keep the license updated and in good standing at all times during the construc- tion of a project. Under existing law, an individual or


firm seeking a contractor’s license may be qualified by a designated responsible managing employee (RME). However, it is not just an administrative act of des- ignating someone. Recent changes in the CCLL requires the RME to be both a “bona fide employee” and “actively engaged” in the construction.


Definition of “Bona Fide Employee” A “bona fide employee” is defined as “an employee who is permanently employed by the applicant.” (emphasis added). Notably, “actively engaged” is defined as “working 32 hours per week, or 80% of the total hours per week that the applicant’s business is in operation, whichever is less.” Tis essentially requires that the RME be a permanent and likely full-time employee. (Bus. & Prof. Code § 7062.) Notably, under the changes to the


CCLL during the past few years, the RMO must demonstrate “supervision and con- trol” of the construction operations. Tat is, “supervision or control or monitoring and being available to assist others to whom direct supervision and control has been delegated.” If a contractor’s license is found to


be invalid or to have been suspended during the course of work, it has serious consequences. For public works proj- ects, any contract with an unlicensed contractor is deemed void. (Bus. & Prof. Code §7028.15(e).) Contracting without a license in the state of California is illegal. Tis includes working with a suspended license or a license that is improper (in- cluding failing to have a proper RME). Te CSLB has the ability to file mis- demeanor charges for working without a valid license. (A first offense can carry up to six months of jail time and a $5,000


fine, with subsequent offenses going up from there.) If someone uses a contrac- tor’s license (or even pretends to have a license), it is a felony.


Consequences on Private Projects • In private projects, an unlicensed contractor is not entitled to any payment. An unlicensed contractor cannot even file a mechanic’s lien or any breach of contract claim and cannot recover even for work performed. (Bus. & Prof. Code § 7031(a); Opp v. State Paul Farm Fire & Marine Insurance Co. (2007) 154 Cal.App.4th 71.) In addition to being barred from recovery of payment for such work without proper licensure in place at all times during the performance, the contractor may also be required to disgorge any amount paid by its customer. A contractor cannot demonstrate


substantial compliance if they were never licensed as a contractor in the state before performing the contracting work. (Pacific Caisson & Shoring, Inc. v. Bernards Bros. Inc., 198 Cal.App.4th 681 (2011).) If a contractor was never licensed, it cannot seek to extricate itself from the ramifica- tions by arguing substantial compliance. However, if a contractor was properly


licensed at some point before beginning performance of the contract but its license lapsed, a contractor can be deemed to be “substantially compliant” with the CSLL if it meets specified conditions. Tese conditions may include the contractor not knowing, or reasonably should not have known, that it was not licensed at the time of the work and that it acted promptly and in good faith to reinstate its license upon discovery of an invalid/ outdated license. (See Bus. & Prof. Code § 7031; Pacific Caisson & Shoring, Inc. v. Bernards Bros. Inc., 236 Cal.App.4th 1246 (2015).)


Licensing Issues Relating to Unlicensed Subcontractors Notably, general contractors must be extremely careful in hiring subcontractors when it comes to licensing issues as well. If an unlicensed subcontractor is hired, California courts will likely be barred from maintaining an action to recover payment from the owner and required to disgorge all sums paid to it for the unlicensed subcontractor’s work. (Bus. & Prof. Code § 7031(b); San Francisco CDC LLC v. Webcor Construction L.P., 62 Cal.App.5th 266 (2021); Kim v. TWA Construction, Inc., 78 Cal. App. 5th 808 (2022).) In fact, knowledge of the unlicensed


subcontractor status is irrelevant to com- pensation. (Alatriste v. Cesar’s Exterior Designs, Inc., 183 Cal.App.4th 656 (2010).) As is clear, California courts will strictly


enforce the CSLL. California contractors will behoove themselves to check their licensure status and verify the status of their subcontractors’ licenses, prepare processes to continue monitoring and maintaining their licenses at the time of contracting and throughout all of the work, and ensure that their RME is a “bona fide employee” who is “actively engaged” in the construction. Working with legal counsel experi-


enced with CSLL issues and seasoned construction consultants can help ensure contractors avoid the harsh consequences of the CSLL.


Brenda K. Radmacher, 2024 AGC of California Legal Advisory Committee Chair, is a Partner at Seyfarth Shaw, LLC, working in the firm’s


Construction Practice Group in its Los Angeles office. For nearly three decades, she has helped clients resolve complex construction disputes through negotiation, mediation, and – when necessary – arbitration and litigation.


CALIFORNIA CONSTRUCTOR JANUARY/FEBRUARY 2025


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