BILL ANALYSIS Ó
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|Hearing Date:August 20, 2014 |Bill No:SB |
| |315 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Ted W. Lieu, Chair
Bill No: SB 315Author:Lieu
As Amended:July 2, 2014 Fiscal:Yes
SUBJECT: Contractors.
SUMMARY: Enhances Contractors State License Board enforcement
activities by authorizing the Board to have free access to all places
of labor when participating in Joint Enforcement Strike Force
enforcement activities; prohibits an unlicensed person from
advertising for construction work which exceeds $500; makes it
unlicensed activity for a person with a suspended license, as
specified, to act as a contractor; extends the time period in which
the Board must initiate disciplinary action when notified by the Labor
Commissioner of violations; makes technical, clarifying and conforming
changes.
NOTE : The Assembly amendments create a new bill and this measure has
been referred to the Committee pursuant to Senate Rule 29.10 (d) for
consideration. The Committee may, by a vote of the majority, either:
(1) hold the bill, or (2) return the bill to the Senate floor for
consideration of the bill as amended in the Assembly.
Existing law:
1)Licenses and regulates more than 300,000 contractors under the
Contractors State License Law (Contractors Law) by the Contractors
State License Board (CSLB) within the Department of Consumer Affairs
(DCA). The CSLB is under the direction of the registrar of
contractors (Registrar). (Business and Professions Code (BPC) §
7000 et seq.)
2)Establishes an enforcement division in the CSLB and requires the unit
to rigorously enforce the Contractors Law prohibiting all forms of
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unlicensed activity. (BPC § 7011.4 (a))
3)Provides that persons employed as enforcement representatives in the
enforcement division and designated by the Director of DCA are not
peace officers, are not entitled to safety member retirement
benefits, and do not have the power of arrest. However, they may
issue a written notice to appear in court for misdemeanor violations
of the Contractors Law.
(BPC § 7011.4 (b))
4)Exempts from licensure and regulation those who perform work with an
aggregate contract price under $500, but does not exempt those who
split work into multiple contracts to avoid the $500 limit. (BPC §
7048)
5)Authorizes an unlicensed contractor to advertise for construction
work only if the advertisement states that he or she is not
licensed. (BPC § 7027.2)
6)Makes it a misdemeanor for an unlicensed contractor to advertise for
construction or work of improvements or act in the capacity of a
contractor. Imposes specified civil penalties, including fines and
imprisonment against the unlicensed contractor, and authorizes CSLB
to cite the unlicensed contractor. (BPC § 7028)
7)Requires CSLB to initiate a disciplinary action against a licensee
within 30 days of receipt of a certified copy of the Labor
Commissioner's finding of a willful or deliberate violation of the
Labor Code by a licensee. (BPC § 7110.5)
8)Gives the Labor Commissioner, his deputies and agents free access to
all places of labor. (Labor Code § 90)
9)Establishes the Joint Enforcement Strike Force on the Underground
Economy (JESF) to coordinate efforts in targeting tax evasion and
cash-pay violations, and authorizes the sharing of investigative and
enforcement capabilities between JESF participants.
(Unemployment Insurance Code § 329)
This bill:
1)Authorizes the CSLB enforcement division to have free access to all
places of labor when participating in the enforcement activities of
the JESF.
2)Prohibits an unlicensed person from advertising for construction
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work, which exceeds the $500 aggregate contract price cap, which
includes the cost for labor, materials, and all other items on a
project.
3)Provides that it is a misdemeanor for a person to engage in the
business or act in the capacity of a contractor if he or she has a
suspended license for failure to pay a civil penalty, to comply with
an order of correction, or to resolve all outstanding liabilities,
as specified.
4)Extends the time period, in which CSLB must initiate disciplinary
action against a licensee, from 30 to 180 days after notification of
a labor code violation, as specified.
5)Makes technical, clarifying and conforming changes.
FISCAL EFFECT: The August 6, 2014 Assembly Appropriations Committee
analysis cites minor and absorbable costs to the CSLB.
COMMENTS:
1.Purpose. This bill is sponsored by the CSLB. According to the
Author, SB 315 addresses several issues CSLB has identified with
existing law. Construction is the number one trade contributing to
the underground economy. The CSLB is the appointed state agency
responsible for regulating construction and as such, needs clear
statutory authority to access business locations where labor is
present when the Division of Labor Standards Enforcement is not
readily available to participate in joint efforts to combat
underground economy behavior. Furthermore, unlicensed contractors
routinely use the exemption provided in current law to openly
advertise their services for any and all construction services,
including large-scale projects that are clearly in excess of the
$500 limit prescribed by law.
