BILL ANALYSIS
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|Hearing Date:June 8, 2009 |Bill No:AB |
| |370 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Gloria Negrete McLeod, Chair
Bill No: AB 370Author:Eng
As Amended:March 23, 2009Fiscal: Yes
SUBJECT: Unlicensed contractors.
SUMMARY: Increases the maximum criminal fines for unlicensed
contractors; requires a mandatory jail sentence for a third or
subsequent conviction for unlicensed contracting; clarifies that the
enhanced penalties for persons with prior unlicensed activity
convictions applies not only for performing work, but also for
offering to perform or submitting a bid to perform contracting work.
Existing law:
1)Licenses and regulates more than 250,000 contractors by the
Contractors State License Board (CSLB) within the Department of
Consumer Affairs (DCA).
2)Makes it a misdemeanor for an unlicensed person to engage in the
business or act in the capacity of a contractor and makes a
first offense punishable by imprisonment in the county jail for
up to six months, or by a fine up to $1,000, or both.
3)Establishes enhanced penalties imposed by the court for a repeat
unlicensed contractor offender:
a) For a second conviction, a fine of 20% of the price of the
contract under which the unlicensed person performed
contracting work or $4,500, whichever is greater, and
imprisonment in the county jail for not less than 90 days, as
specified.
b) For a third or subsequent conviction, a fine of $4,500 to
$10,000 or 20% of the contract price under which the
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unlicensed person performed contracting work or by
imprisonment in the county jail for 90 days to one year, as
specified.
c) Provides that the enhanced penalties also apply to an
unlicensed person who has been named on a previously revoked
license and was the person found responsible for the act or
omission which resulted in the revocation.
4)Makes it a felony or a misdemeanor (wobbler) for an unlicensed person
to engage in the business or act in the capacity of a contractor
when a state of emergency is proclaimed by the Governor or the
President of the United States, punishable by a fine up to
$10,000 or 16 months to 3 years in state prison, or both fine
and imprisonment, or by imprisonment in the county jail for up
to one year, or by a fine up to $1,000, or both.
5)Requires the court to order defendants convicted of a crime to pay
restitution to the victim, as specified.
6)Provides that a person who uses an unlicensed contractor may bring a
civil action to recover all compensation paid to the unlicensed
contractor.
This bill:
1) Makes a first conviction for unlicensed contracting
punishable by a fine up to $5,000 or by imprisonment in the
county jail for up to six months, or both.
2) Requires the fine for a second conviction be the greater of
20% of the price of the contract, 20% of the aggregate payments
made to, or at the direction of, the unlicensed contractor, or
$5,000.
3) Requires a third or subsequent conviction to be punishable
by both a fine and imprisonment in a county jail for 90 days to
one year. Requires a fine of $5,000 to $10,000, 20% of the
price of the contract, or 20% of the aggregate payments made to,
or at the direction of, the unlicensed contractor.
4) Provides that, for any conviction of unlicensed
contracting, a person who utilized the services of the
unlicensed contractor is a victim of crime regardless of whether
the person knew the contractor was unlicensed.
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5) Clarifies that the enhanced penalties for repeat convictions
for unlicensed contracting applies to unlicensed persons who perform
or who offer to perform contracting work.
FISCAL EFFECT: The Assembly Appropriations Committee analysis dated
April 22, 2009 cites a potential increase in fine revenue to local
governments from increased penalties and potential increase in
non-reimbursable costs for mandatory jail sentences upon a third or
subsequent conviction for operating without a contractor's license.
COMMENTS:
1.Note : Last Year's AB 2412 (Eng). This bill is a reintroduction
of last year's AB 2412 by the same Author which was one of an
unprecedented number of bills that were vetoed by the Governor
citing the delay in passing the Budget. That bill passed this
Committee on an 8-0 vote.
2.Purpose. This bill is Sponsored by Los Angeles City Attorney
Rocky Delgadillo (Sponsor) to require that restitution be made
to victims of unscrupulous unlicensed contractors regardless if
that person had knowledge that the contractor was unlicensed.
The Sponsor states, this bill increases the maximum potential
fine for a first offense from $1,000 to $5,000. For a second
and subsequent offense, this measure increases the mandatory
fine up to $5,000. Third offenders will also be required to
serve a mandatory jail sentence. Finally, the bill would
clarify that mandatory minimum sentence for repeat offender
applies to unlicensed contractors who submit bids for
contracting work, according to the Sponsor.
3.Background. The Sponsor states the following:
"Contractor fraud, most of which involves unlicensed
contractors, consistently ranks in the top ten lists of
consumer complaints both nationally and statewide. According
to the U.S. Office of Consumer Affairs, unscrupulous
contractors defraud consumers of more than $100 billion
annually. In addition to the financial loss they cause,
unlicensed contractors generally do not obtain proper
insurance, leaving their workers without any protection and the
homeowner potentially liable.
