Amended in Senate April 1, 2013

Senate Bill No. 263

Introduced by Senator Monning

(Principal coauthor: Assembly Member Achadjian)

February 13, 2013

An act to amend Sections begin delete 7028, 7031, end delete begin insert 7028 end insert and 7114 of, to add Section 7026.4 to, and to repeal and add begin delete Section end delete begin insert Sections 7031 and end insert 7118 of, the Business and Professions Code, relating to contractors.

LEGISLATIVE COUNSEL’S DIGEST

SB 263, as amended, Monning. Contractors: unlicensed activity.

The Contractors’ State License Law provides for the licensure and regulation of contractors by the Contractors’ State License Board within the Department of Consumer Affairs. The law prohibits a person engaged in the business or acting in the capacity of a contractor from bringing an action for collection of compensation for the performance of an act or contract for which a contractor’s license is required without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract.

This bill, instead, would begin delete prohibit a person engaged in the business or acting in the capacity of a contractor from bringing an action for collection of compensation for the performance of an act or contract for which a contractor’s license is required without alleging that he or she was duly licensed during the performance of that act or contract for which the person is seeking compensation. end delete begin insert require as a condition of bringing an action to collect payment for the performance of any act or contract that a contractor be duly licensed during the performance of the act or contract. end insert The bill would define “duly licensed” for purposes of these provisions, and would make other conforming changes.

The Contractors’ State License Law makes it a misdemeanor for a person to engage in the business or act in the capacity of a contractor without having a license, unless the person is particularly exempted.

This bill, instead, would provide that, unless exempted, it is a misdemeanor for a person to engage in the business or act in the capacity of a contractor if the person either has never been licensed pursuant to the Contractors’ State License Law, or the person was a licensee, but performed acts covered by the law under a license that was inactive, expired, revoked, or under suspension for any reason. By changing the definition of a crime, the bill would impose a state-mandated local program.

The Contractors’ State License Law provides that entering into a contract with a contractor while the contractor is not licensed constitutes a cause for disciplinary action. That law also provides that aiding or abetting an unlicensed person to evade the law, or engaging in specified acts with an unlicensed person with the intent to evade the law, constitutes a cause for disciplinary action.

This bill, instead, would provide that entering into a contract with any person that is performed during a period in which that person’s license was inactive, expired, revoked, or under suspension is a cause for discipline if the purpose of the contract is for that person to perform an act subject to licensure under the law. The bill also would define “unlicensed person” for purposes of these provisions.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Section 7026.4 is added to the Business and
Professions Code, to read:

7026.4.  

(a) A person shall be deemed “duly licensed” or “duly
licensed to act in the capacity of a contractor” for purposes of this
chapter if both of the following conditions are met:

(1) The act was performed under a board-issued license during
a period in which the license was not inactive, expired, revoked,
or under suspension for any reason.

(2) The act falls within a license classification in which the
licensee was authorized to engage, or is incidental and
supplemental as provided under Section 7059, and defined in
Section 831 of Division 8 of Title 16 of the California Code of
Regulations.

(b) Any person that does not meet the conditions specified in
paragraphs (1) and (2) of subdivision (a) shall be deemed
unlicensed, except as otherwise provided in this chapter.

SEC. 2.  

Section 7028 of the Business and Professions Code is
amended to read:

7028.  

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

(1) The person has never been licensed in accordance with this
chapter.

(2) The person was a licensee, as defined in Section 7096, but
performed acts covered by this chapter under a license that was
inactive, expired, revoked, or under suspension for any reason.

(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.

(c) If a person has been previously convicted of the offense
described in this section, unless the provisions of subdivision (d)
are applicable, the court shall impose a fine of 20 percent of the
contract price, or 20 percent of the aggregate payments made to,
or at the direction of, the unlicensed person, or five thousand
dollars ($5,000), whichever is greater, and, unless the sentence
prescribed in subdivision (d) is imposed, the person shall be
confined in a county jail for not less than 90 days, except in an
unusual case where the interests of justice would be served by
imposition of a lesser sentence or a fine. If the court imposes only
a fine or a jail sentence of less than 90 days for second or
subsequent convictions under this section, the court shall state the
reasons for its sentencing choice on the record.

(d) A third or subsequent conviction for the offense described
in this section is punishable by a fine of not less than five thousand
dollars ($5,000) nor more than the greater amount of ten thousand
dollars ($10,000) or 20 percent of the contract price, or 20 percent
of the aggregate payments made to, or at the direction of, the
unlicensed person, and by imprisonment in a county jail for not
more than one year or less than 90 days. The penalty provided by
this subdivision is cumulative to the penalties available under all
other laws of this state.

(e) A person who violates this section is subject to the penalties
prescribed in subdivision (d) if the person was named on a license
that was previously revoked and, either in fact or under law, was
held responsible for any act or omission resulting in the revocation.

(f) If the unlicensed person engaging in the business of or acting
in the capacity of a contractor has agreed to furnish materials and
labor on an hourly basis, “the contract price” for the purposes of
this section means the aggregate sum of the cost of materials and
labor furnished and the cost of completing the work to be
performed.