This bill would allow CSLB to pursue criminal charges when appropriate
against a contractor who continues to contract for work while
holding a license suspended for outstanding civil judgments or tax
liabilities. Finally, the bill also amends the existing
requirement for CSLB to act on certain Labor Code violations within
30 days, as CSLB does not have the resources to consistently meet
that timeframe for all referrals."
2.Joint Enforcement Strike Force on the Underground Economy (JESF).
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The current practice of CSLB's Statewide Investigative Fraud Team
(SWIFT) is to use proactive sting operations to find unlicensed
contractors. They partner with local sheriff, police departments
and district attorney offices to stage operations to lure unlicensed
contractors. While this practice does result in the discipline of
numerous unlicensed individuals, this is a small portion of the
unlicensed workforce. To extend their reach, CSLB joined JESF to
further enforce licensure, labor and safety laws.
JESF is a multi-agency strike force established in 1995 which includes
the Department of Justice, Board of Equalization, the Internal
Revenue Service, the Franchise Tax Board, Department of Insurance,
multiple divisions of the Department of Industrial Relations,
including the Division of Labor Standards Enforcement (DLSE), and
the DCA (including CSLB). Each entity is charged with some aspect
of enforcing prohibitions on underground economic activity, and JESF
optimizes the combination of joint operations to achieve full
enforcement of the law.
Member entities of JESF benefit during joint operations from DLSE's
statutory authority to enter all places of labor through an
authority sharing provision of the law. CSLB states, however, that
DLSE's limited enforcement availability hinders JESF enforcement
actions. Access to places of labor is a critical need of CSLB as
they regulate construction. This bill grants CSLB the same strong
authority to access places of labor while working with JESF. By
granting this clear authority, the citations and notices issued
during these operations will be less vulnerable to challenges on the
grounds of improper access.
3.Advertisement by Unlicensed Persons. Existing law prohibits
unlicensed persons from accepting projects which will cost in excess
of $500, including labor and materials. Unlicensed individuals are
also prohibited from breaking up larger projects into portions of
$500 or less in order to avoid the $500 limit. However, there is
nothing explicitly prohibiting an unlicensed person from advertising
for large projects such as new home construction, additions, or
extensive remodel that are clearly in excess of the $500 limit.
While unlicensed persons must state they are unlicensed, there is no
requirement for them to state they cannot legally complete the work
they are advertising for. This leaves a marketplace artificially
bloated with actors that cannot legally complete the solicited work,
unduly increasing competition with licensed contractors, and
actually making it easier for a person to engage in construction
work beyond the $500 limit.
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This bill prohibits unlicensed persons from advertising for work that
would cost in excess of the $500 limit. This will enable consumers
to be confident that they are contracting with actors who can
legally complete the advertised project, and will level the playing
field for licensed contractors.
This bill also makes it a misdemeanor for individuals whose license is
suspended for failure to pay a civil penalty, comply with an order
of correction, or to resolve any outstanding liabilities, to act as
a licensed contractor.
4.Contracting With a Suspended License. Existing law prohibits anyone
from entering into a contract for any construction project with a
total cost over $500 without a valid contractor license, and
provides administrative sanctions for a violation of that
requirement. (BPC § 7028.7) The law also provides for misdemeanor
criminal prosecution of persons who enter into a contract "without
having a license therefore." (BPC § 7028 B&P)
The Contractors Law further clarifies, for purposes of administrative
sanctions, that no contractor can act in such capacity under any
license that is inactive, has been suspended, or is expired (BPC §
7117.5). The CSLB states that there is no corresponding
clarification for the imposition of criminal sanctions, and that
this has led to some judicial confusion regarding the prosecution of
contractors who have a license, but whose license is presently
suspended.
The CSLB and its industry partners are aware that contractors with
suspended licenses are continuing to enter into contracts and create
a public safety risk. Many of these licenses were suspended due to
failure to pay a civil judgment pursuant to BPC § 7071.17, where
such judgments were usually for unsatisfactory workmanship or
unscrupulous business practices. During 2012 alone, CSLB suspended
1,843 licenses for outstanding civil judgments, with a combined
total of $115,546,000 in judgments owed to consumers and other
contractors.
Additionally, the CSLB works with partnering agencies, including the
Franchise Tax Board and the Employment Development Department, to
identify contractors who have outstanding tax liens against them,
and to suspend their licenses pursuant to B&PC §7145.5. During
calendar year 2012, the CSLB suspended 877 licenses for outstanding
tax liabilities for a combined total of $25,832,000 owed to the
State of California.
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According to the CSLB, administrative sanctions are a deterrent for
these violations, but it can take up to two years to implement once
an offense is identified. Stronger, more clearly defined criminal
sanctions would provide CSLB with an additional and more immediate
enforcement tool to use against unscrupulous contractors who are
violating their license suspensions.