"Business and Professions Code 7031(b) states that a person who
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uses an unlicensed contractor may bring a civil action to
recover all compensation paid to the unlicensed contractor.
However, no statute specifically addresses the issue of
criminal restitution for victims of unlicensed contractors.
Unlicensed contractors are the beneficiaries, retaining the
monies paid them by crime victims which the civil statutes
require to be disgorged.
"Additionally, Business and Professions Code 7028 only
penalizes unlicensed contractors who performed contracting
work. Such individuals continue to demonstrate a blatant
disregard for the law and represent a risk to consumers.
According to the CSLB, the more stringent penalties of existing
law cannot be brought against a previously convicted
non-licensee who submits bids for construction work and no work
is performed. As a result, law-abiding contractors and
consumers lose thousands of dollars and waste valuable time
sorting between legal and illegal contractors."
4.Battling the Underground Economy. The underground economy is an
ongoing threat to California's citizens and legitimate businesses.
Illegal and unlicensed operators who fail to pay taxes and comply
with licensing and insurance laws take revenues earmarked for public
schools, law enforcement, and other public services. It is
estimated that California loses between $60 to $140 billion in
revenues and unpaid taxes each year as a result of the underground
economy.
In battling the underground economy, in 2006, the CSLB joined with
various state and federal regulators to form the Economic and
Employment Enforcement Coalition (EEEC) performing 12 construction
sweeps. In addition the CSLB continued its proactive enforcement
efforts with its Statewide Investigative Fraud Team (SWIFT) carrying
out more than 40 undercover sting operations in 2006, targeting
unlicensed operators and repeat offenders.
Through these efforts, the CSLB is able to initiate action against
numerous unlicensed contractors and repeat unlicensed offenders.
These unlicensed persons are typically cited or arrested, and cases
are referred to local district attorneys for prosecution.
Since the violations occur during a sting operation, no contracting
work is actually performed, regardless of the expressed intention to
perform the services. District attorneys have been unable to apply
the enhanced misdemeanor penalties under existing law for repeat
unlicensed offenders who only offer but do not actually perform
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contracting work.
5.Prior Legislation. SB 797 (Ridley-Thomas, Chapter 33, Statutes of
2008), among other things, provides that the misdemeanor penalties
for unlicensed contracting, including the enhanced penalties, also
apply to an unlicensed person who has been named on a previously
revoked license and was the person found responsible for the act or
omission which resulted in the revocation.
SB 488 (Soto, Chapter 205, Statutes of 2005), enhances penalties for a
third and subsequent convictions for contracting without a license
and provides that it is a misdemeanor for the qualifying person of a
contractor's license to violate workers' compensation insurance
requirements.
SB 443 (Figueroa, Chapter 706, Statutes of 2003), requires a court of
law to sentence repeat offenders of unlicensed contracting activity
to county jail for not less than 90 days.
6.Arguments in Support. The California Landscape Contractors
Association (CLCA) writes that unlicensed contracting is a serious
problem in the landscaping industry and harms the public, creates
unfair competition for contractors who obey the rules, and puts
construction workers at risk of financial loss and personal injury.
Unlicensed "contractors" frequently obtain large cash advances from
homeowners for work that is never completed or that is preformed in
a substandard manner, according to CLCA.
The California Spa and Pool Industry Education Council argues that the
threat of meaningful penalties for violating contractor licensing
laws will help reduce the underground economy which costs California
millions in lost revenues each year.
The Congress of California Seniors believes the bill will assist older
victims that are most susceptible to exploitation.
The Engineering Contractors Association , the California Fence
Contractors Association , the Marin Builders Exchange , the
Flasher/Barricade Association , and the California Chapter of the
American Fence Contractors Association contend that the bill would
help legitimate contractors and consumers by combating the
underground economy, meaning unlicensed contractors.
NOTE : Double-referral to Public Safety Committee
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SUPPORT AND OPPOSITION:
Support:
Los Angeles City Attorney Rocky Delgadillo (Sponsor)
Contractors State License Board
American Federation of State, County and Municipal Employees
(AFSCME), AFL-CIO
Associated Builders and Contractors of California
California Chapter of the American Fence Contractors Association
California District Attorneys Association
California Fence Contractors Association
California Landscape Contractors Association
California Professional Association of Specialty Contractors
California Spa and Pool Industry Education Council (SPEC)
California State Council of Laborers
Congress of California Seniors
Construction Industry Legislative Council (CILC)
Engineering Contractors Association
Executive Council of Homeowners
Flasher/Barricade Association
Marin Builders Association
Western Electrical Contractors Association
Opposition:
None on file as of June 2, 2009.
Consultant:G. V. Ayers