

The $300 fee, payable by credit card, and registration program will be on the DIR's website starting July 1, 2014.  However, the requirement that only registered contractors and subcontractors are allowed to bid or be listed on bids does not take effect until March 1, 2015.  The requirement that only registered contractors and subcontractors be allowed to perform work takes effect April 1, 2015.

Another fee.  Also, another item for all you general contractors to double check before submitting your bids.  If one of your subcontractors listed in your bid is not properly registered, it will very likely disqualify your bid from the public entity.  Tough way to loose a job to the next lowest bidder.

Questions?  Comment, or send me an email, and let’s discuss. 

Nothing in this blog is intended to create an attorney-client relationship.  This article is intended to provide a general overview of the current status of the law for informational purposes only, and is not intended to constitute, or serve as a substitute for, a professional legal consultation.  Laws change every day; please consult an attorney regarding the current status of the law, and how the law affects your specific circumstances. Thank you.

Ninth Circuit Holds a Contractor Need Not Comply with CSLB License Law to Collect Under the Miller Act

The Miller Act (40 U.S.C. 3131, et seq.) is the exclusive bond recovery framework for contractors working on federal works of improvement.  Just recently, the Ninth Circuit Court of Appeal, in a decision certified for publication, significantly opened the playing field for contractors suing to collect sums due them.  (See Technica, LLC v. Carolina Casualty Insurance Company, et al., D.C.No. 3:08-cv-01673-H-KSC.)

In Technica, the subcontractor who “was not a licensed California contractor as required by California law” sued the general contractor and its surety for payment for work performed on a federal construction project in California.  The District Court granted the general’s and surety’s motion for summary judgment on the basis of Business & Professions Code § 7031(a), which “precludes any contractor from maintaining an action for collection of compensation for services if the contractor was not a licensed contractor during the performance of the contract.”  (Slip op. at 4.) 

Acknowledging this was a matter of first impression, the Ninth Circuit Court of Appeal reversed, holding the absence of a California contractor’s license did not bar the subcontractor from pursuing a Miller Act claim for payment under these circumstances.   Agreeing with the Eighth and Tenth Circuits, and distinguishing cases dealing with the substantive law of contracts, the panel held that rights and remedies under the Miller Act may not be conditioned upon State law. 

Specifically, the Court said, “the text of the Miller Act forecloses any argument that complying with state contractor licensing requirements is a condition to maintaining a Miller Act claim ....”  (Slip op. at 7, fn. 4.)  After discussing the Supreme Court, Eighth and Tenth Circuit cases, and distinguishing the Ninth Circuit cases cited by the general and the surety, the Court concluded:

“We therefore hold that the limitation in California Business and Professions Code § 7031(a) on the right of a non-licensed contractor to maintain an action for collection of [compensation for] unpaid services does not apply to an action under the Miller Act.  Manifestly the federal rights affording relief under a federally declared standard could be defeated if states were permitted to have the final say as to what defenses could and could not be properly interposed to suits under the Act.  [Citation.]”

In short, although not explicitly stated, the Court of Appeals seems to have invoked the “supremacy clause” (U.S. Const., Art. VI, para. 2), and as a result, the California Business & Professions Code § 7031(a) restriction does not apply to a contractor filing an action under the Miller Act.

How does this affect your business?  Questions?  Comment, or send me an email, and let’s discuss. 

Nothing in this blog is intended to create an attorney-client relationship.  This article is intended to provide a general overview of the current status of the law for informational purposes only, and is not intended to constitute, or serve as a substitute for, a professional legal consultation.  Laws change every day; please consult an attorney regarding the current status of the law, and how the law affects your specific circumstances. Thank you.

July 1, 2014 -- Minimum Wage Increase goes into effect in California

Effective July 1, 2014, minimum wage in California will increase to $9.00 per hour.  On January 1, 2016, minimum wage in California will increase to $10.00 per hour.

With minor exceptions, almost all employees in California must be paid the minimum wage as required by State law.  Employees exempt from the minimum wage law, again, generally considered minor exceptions, include outside salespersons, individuals who are the parent, spouse or child of the employer, and apprentices regularly indentured under the State Division of Apprenticeship Standards.  (See Minimum Wage Order MW-2014.)

