A dangerous loophole in CSLB’s mechanical suspension policy

The Contractor’s State License Board (CSLB) current mechanical and uniform policy regarding suspending related licenses has created a dangerous loophole that is being taken advantage of by unscrupulous contractors. If a judgment is entered against a contractor, the CSLB is supposed to suspend related licenses based on “the time of the activities on which the judgment is based.” Business and Professions Code §7071(j)(1). Currently, however, the CSLB’s policy is to mechanically look solely at the date of the unpaid invoice and/or entry of judgment as determinative and will only suspend related licenses if they were associated at that certain arbitrary date.

This creates a dangerous loophole. By timing their disassociation just right, unscrupulous contractors can deceptively receive all the benefits of a contract but do not face any of the consequences of nonpayment, even if they disassociate as late as a single day before a final invoice. Then they can start afresh, associated with another license, and in a position to repeat the same offense again and again.

This unfair and unjust loophole renders the Code nearly toothless. Indeed, it certainly appears to those outside of the CSLB that the Board’s mission is not to protect the public, but rather to protect and insulate bad-acting contractors! The Board has completely lost sight of why it was created in the first place and turned its purpose upside-down.

Disassociation before the final invoice or entry of judgment has little to do with participation in the activities that form the basis of the judgment. Using the CSLB’s logic, if an officer disassociates before the final invoice date, even a single day before, then their associated and related licenses are completely insulated from any suspension, no matter the degree of their wrongful and deceitful conduct or how much benefit they received for which they failed and refused to pay. This unfair practice must change to protect creditors and the public at large from unscrupulous contractors and align with the language of the Code and the intent of the Legislature.

Take a roofing contractor who negligently performs their job which ultimately causes damages. The homeowner then sues the roofer and – as much as several years later – obtains a $100,000 judgment. The dispositive “activities” are not the date of the judgment, nor the date of the leak, nor the date the contractor is paid, nor is it even the date the roof job is finished. The relevant activity (and more precisely, activities) is the earliest date the contractor worked on the roof, including the entire time the roofer was working on the job, because the negligent roof work itself constitutes “the activities on which the judgment is based.” The date of the contractor’s final invoice and/or the date of the judgment is largely irrelevant.

The language in the governing statute is clear and is expressly not singular in its focus. The Legislation’s intent is plain, and the statutory language undoubtedly recognizes that there is no single trigger date. Rather, a continuum of actions must be considered. The fact that the Legislature chose “activities” over “activity” cannot simply be ignored by the Board. Each case must be decided on the particular relevant facts and circumstances – which will invariably include a period of time and sequence of events, not just a certain single determinative date such as an invoice or a judgment.

Unfortunately, the CSLB’s current application of the Code ignores the plain meaning of the statute in determining whether members disassociated in time to shield their related licenses from being suspended, despite the unequivocal language of the statute. The CSLB chooses to interpret the Code’s language to mean the singular date of an unpaid invoice and/or the entry of judgment. But the “activities on which the judgment is based” – at least in connection with unpaid debts related to construction work – necessarily encompasses the time during which the debt was incurred, specifically including when the contract was entered and performed. These actions constitute the true “activities” upon which “the judgment is based.”

Illustratively, for unpaid debts, the “activities upon which the judgment is based” starts with the formation of the contract and continues through the dates the contract was in force and effect. Like the roofer in the above example, these are the true “activities upon which the judgment is based.” The unpaid invoice date and/or entry of judgment is not the dispositive activity and cannot be the sole considering factor.

The CSLB’s mechanical suspension policy does not make sense in almost any conceivable scenario – not simply unpaid debts. Take, for example, unpaid workers compensation premiums. All of the members of the licensed contactor requested and received the benefit of the insurance policy. All should be responsible for nonpayment. The relevant dates include the commencement of the insurance policy and the time the policy was in effect and providing coverage for which the carrier is entitled to payment, not exclusively the invoice date and/or entry of judgment. The CSLB’s current policy allows one or more of the members of the contractor to disassociate after the policy is complete, but before the final invoice is issued, and thereby escape all liability and wrongfully keep their related licenses in good standing.

The CSLB’s misapplication of the Code creates injustice and unfairly rewards bad actors. There are far too many cases in which the CSLB has wrongly failed to suspend related licenses, instead letting the offenders unlawfully maintain related licenses while shirking their responsibility to pay judgments against them. Not only has it prevented the victims of contractor’s wrongdoings from executing legal judgments, but it also presents a terrible risk to unsuspecting victims of such practices. Worse yet, the mechanical policy allows contractors to abuse CSLB licensure, diluting the value of a contractor’s license and squarely putting the public at risk.

To protect the rights of the public, the CSLB’s policy must be amended in accord with the language of the Code and the intent of the Legislature.