Top 5 things contractors and subcontractors need to know to avoid licensing violations

The California Contractors State License Board (CSLB) is tightening enforcement and ending the use of "paper" subcontractors with new legislation. Violations can result in license suspension, fines, or criminal charges. Here are five key things contractors must know to avoid violations and stay compliant.

1. Don't "rent" a qualifier: Direct supervision defined

One of the most significant licensing violations to avoid is the practice of "renting" a qualifier. This is when a licensed individual allows their name and license to be used by a construction company without actually supervising the operations. California law requires that a Responsible Managing Officer (RMO) or Responsible Managing Employee (RME) be actively involved in the company's construction activities, not just a name on paper.

Beginning in 2021, the legislature began defining an RMO/RME's supervision and control obligations. Under Business and Professions Code § 7068.1, "supervision and control" requires "direct supervision," which now includes:

 Supervising construction "operations."

 Managing construction by making technical and administrative decisions.

 Ensuring proper workmanship on the project or supervision of construction on the site.

If a contractor's RMO or RME fails to have direct supervision of its construction operations, the company - and the qualifier - can face penalties, including license suspension, revocation, and even criminal charges.

2. Elimination of paper subcontractors

In 2024, California passed stricter statutes for specialty contractors who subcontract out work within their same license classification. Now, according to Business and Professions Code § 7035, a specialty contractor cannot subcontract with more than one subcontractor on the same project or undertaking within their specialty license classification unless:

 The subcontractor's employees are classified as actual employees (not independent contractors), or

 The contractor is part of a bona fide collective bargaining agreement that governs subcontracting.

Violating these rules could lead to disciplinary action by the CSLB. Specialty contractors should review their hiring practices to ensure they're in compliance with the new laws.

3. The criminal statute of limitations for CSLB violations is now three years

The 2024 California Legislature extended the statute of limitations for criminally prosecuting contractor licensing violations. Previously, authorities had only one year to file criminal charges for violations of the contractor licensing laws (like "renting" a qualifier). Now, prosecutors have up to three years to initiate criminal proceedings.

This means that contractors who allow improper use of their license or fail to comply with the contractor licensing laws now face criminal exposure three times longer. It's essential for every RMO and RME to remain vigilant about compliance in order to avoid delayed but serious repercussions.

4. Confirm active supervision of operations

If you're listed as the RMO or RME for a licensed contractor, be directly involved in the day-to-day operations of the company. The CSLB is actively investigating whether qualifiers are genuinely supervising construction operations, making technical and administrative decisions, ensuring workmanship, or monitoring the project site. Failure to meet the supervision requirements can lead to citations, administrative hearings, license revocation, or even criminal prosecution.

If you're a construction business owner, confirm that their RMO or RME is meeting the supervision requirements. If your RMO or RME is not involved in the construction operations of the business, it's time to restructure your operations to avoid the risks of noncompliance.

5. Understand that violations can lead to serious penalties

Contractors and subcontractors who violate the California licensing laws can face severe penalties and repercussions. These include:

 Loss of your contractor's license (aka "revocation").

 Fines and financial penalties, including restitution.

 Misdemeanor and possibly felony l charges for serious violations, such as allowing illegal use of a contractor's license or contracting without a license in a declared natural disaster area.

To avoid these consequences, it's crucial for contractors and subcontractors to regularly review their practices. Ensure compliance with all licensing and subcontracting regulations and take immediate action to correct any issues before CSLB investigators or state prosecutors step in.

By staying up-to-date on new legislation and prioritizing compliance, contractors and subcontractors can avoid costly violations and safeguard their business. The days of casual contracting practices are ending - act now to avoid serious legal consequences.