There also is an exception for learners, regardless of age, who may be paid not less than 85% of the minimum wage, then rounded to the nearest nickel, during their first 160 hours of employment.  This applies to learners employed in occupations in which they have no previous similar or related experience.  Finally, there are exemptions for employees who are mentally or physically disabled, and for nonprofit organizations such as sheltered workshops or rehabilitation facilities who employ disabled workers.  To take advantage of such an exemption, it is recommended the organization or individual acquire a special license issued by the Division of Labor Standards Enforcement (DLSE) authorizing employment at a wage less than the legal minimum.

For more information, visit http://www.dir.ca.gov/dlse/faq_minimumwage.html.

Questions?  Comment, or send me an email, and let’s discuss. 
 

Nothing in this blog is intended to create an attorney-client relationship.  This article is intended to provide a general overview of the current status of the law for informational purposes only, and is not intended to constitute, or serve as a substitute for, a professional legal consultation.  Laws change every day; please consult an attorney regarding the current status of the law, and how the law affects your specific circumstances. Thank you.

OCTOBER 1ST DEADLINE FAST APPROACHING IF YOUR CHARITY CONDUCTS RAFFLES

The California Attorney General’s Office is reaching out, trying to educate consumers and tax-exempt organizations on some of the new, and not-so-new, rules related to raffles.  Most readers are aware that California charities and other private nonprofit organizations may conduct raffles to raise money for beneficial or charitable purposes.  This is a special exemption to the general California constitutional prohibition against lotteries.  This special exemption, however, requires, among other things, that at least 90 percent of the gross receipts from the raffle go directly to the beneficial or charitable purposes of the organization.

The question I am asked most often is:  “How can this be?  We do 50/50 raffles all the time!”  In a 50/50 raffle, charities typically pay out half of the proceeds collected as the prize, and then keep half of the proceeds for their beneficial or charitable purpose.  Therefore the answer to the question is:  50/50 raffles are illegal, because they violate the 90% rule.  (See Penal Code § 320.5(a)(4)(A).)  In other words, 90% of the funds collected are not retained for the beneficial or charitable purposes of the organization.

The first step before any charity may conduct a raffle, however, is to register with the Attorney General's Registry of Charitable Trusts prior to conducting the raffle.  The form to register can be found on the Attorney General’s website, form CT-NRP-1.  The charity is also required to file an aggregate financial disclosure report for all raffles held during the reporting year, form CT-NRP-2.  This form must be used by all charitable organizations, regardless of the number of raffles held during the reporting period, and there is no fee for filing the report. 

Importantly, the charitable organization must keep precise records; reports containing estimates of proceeds or expenses will be rejected. Organizations that conduct raffles as part of a larger fundraising event must maintain a record of the raffle proceeds and expenses separate and apart from all other monies raised at the event, and report only raffle proceeds and expenses on their annual Form CT-NRP-2.

This single aggregate report for all raffles (Form CT-NRP-2) is due on or before October 1st.

Questions?  Comment, or send me an email, and let’s discuss. 

 

Nothing in this blog is intended to create an attorney-client relationship.  This article is intended to provide a general overview of the current status of the law for informational purposes only, and is not intended to constitute, or serve as a substitute for, a professional legal consultation.  Laws change every day; please consult an attorney regarding the current status of the law, and how the law affects your specific circumstances. Thank you.

 

Form Over Substance Results in Money Out of Employer’s Pocket

A recent decision by the Ninth Circuit caught my eye.  In a decision published last Tuesday in Ketchikan Drywall Services, Inc. v. Immigration and Customs Enforcement (2013 WL 3988679 (C.A.9)), the construction-industry employer was fined $173,250.00 for several violations of section 274A(b) of the Immigration and Nationality Act (8 U.S.C. § 1324a(b)), for failing to properly complete employee I-9 forms.

