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.