(g) Notwithstanding any other law, an indictment for any
violation of this section by an unlicensed person shall be found,
or an information or complaint filed, within four years from the
date of the contract proposal, contract, completion, or abandonment
of the work, whichever occurs last.

(h) For any conviction under this section, a person who utilized
the services of the unlicensed person is a victim of crime and is
eligible, pursuant to subdivision (f) of Section 1202.4 of the Penal
Code, for restitution for economic losses, regardless of whether
he or she had knowledge that the person was unlicensed.

begin delete

SEC. 3.  

Section 7031 of the Business and Professions Code is
amended to read:

7031.  

(a) Except as provided in subdivision (e), a person
engaged in the business or acting in the capacity of a contractor,
shall not bring or maintain any action, or recover in law or equity
in any action, in any court of this state for the collection of
compensation for the performance of any act or contract for which
a license is required by this chapter without alleging that he or she
was duly licensed during the performance of that act or contract
for which the person is seeking compensation, regardless of the
merits of the cause of action brought by the person, except that
this prohibition shall not apply to contractors who are each
individually licensed under this chapter but who fail to comply
with Section 7029.

(b) Except as provided in subdivision (e), a person who utilizes
the services of an unlicensed person, as described in subdivision
(b) of Section 7026.4, may bring an action in any court of
competent jurisdiction in this state to recover compensation paid
to the unlicensed person for performance of any act or contract
that occurred during the period or periods in which the person was
unlicensed.

(c) A security interest taken to secure any payment for the
performance of any act or contract for which a license is required
by this chapter is unenforceable if the person performing the act
or contract was not duly licensed contractor during the performance
of the act or contract for which the person is seeking compensation.

(d) If licensure or proper licensure is controverted, then proof
of licensure pursuant to this section shall be made by production
of a verified certificate of licensure from the Contractors’ State
License Board which establishes that the individual or entity
bringing the action was duly licensed in the proper classification
of contractors during the performance of any act or contract
covered by the action. Nothing in this subdivision shall require
any person or entity controverting licensure or proper licensure to
produce a verified certificate. When licensure or proper licensure
is controverted, the burden of proof to establish licensure or proper
licensure shall be on the licensee.

(e) The judicial doctrine of substantial compliance shall not
apply under this section if the person who engaged in the business
or acted in the capacity of a contractor has never been a duly
licensed contractor in this state. However, notwithstanding
subdivision (b) of Section 143 and subdivision (b) of Section
7026.4, the court may determine that there has been substantial
compliance with licensure requirements under this section if it is
shown at an evidentiary hearing that the person who engaged in
the business or acted in the capacity of a contractor (1) had been
duly licensed as a contractor in this state prior to the performance
of the act or contract, (2) acted reasonably and in good faith to
maintain proper licensure, (3) did not know or reasonably should
not have known that he or she was not duly licensed when
performance of the act or contract commenced, and (4) acted
promptly and in good faith to reinstate his or her license upon
learning it was invalid.

(f) The exceptions to the prohibition against the application of
the judicial doctrine of substantial compliance found in subdivision
(e) shall apply to all contracts entered into on or after January 1,
1992, and to all actions or arbitrations arising therefrom, except
that the amendments to subdivisions (e) and (f) enacted during the
1994 portion of the 1993-94 Regular Session of the Legislature
shall not apply to either of the following:

(1) Any legal action or arbitration commenced prior to January
1, 1995, regardless of the date on which the parties entered into
the contract.

(2) Any legal action or arbitration commenced on or after
January 1, 1995, if the legal action or arbitration was commenced
prior to January 1, 1995, and was subsequently dismissed.

end delete

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 7031 of the end insert begin insert Business and Professions Code end insert begin insert is
repealed. end insert

begin delete

7031.  

(a) Except as provided in subdivision (e), no person
engaged in the business or acting in the capacity of a contractor,
may bring or maintain any action, or recover in law or equity in
any action, in any court of this state for the collection of
compensation for the performance of any act or contract where a
license is required by this chapter without alleging that he or she
was 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, except that this prohibition shall not apply
to contractors who are each individually licensed under this chapter
but who fail to comply with Section 7029.

(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 in this state to recover all
compensation paid to the unlicensed contractor for performance
of any act or contract.

(c) A security interest taken to secure any payment for the
performance of any act or contract for which a license is required
by this chapter is unenforceable if the person performing the act
or contract was not a duly licensed contractor at all times during
the performance of the act or contract.

(d) If licensure or proper licensure is controverted, then proof
of licensure pursuant to this section shall be made by production
of a verified certificate of licensure from the Contractors’ State
License Board which establishes that the individual or entity
bringing the action was duly licensed in the proper classification
of contractors at all times during the performance of any act or
contract covered by the action. Nothing in this subdivision shall
require any person or entity controverting licensure or proper
licensure to produce a verified certificate. When licensure or proper
licensure is controverted, the burden of proof to establish licensure
or proper licensure shall be on the licensee.