5.Labor Commissioner Notification of Violations to CSLB. The Labor
Commissioner is required to send findings related to all willful or
deliberate violations of the Labor Code by licensed contractors to
the CSLB. Each year, over 100 of these violations are sent to the
CSLB, the majority of which are related to the failure to pay wages.
In most cases, the CSLB reports that it issues an automatic license
suspension as a result of the notification. However, if a
contractor is debarred or has created significant financial harm,
the CSLB must initiate its own investigation in order to revoke a
license.
Although the CSLB is currently required to initiate disciplinary action
within 30 days of the notification, it may take four to six months
if an investigation is required before discipline may be issued.
This bill extends the period in which the CSLB is required to act to
conform to their current capacity.
However, the extension of the statutory period will not forestall
communication of Labor Code violations to consumers. The CSLB has
integrated into its public online licensure lookup service public
disclosures of violations identified by other partner agencies,
including the Labor Commissioner, with links to the issuing agency's
Web site. This will allow consumers to still be informed about
violations by contractors while any formal investigation takes
place.
6.Related Legislation. SB 263 (Monning, 2013) in addition to other
matters, contained similar provisions to the current bill which
makes it unlicensed practice for a contractor with a suspended
license for failure to pay a civil penalty, comply with an order of
correction, or to resolve all outstanding liabilities, to engage in
the business or act in the capacity of a contractor. The bill was
amended to addresses an unrelated topic.
AB 2554 (Berryhill, Chapter 85, Statutes of 2012) amended BPC § 7011.4
to provide all enforcement representatives with the authority to
issue a notice to appear.
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SB 1490 (Johnston, Chapter 1117, Statutes of 1994) codified the JESF
that was promulgated by Executive Order W-66-93.
7.Arguments in Support. In sponsoring this bill the Contractors State
License Board (CSLB) states, SB 315 provides clear statutory
authority for CSLB to access business locations where labor is
present. This is necessary because DLSE staff is not readily
available to participate in all joint efforts to combat underground
economy behavior. CSLB states the bill clarifies that unlicensed
individuals can only advertise for construction work they are
legally able to perform without a license, which are projects with a
total cost of under $500, and clarifies that contractors whose
licenses have been suspended either for failure to pay an
outstanding civil judgment or for an outstanding tax liability, yet
continue to act as a contractor, are considered unlicensed
contractors for the purpose of CSLB pursuing disciplinary action.
Additionally the CSLB indicates that it does not have the resources to
meet the 30-day timeframe to take disciplinary action for all
disciplinary referrals from the Labor Commissioner. To improve
disclosure and enhance consumer protection in this area, the CSLB
recently initiated a new program to publicly disclose disciplinary
actions taken by other state agencies, including the DLSE. For
example, when the CSLB is notified by the Labor Commissioner of a
civil wage and penalty assessment against a licensed contractor, the
CSLB website is immediately updated to include a link on the
violator's license look-up page to the issuing agency's website.
The California Landscape Contractors Association (CLCA) states that in
addition to harming consumers, unlicensed persons unfairly compete
with legitimate contractors who must, as a condition of being
licensed, fully comply with voluminous labor, tax, worker safety,
and bonding laws. Compliance typically adds 15 to 20 percent to the
cost of performing construction work, according to the CLCA, and
allows unlicensed operators to significantly undercut licensed
contractors when pricing projects to consumers. Unlicensed
contracting also deprives the state of significant tax revenues
since unlicensed operators often fail to report income and hire
workers off the books, according to the CLCA.
The California Professional Association of Specialty Contractors
(CALPASC) argues that the bill helps in two significant ways:
First, it clarifies when unlicensed activity is subject to
misdemeanor charges. Second, legitimate contractors need a fair
opportunity to resolve unintentional mistakes. By allowing more
time for the CSLB to analyze citations issued by enforcement
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agencies, contractors who may have made a mistake will not be
unfairly prosecuted, according to the CALPASC. The bill also allows
the CSLB time to evaluate and prosecute those cases of egregious
conduct where a bad actor contractor harms not only the public, but
workers and legitimate competitors as well.
The Air Conditioning Sheet Metal Association , the Air-conditioning &
Refrigeration Contractors Association , California Chapters of the
National Electrical Contractors Association , California Legislative
Conference of the Plumbing, Heating and Piping Industry jointly
believe that the bill proposes positive changes and respectfully
requests the Committee's support for this important measure
SUPPORT AND OPPOSITION:
Support:
Contractors State License Board (Sponsor)
Air Conditioning Sheet Metal Association
Air-conditioning & Refrigeration Contractors Association
American Subcontractors Association California, Inc.
California Landscape Contractors Association
California Legislative Conference of the Plumbing, Heating and Piping
Industry
California Professional Association of Specialty Contractors
California Chapters of the National Electrical Contractors Association
United Contractors
Opposition:
None received as of August 18, 2014
Consultant:G. V. Ayers