Business and Professions Code Essentials, Business Law |

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Licensure Requirements and the 7031 Penalty

The California Business and Professions Code Section 7031 establishes the 'unlicensed contractor rule,' which is one of the most severe penalties in state law. An unlicensed person who performs work requiring a license cannot bring or maintain any action in court to collect payment for that work. This applies even if the person was licensed for part of the job but allowed the license to expire or be suspended for any duration during performance. Furthermore, under the 'disgorgement' rule, a consumer can sue an unlicensed contractor to recover all compensation paid for the work, regardless of the quality of the project. To maintain a valid license, contractors must meet the requirements of B&P Code 7068, which necessitates the appointment of a Qualifying Individual. This individual, whether a Responsible Managing Officer (RMO) or Responsible Managing Employee (RME), must exercise direct supervision and control of construction operations. Failure to maintain a qualifier results in an automatic suspension of the license if a replacement is not filed with the CSLB within 90 days.

Home Improvement Contract (HIC) Mandates

Per B&P Code 7159, a Home Improvement Contract (HIC) is mandatory for any project involving residential property where the total price, including labor and materials, exceeds $500. The law is highly specific regarding the contract's structure. It must include the contractor's name, address, and license number, along with a payment schedule that explicitly states that no payment shall exceed the value of the work performed or materials delivered. A critical numeric threshold is the down payment limit: under B&P Code 7159.5, a contractor cannot request or receive a down payment exceeding 10% of the total contract price or $1,000, whichever is less. This rule is strictly enforced and applies to all home improvement projects. Additionally, the contract must include 'Notice to Owner' language regarding mechanics liens and the 'Three-Day Right to Cancel,' or 'Five-Day Right to Cancel' for senior citizens, in compliance with the Home Solicitation Sales Act and B&P Code 7159.10.

Safety Violations and Building Code Compliance

B&P Code 7110 states that a contractor's willful or deliberate disregard of state building laws, safety laws, or labor laws constitutes cause for disciplinary action. This bridges the Business Law section with technical standards such as Cal/OSHA Title 8. Specifically, contractors must adhere to Title 8 Section 1670 regarding fall protection, which requires a personal fall arrest system (PFAS) for employees exposed to falls of 6 feet or more in general construction. Furthermore, B&P Code 7109.5 specifies that any violation of the safety provisions of the Labor Code is a basis for license suspension. This includes failing to provide a safe workplace or neglecting to report a serious injury or fatality to Cal/OSHA within 8 hours. Contractors must also ensure compliance with the California Building Code (CBC) regarding structural integrity. For example, CBC Chapter 18 requires concrete footings to have a minimum specified compressive strength (f'c) of 2,500 psi for most residential foundations, and B&P Code 7109 makes any material departure from these plans a violation.

Bonding and Insurance Financial Requirements

B&P Code 7071.6 requires all licensed contractors to have a contractor's bond on file with the CSLB in the amount of $25,000. This amount was increased to its current level in 2023 to provide better protection for consumers and employees. In addition to the contractor's bond, an RMO who owns less than 10% of the voting stock of the corporation must also post a 'Bond of Qualifying Individual' (BQI) in the amount of $25,000 per B&P Code 7071.9. This bond is for the benefit of any person damaged by the qualifier's failure to discharge their duties. Workers' Compensation insurance is also a bedrock requirement. Per B&P Code 7125, every licensee must have on file a certificate of Workers' Compensation insurance or a certification of self-insurance. While most contractors can file an exemption if they have no employees, C-39 (Roofing) contractors are legally prohibited from filing an exemption; they must carry Workers' Compensation insurance at all times, regardless of whether they have staff, due to the high-risk nature of the trade.

Record Keeping and Subcontractor Payments

Under B&P Code 7111, contractors are required to maintain all records of their construction operations for a minimum of five years after the completion of any project. These records include contracts, invoices, cancelled checks, payroll records, and any documents related to the daily operation of the business. The CSLB has the authority to inspect these records during normal business hours to ensure compliance with the law. Failure to make records available or failing to keep them for the required duration is a cause for disciplinary action. Furthermore, B&P Code 7108.5 requires 'prompt payment' to subcontractors. A prime contractor must pay any subcontractor not later than seven days after receipt of each progress payment, unless otherwise agreed to in writing. If the contractor withholds a payment due to a good faith dispute, they may only withhold up to 150% of the disputed amount. Violating this timeline can lead to a penalty of 2% of the amount due per month to the sub, plus potential license suspension.

Advertising and Salesperson Regulations

Advertising rules are strictly governed by B&P Code 7027 and 7030.5. Any advertising, whether it be a business card, truck signage, or a digital ad, must include the contractor’s license number. It is illegal to advertise for work that falls outside the scope of your license classification. For example, a C-27 Landscaping contractor cannot advertise for structural roof repairs. Per B&P Code 7027.1, any person who advertises for construction work but is unlicensed may be fined between $700 and $1,000. Additionally, B&P Code 7158 prohibits any contractor from promising a 'rebate' or 'kickback' as an inducement to enter into a home improvement contract. This includes offering a customer money to help advertise the business or providing a discount that is not truly a discount. Contractors must also disclose if they are using 'Salespersons' who are not registered with the CSLB. Home Improvement Salespersons (HIS) must be registered under B&P Code 7152 and can only represent the specific contractor listed on their registration.