For those of you who are licensed contractors in California, or if you’re thinking about getting a contractor’s license in California, you know that you need a “qualifying individual” in order to maintain or obtain a license. A qualifying individual can be a Responsible Managing Officer (“RMO”), a Responsible Employee (“RME”), a Responsible Managing Member, or Resopnsible Managing Manger, who holds his or her own individual contractor’s license which is associated with the company.
In order for a qualifying individual to obtain a contractor’s license they must satisfy the California Contractors State License Board’s (“CSLB”) experience requirements and take and pass a written Law and Business Examination and a specific trade examination for each classification in which the individual seeks a license.
And that’s where the rub lies.
For licensed contractors seeking to add a classification or new contractors seeking to get a contractor’s license, who do not have a qualifying individual who holds a license in the classification they seek, the solution may seem straightforward.
Renting a qualifier means that you pay an individual who holds an individual contractor’s license to act as the RMO, RME, Responsible Managing Member, or Responsible Managing Manager for your company when they have no actual involvement in the day-to-day operations of the company. But, as the CSLB is warning contractors, renting your license (or getting someone to rent their license to you) can land you in a heap of trouble:
Perils of “Renting” Your License
Are you a retired, expired or “inactive” contractor? Have you been asked to serve as the qualifier for someone else’s license for a monthly fee without having to be involved in day-to-day business operations?
If you receive such a solicitation, your first question should be “Is that legal?” The answer: No.
Companies throughout the state have been offering to “rent” contractor licenses so their business can qualify to conduct a construction operation. Licensees have been offered several hundred dollars per month to do this. But, amendments to Business and Professions (B&P) Code section 7068.1 clearly state that an individual has to have direct control and supervision of his or his employer’s or principal’s construction operations or face disciplinary and misdemeanor criminal charges (punishable by up to six months in jail, by a fine of $3,000 to $5,000, or both).
Licensees also can be held liable in a civil court for damages that may arise from defective work done by the business entity they qualify. Violations of Contractors State License Law result in the qualifier being held responsible, regardless of his or her knowledge or participation in the prohibited act or omission.
Construction performed by unqualified individuals who illegally obtain a license by using an absentee qualifier is a threat to the public. Consumers are put at risk when substandard work is performed by unskilled individuals; the cost to correct deficient work can be exorbitant, often exceeding the original contract amount.
The ongoing case against revoked licensee Avi Gozlan provides a sobering example of what can happen when qualifiers are not actively involved with the licenses they qualify. Gozlan was one of 13 people indicted by the Ventura County Grand Jury in August for a telemarketing scheme that used licenses that were obtained from nonparticipating qualifiers as a front to sell phony or inferior home improvement services.
Three qualifiers already have pleaded guilty to felony conspiracy charges in the Southern California case in which thousands of consumers are believed to have been defrauded.
Remember that when you’re the qualifier for a license, you need to have direct supervision and control of business activities. California contractors cannot act as a qualifier for an additional individual or firm unless there is a common ownership of at least 20 percent. An additional firm may be a subsidiary or joint venture of the initial company where at least 20 percent of the equity is owned by the initial firm. Also, a qualifying individual can be the qualifier for not more than three firms in any one-year period.
CSLB’s website includes more information that describes the duties and responsibilities of a qualifier: http://www.cslb.ca.gov/applicants/ContractorsLicense/ExamApplication/BeforeApplyingForLicense.asp.