(e) The judicial doctrine of substantial compliance shall not
apply under this section where the person who engaged in the
business or acted in the capacity of a contractor has never been a
duly licensed contractor in this state. However, notwithstanding
subdivision (b) of Section 143, the court may determine that there
has been substantial compliance with licensure requirements under
this section if it is shown at an evidentiary hearing that the person
who engaged in the business or acted in the capacity of a contractor
(1) had been duly licensed as a contractor in this state prior to the
performance of the act or contract, (2) acted reasonably and in
good faith to maintain proper licensure, (3) did not know or
reasonably should not have known that he or she was not duly
licensed when performance of the act or contract commenced, and
(4) acted promptly and in good faith to reinstate his or her license
upon learning it was invalid.

(f) The exceptions to the prohibition against the application of
the judicial doctrine of substantial compliance found in subdivision
(e) shall apply to all contracts entered into on or after January 1,
1992, and to all actions or arbitrations arising therefrom, except
that the amendments to subdivisions (e) and (f) enacted during the
1994 portion of the 1993-94 Regular Session of the Legislature
shall not apply to either of the following:

(1) Any legal action or arbitration commenced prior to January
1, 1995, regardless of the date on which the parties entered into
the contract.

(2) Any legal action or arbitration commenced on or after
January 1, 1995, if the legal action or arbitration was commenced
prior to January 1, 1995, and was subsequently dismissed.

end delete

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 7031 is added to the end insert begin insert Business and Professions
Code end insert begin insert , to read: end insert

begin insert

begin insert 7031. end insert   

(a) Except as provided in subdivision (e), a contractor
shall be duly licensed at all times during the performance of any
act or contract in order to bring an action to collect payment for
the performance of that act or contract. This provision does not
apply to contractors who are each individually licensed under this
chapter but who fail to comply with Section 7029.

(b) Except as provided in subdivision (e), a person who utilizes
the services of an unlicensed person who engages in the business
or acts in the capacity of a contractor may recover all
compensation paid to that person.

(c) If a security interest is taken to secure payment for the
performance of any act or contract for which a license is required
by this chapter, the security interest is unenforceable if the person
performing the act or contract is not duly licensed at all times
during the performance of the act or contract.

(d) If licensure or proper licensure is disputed, it is the burden
of a purported licensee to provide proof of licensure by production
of a verified certificate of licensure from the board.

(e) Notwithstanding subdivision (b) of Section 143, a court may
determine that there has been substantial compliance with licensure
requirements under this section if the person who engaged in the
business or acted in the capacity of a contractor was duly licensed
at the time the contract was executed, but who subsequently
performed work in a classification for which the person was not
licensed, under license suspension, or using an expired or inactive
license. That person may pursue payment for any work that was
performed on the contract while duly licensed but shall be
precluded from pursuing payment for work performed on the
contract while found to be working in a classification for which
the person was not licensed, under license suspension, or under
an expired or inactive license. A person who utilized the services
of that person may recover the compensation paid to that person
for work performed on the contract while found to be working in
a classification for which that person was not licenced, under
license suspension, or under an expired or inactive license.

end insert

begin delete SEC. 4. end delete
begin insert SEC. 5. end insert   

Section 7114 of the Business and Professions Code is
amended to read:

7114.  

(a) All of the following shall constitute a cause for
disciplinary action pursuant to this chapter:

(1) Aiding or abetting an unlicensed person to evade the
provisions of this chapter.

(2) Combining or conspiring with an unlicensed begin delete person, end delete begin insert person end insert
with the intent to evade the provisions of this chapter.

(3) Allowing one’s license to be used by an unlicensed begin delete person, end delete
begin insert person end insert with the intent to evade the provisions of this chapter.

(4) Acting as agent, partner, associate, or otherwise, of an
unlicensed person with the intent to evade the provisions of this
chapter.

(b) A licensee who is found by the registrar to have violated
subdivision (a) is subject, in accordance with this article, to the
registrar’s authority to order payment of a specified sum to an
injured party, including, but not limited to, payment for any injury
resulting from the acts of the unlicensed person.

(c) For the purposes of this section, the term “unlicensed person”
shall apply only to a person that has never been licensed in
accordance with this chapter, or has performed acts covered by
this chapter under a license that was inactive, expired, revoked, or
under suspension for any reason.

begin delete SEC. 5. end delete
begin insert SEC. 6. end insert   

Section 7118 of the Business and Professions Code is
repealed.

begin delete SEC. 6. end delete
begin insert SEC. 7. end insert   

Section 7118 is added to the Business and Professions
Code, to read:

7118.  

It is a cause for discipline for any licensee to enter into
a contract with any person that is not in compliance with paragraph
(1) of subdivision (a) of Section 7026.4, if the purpose of the
contract is for that person to perform an act that is subject to
licensure under this chapter.

begin delete SEC. 7. end delete
begin insert SEC. 8. end insert   

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.