BILL ANALYSIS �
AB 249
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Date of Hearing: January 10, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 249 (Berryhill) - As Amended: January 4, 2012
SUBJECT : Contractors.
SUMMARY : Eliminates a person's ability to sue to recover all
compensation for construction work performed by an "unlicensed
contractor" whose license has lapsed, unless the lapse is due to
the license being suspended or revoked. Specifically, this
bill :
1)Eliminates a person's ability to sue to recover all
compensation for construction work performed by an "unlicensed
contractor" unless it is due to the license being suspended or
revoked, or the person was never licensed.
2)Defines an "unlicensed contractor," for the purposes of this
bill, to mean a person who has engaged in the business or
acted in the capacity of a contractor and if either of the
following applies:
a) The person has never been licensed as a contractor under
the Contractors' State License Law (CSLL); or,
b) The person was previously licensed as a contractor under
the CSLL and performed work after his or her license had
been revoked or suspended pursuant to a disciplinary
action.
EXISTING LAW :
1)Makes it a misdemeanor for an unlicensed contractor to
advertise for any construction or work of improvement covered
under the CSLL or to engage in the business or act in the
capacity of a contractor. Imposes specified civil penalties,
including fines and imprisonment against, and authorizes the
Contractors' State License Board (CSLB) to cite the unlicensed
contractor.
2)Authorizes a person who hires an unlicensed contractor to sue
for recovery of all compensation paid to the unlicensed
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contractor for performance of any act or contract, regardless
of whether the person had knowledge that the contractor was
unlicensed.
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal.
COMMENTS :
Purpose of this bill . According to the author's office, "The
CSLL requires that all contractors are properly licensed when
performing work. To ensure compliance with the licensing
requirement, the law requires that any contractor suing for
compensation demonstrate 'he or she was a duly licensed
contractor at all times during the performance of that act or
contract.' Furthermore, the CSLL allows one who hired,
inadvertently or purposefully, a contractor who was unlicensed
at any time during performance of a construction contract, to
sue the contractor and recoup all monies paid to him or her.
"Unfortunately, due to its absolute provision, unscrupulous
contractors and owners use �the CSLL] against other contractors
with minor license problems. Consequently, this results in the
wholly disproportionate penalty of either not having to pay for
work performed or obtaining their money back if they have
already paid for performance. These draconian remedies apply
notwithstanding the quality of the work or the contractor being
licensed �for a portion of the] time of performance."
Background . Unlicensed contractors are prohibited from
advertising for or performing work on any construction contract.
Currently, anyone who hires an unlicensed contractor can sue to
recover compensation for the amount of the entire contract,
despite whether the person or entity had knowledge that the
contractor was unlicensed and the quality of work performed.
The sponsors contend that sophisticated general contractors
intentionally utilize the services of subcontractors that
perform satisfactory work and then sue the subcontractors for
recovery of all compensation due to minor licensing issues by
using a literal reading of the CSLL. The sponsors claim that
this has resulted in loss of income to contractors due to
employee errors or oversight caused in processing license
renewal, contractors' bond requirements, and workers'
compensation insurance that the contractors may have been
unaware of.
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Existing law allows a person who hires an unlicensed contractor
to sue for recovery of all compensation paid to the unlicensed
contractor for performance of any act or contract, regardless of
whether the person had knowledge that the contractor was
unlicensed.
This bill, as amended, would limit the ability of a property
owner to sue a contractor to recover compensation for the entire
contract amount to only contractors that have never been
licensed or whose license was revoked or suspended at the time
construction work was performed.
Support . According to the sponsors, "�The CSLL] is
�increasingly] being used as a legal excuse by one contractor or
owner to recover all monies paid to another contractor due to
minor, technical glitches in the other contractor's license
history. The current statutory framework encourages fraud to
promote regulatory compliance. AB 249 addresses the problem by
only allowing the existing provisions to apply for the time that
the contractor �was improperly licensed and] to receive the
remainder of his �or her] compensation for work that was
performed while he �or she] was or is properly licensed."
According to the California Landscape Contractors Association,
"Current law imposes a harsh penalty on temporarily unlicensed
contractors who perform a work of improvement for a property
owner. Even when the work is performed to the full satisfaction
of the property owner and the contractor has reinstated his or
her license, the law allows the owner to bring a civil action to
force the contractor to refund the entire amount of compensation
paid if the contractor was not duly licensed for the entire
period of the contract. While a 'substantial compliance'
exception provides limited immunity to contractors who meet
specified conditions, it requires, among other things, that the
contractor prove that he or she did not know, or should not have
known, that the license had become invalid. Given the
difficulty of proving a negative fact, this requirement poses an
unreasonable burden on contractors and allows sophisticated
commercial property owners to unjustifiably recover money they
have paid the contractor or subcontractor for work."
Opposition . According to the State Building and Construction
Trades Council, "Under current law, if a contractor performs
work without a proper license, the affected customer may recover
all money paid to the contract. The contractor has a strong
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defense to that suit only if the contractor once had a
contractor's license, and the license expired or was revoked
with the knowledge of the contractor, and the contractor acted
promptly to reinstate the license. The customer could obtain a
refund only for work performed during the period of time the
contractor was not properly licensed regardless of the quality
of work - as opposed to a refund of all the amounts paid on the
contract."
"The Economic and Employment Enforcement Coalition, which is
made up of the Department of Industrial Relations, CSLB, Labor
and Workforce Development Agency and the Federal Department of
Labor, enforces business and labor laws to protect law-abiding
businesses and their employees from the unfair competition of
those participating in the underground economy. One key profile
that underground economy contractors share is the lack of a
valid license which allows them to avoid compliance with state
and local laws by making them harder to find. In addition,
failure to comply with license requirements is often accompanied
by cash payments, wage violations, avoiding payroll taxes,
failure to carry workers' compensation insurance and avoiding
minimum worker safety requirements."
REGISTERED SUPPORT / OPPOSITION :
Support
California Fence Contractors' Association (co-sponsor)
Engineering Contractors' Association (co-sponsor)
Flasher Barricade Association (co-sponsor)
Marin Builders' Association (co-sponsor)
California Landscape Contractors Association
Golden State Builders Exchange
Southern California Contractors Association
Opposition
California State Pipe Trades Council
International Brotherhood of Electrical Workers
State Building and Construction Trades Council
Western State Council of Sheet Metal Workers
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301
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