Specifically, the Court ruled the employer’s failure to fill out parts of an I-9 form was a violation, even though documentation containing the information required on the form was attached to the form. The employer argued "it fully complied with its statutory obligations by copying and retaining its employees’ verification documents together with partially completed I-9 Forms, because the documents showed the employees’ eligibility for work and the forms had been signed." (2013 WL 3988679, *3.) The Ninth Circuit disagreed, holding as follows:

[C]ompliance requires that the relevant information from the documents be transcribed onto the I-9 Form, regardless of whether copies of the documents are retained. 8 C.F.R. § 274a.2(b)(3) explains that, while copying of documents is not required, it is permitted; it also goes on to explain that the copying and retention of the copy or electronic image does not relieve the employer from the requirement to fully complete section 2 of the Form I-9. ...

[Ketchikan Drywall Services] argues that it is senseless to require employer and employees to waste the time necessary to transcribe information onto I-9 Forms when that information is already available on an attached copy of the relevant document. But requiring that the parties take the time to copy information onto the I-9 Form helps to ensure that they actually review the verification documents closely enough to ascertain that they are facially valid and authorize the individual to work in the United States. The I-9 Form also provides concrete evidence that such review took place. Further, aggregation of all of the relevant information onto one form allows for easier review of that information by ICE. It is neither arbitrary nor capricious to require that employers actually complete their I-9 Forms.

(2013 WL 3988679, *3-4 (internal quotation marks, brackets, and ellipses omitted).)

A seeming triumph of form over substance to me, but then again, I'm not the person wearing the robe on the bench hearing all of the evidence.  Regardless, this is a cautionary tale to all you employers out there:  make sure all of the i’s are dotted and t’s crossed on your federal employment verification forms, or you may pay the price.

Questions?  Concerns about how pending legislation or litigation may impact your business?  Comment, or send me an email, and let’s discuss. 

Nothing in this blog is intended to create an attorney-client relationship.  This article is intended to provide a general overview of the current status of the law for informational purposes only, and is not intended to constitute, or serve as a substitute for, a professional legal consultation.  Laws change every day; please consult an attorney regarding the current status of the law, and how the law affects your specific circumstances. Thank you.

New ADA Law Affects Commercial Leases

Effective July 1, 2013, a new lease disclosure requirement codified at California Civil Code Section 1938 affects owners and lessors of commercial property.  Section 1938, part of the legislation designed to limit unwarranted lawsuits brought under the Americans with Disabilities Act (ADA), provides as follows:  A commercial property owner or lessor shall state on every lease form or rental agreement executed on or after July 1, 2013 whether the property being leased or rented has undergone inspection by a Certified Access Specialist (CASp), and, if so, whether the property has or has not been determined to meet all applicable construction-related accessibility standards pursuant to Section 55.53.

Although this new requirement seems straight-forward enough on the surface, it has raised questions about how an owner and lessor should proceed with respect to satisfying the requirement, including the potential consequences of having or not having a CASp inspection performed.  While there are no definitive answers to these questions, and probably won't be until the new legislation has been tested in the courts, some issues have been clarified by the California Commission on Disability Access ("CCDA") in the wake of this new law. 

Is your property covered by this new law?  California Civil Code Section 1938 specifically addresses "commercial" properties, which under Civil Code Section 1995.020 is defined as all properties other than for residential purposes.  The  CCDA has confirmed the provision is not applicable to residential leases.

Is the law retroactive?  The law applies to all leases or rental agreements of commercial properties executed on or after July 1, 2013. 

What if my lease was signed before the July 1, 2013 deadline, but there is a post-July 1, 2013 amendment or modification?  The CCDA has advised a lease that is entered into before July 1, 2013 but is amended or renewed on or after July 1, 2013 falls within the provisions and requirements of Civil Code Section 1938; therefore, any lease amendment or renewal must state whether or not a CASp inspection has been performed.

 

Questions?  Concerns about what to do in response to this new law?  Comment, or send me an e-mail.  I’m here to help! 

Nothing in this blog is intended to create an attorney-client relationship.  This article is intended to provide a general overview of the current status of the law for informational purposes only, and is not intended to constitute, or serve as a substitute for, a professional legal consultation.  Laws change every day; please consult an attorney regarding the current status of the law, and how the law affects your specific circumstances. Thank you.