The Butterfly Effect

In California, subtle changes under new law could have big impact for construction firms

June 08, 2022 Photo

Signed into law in September 2021 by Gov. Gavin Newsom, AB 830 makes important changes to California construction laws by amending critical definitions and language. These changes affect what it means to be a “responsible managing employee,” as well as what constitutes “supervision or control” versus “direct supervision or control.”

While the shift in statutory language is subtle, it will inevitably have a big impact on California construction firms and those seeking or maintaining their contractors’ licenses within the state. A misunderstanding of the new law’s application in a real-world setting could result in disciplinary action taken by the California Contractors State License Board or, in some cases, criminal mis-demeanor charges.

Who Qualifies as a Responsible Managing Employee?

Those seeking a contractor’s license need to understand the new changes to statutory definitions concerning responsible managing employees. These new changes could affect who you decide to designate as your qualifying employee for purposes of applying for his license. If you have already designated an individual, you may need to reevaluate his fitness for the position under the new law’s definitions.

Under existing law, the Contractors State License Board requires a contractor’s-license applicant to demonstrate his knowledge and skillset before approving his licensure. In order to prove his understanding, an applicant for a contractors’ license must demonstrate an understanding of California laws relevant to construction matters, including building, safety, health, and liens, in addition to the administrative principles governing the contracting business. Under existing law, an individual or firm seeking licensure from the Contractors State License Board may have his knowledge and skillset demonstrated through representation by a designated responsible managing employee.

Prior to the passing of AB 830, the term “responsible managing employee” was defined as “an individual who is a bona fide employee of the applicant and is actively engaged in the classification of work for which that responsible managing employee is the qualifying person on behalf of the applicant.” AB 830 now changes this definition, insofar as “responsible managing employee” relates to issues concerning the Contractors State Licensing Board. Specifically, AB 830 adds new language to narrow the scope of the terms “bona fide employee” and “actively engaged.”

Now, a “bona fide employee” is defined as “an employee who is permanently employed by the applicant.” Further, “actively engaged” is to be 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.” It is important to understand the impact of this additional language. Essentially, it requires that the individual who may qualify another person or a firm for a contractor’s license be a permanent and likely full-time employee of that person or firm seeking licensure.

“Direct Supervision or Control” vs. “Supervision or Control”

In addition to restricting the scope of what it means to be an actively engaged, bona fide employee for purposes of satisfying the responsible managing employee qualification for a contractor’s license, AB 830 also delineates between “supervision and control” and “direct supervision and control.”

As previously written, the old law provides that “the person qualifying on behalf of an individual or firm is responsible for exercising direct supervision and control of their employer’s or principal’s construction operations as necessary to secure full compliance with the Contrac-tors State License Law and the rules and regulations of the Contractors State License Board.”

AB 830, however, amends the language to read “supervision and control” instead of “direct supervision and control,” with additional language to indicate that “supervision or control” means specifically “supervision or control or monitoring and being available to assist others to whom direct supervision and control has been delegated.” Meanwhile, “direct supervision or control” means, specifically, “supervising construction, managing construction activities by making technical and administrative decisions, checking jobs for proper workmanship, or supervision on construction job sites.”

The current law also requires the California Contractors License Board to create “an employment duty statement prepared by the qualifier’s employer or principal in the detailed information on the qualifying individual’s duties and responsibilities for supervision and control of the applicant’s construction operations that the applicant or licensee is required to submit.” The failure of the applicant or licensee to submit these reports is a criminal violation, punishable as a misdemeanor. This failure will also result in disciplinary action from the California Contractors License Board.

The impact of delineating between “direct supervision or control” and “supervision or control” will have the new effect of broadening the imposition of penalties that can be sought by both the state and the California Contractors License Board for failure to meet compliance standards. In some cases, the failure to meet the reporting mandate can result in misdemeanor criminal convictions in addition to any disciplinary actions handed down by the board.

A failure to adhere to the board’s licensing mandates can result in severe and costly penalties that can also include criminal charges.

Additional Laws Affecting Contractors in 2022

In addition to AB 830, contractors must stay abreast of other important changes. Below are some pertinent changes effective in 2022:

AB 569 increases the maximum civil penalty the California Contractors License Board can impose, raising the sum from $5,000 to $8,000 for less serious violations and from $15,000 to $30,000 for the most serious offenses.

AB 246 makes an act of illegal dumping an offense punishable by the California Contractors License Board against the responsible contractor.

SB 757 affects the classification of residential solar energy systems as a home improvement, subject to home improvement contracts under the Contractors State License Law. It also requires related home improvement salespersons to be registered to the solicited contractor.

About The Authors
Jason Daniel Feld

Jason Daniel Feld is a partner at Kahana & Feld LLP.

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