What is required for contractors to join together to be properly licensed in California?
A qualifying agent for purposes of obtaining the contractor license in California must own at least 20% equity of the company. Sub-section (c) allows for a managing person from another company (co-partnership or limited partnership) to act as the qualifying agent if he or she also is principal in the other company. In other words, if an individual is a managing partner of one entity who wants to be the qualifying agent for another, he/she may if he/she is also a partner of the second company. This would typically require him/her to be an owner of both companies in some capacity.
In California, the qualifier for a contractor's license must be a "responsible managing employee" of the firm or a "responsible managing officer" (if the firm is a corporation) or a general partner (if the firm is a partnership). The pertinent statutes and regulations for qualifiers are at California Business and Professions Code §§7068 and 7068.1 and at 16 California Code of Regulations §823. In order to understand the requirements for a qualifier, these statutes and regulations must be read together.
Subdivision (d) of §7068 defines "responsible managing employee" as "a bona fide employee [who] is actively engaged in the classification of work for which that responsible managing employee is the qualifying person...." Subdivision (a) of §823 defines "bona fide employee" as "an employee who is permanently employed by the applicant and is actively engaged in the operation of the applicant's contracting business for at least 32 hours or 80% of the total hours per week such business is in operation, whichever is less." As a result, a qualifier for a California contractor's license may not serve in that capacity for more than one firm at any one time (except for joint ventures of which this firm is part).
Section §7068.1 requires that a "responsible managing employee" be "responsible for exercising that direct supervision and control of his or her employer's or principal's construction operations as is necessary to secure full compliance with the provisions of this chapter and the rules and regulations of the board relating to the construction operations." Subdivision (b) of Regulation §823 defines "direct supervision and control" as "one or any combination of the following activities: supervising construction, managing construction activities by making technical and administrative decisions, checking jobs for proper workmanship, or direct supervision on construction job sites."
In California, failure to maintain a bona fide responsible managing officer or responsible managing employee ("RME") automatically invalidates an otherwise valid license. (Buzhgheia v. Leasco Sierra Grove, 60 Cal.App.4th 374, 385-86 (1997).) That case involved a framing contractor who had been defrauded by an owner-developer into performing work under cost in exchange for a promise of more lucrative work that never materialized. When the contractor sued, the owner defended in part by claiming that the contractor had used a "borrowed" RME and was therefore not duly licensed. Evidence was presented that the RME worked for another company throughout the project history, that he could only document $2,072 in wages from the contractor, and that his role on the project involved "quality control" and not supervision or layout. After being instructed that the owner carried the burden of proving that the license was invalid, the jury found that the license was valid and awarded the contractor more than $3 million in damages, interest and attorney fees.
On appeal, the court reversed the jury's verdict on the grounds that the jury had been incorrectly instructed on the burden of proof regarding the issue of licensure. The court held that the contractor carried the burden of proving licensure and that this "encompassed the burden to prove a bona fide RME when such was controverted." The court stated that once the owner had offered evidence suggesting that the RME was not an actual employee of the contractor, the contractor needed to prove that the RME was in fact a bona fide employee in order to demonstrate valid licensure. Therefore, the court held that the contractor was prohibited from recovering against the owner unless it could successfully prove to the jury that its RME was a bona fide employee.
The court's ruling in Buzhgheia makes it very clear that a contractor who performs work without a bona fide RME is not licensed for that work. This is consistent with an earlier California decision holding that a contractor who "borrowed" an RME in order to qualify for a swimming pool specialty contractor's license was not duly licensed to perform work in that specialty. (Rushing v. Powell, 61 Cal.App.3d 597, 605-606 (1976).) Moreover, the court in Buzhgheia expressly held that an owner has standing to challenge the bona fide character of a contractor's RME, stating: "It is possible for a party in a civil action to attack a contractor's license by going behind the face of the license and proving that the required RME is a 'sham.' "
These are the relevant California statutes:
§ 7068 Bus. & Prof.
(a) The board shall require an applicant to show such degree
of knowledge and experience in the classification applied
for, and such general knowledge of the building, safety,
health, and lien laws of the state and of the administrative
principles of the contracting business as the board deems
necessary for the safety and protection of the public.
(b) An applicant shall qualify in regard to his or her
experience and knowledge in one of the following ways:
(1) If an individual, he or she shall qualify by personal
appearance or by the appearance of his or her responsible
managing employee who is qualified for the same license
classification as the classification being applied for.
(2) If a copartnership or a limited partnership, it shall
qualify by the appearance of a general partner or by the
appearance of a responsible managing employee who is
qualified for the same license classification as the
classification being applied for.
(3) If a corporation, or any other combination or organization, it
shall qualify by the appearance of a responsible managing officer or
responsible managing employee who is qualified for the same license
classification as the classification being applied for.
(c) A responsible managing employee for the purpose of this
chapter shall mean 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 in
behalf of the applicant.
(d) The board shall, in addition, require an applicant who
qualifies by means of a responsible managing employee under either
paragraph (1) or (2) of subdivision (b) to show his or her general
knowledge of the building, safety, health, and lien laws of the state
and of the administrative principles of the contracting business as
the board deems necessary for the safety and protection of the
(e) Except in accordance with Section 7068.1, no person qualifying
on behalf of an individual or firm under paragraph (1), (2), or (3)
of subdivision (b) shall hold any other active contractor's license
while acting in the capacity of a qualifying individual pursuant to
(f) At the time of application for renewal of a license, the
responsible managing individual shall file a statement with the
registrar, on a form prescribed by the registrar, verifying his or
her capacity as a responsible managing individual to the licensee.
(g) Statements made by or on behalf of an applicant as to the
applicant's experience in the classification applied for shall be
verified by a qualified and responsible person. In addition, the
registrar shall, as specified by board regulation, randomly review a
percentage of such statements for their veracity.
(h) The registrar shall review experience gained by applicants
from other states to determine whether all of that experience was
gained in a lawful manner in that state.
§ 7068.1 Bus. & Prof.
The person qualifying on behalf of an individual or firm
under paragraph (1), (2), or (3) of subdivision (b)
of Section 7068 shall be responsible for exercising that direct
supervision and control of his or her employer's
or principal's construction operations as is necessary to secure
full compliance with the provisions of this chapter and the
rules and regulations of the board relating to the
construction operations. This person shall not act in the
capacity of the qualifying person for an additional
individual or firm unless one of the following conditions
(a) There is a common ownership of at least 20 percent
of the equity of each individual or firm for which the person
acts in a qualifying capacity.
(b) The additional firm is a subsidiary of or a joint
venture with the first. "Subsidiary," as used in this
subdivision, means any firm at least 20 percent of the
equity of which is owned by the other firm.
(c) With respect to a firm under paragraph (2) or (3)
of subdivision (b) of Section 7068, the majority of the partners
or officers are the same.
(d) Notwithstanding subdivisions (a), (b), and (c), a
qualifying individual may act as the qualifier for no more
than three firms in any one-year period.
"Firm," as used in this section, means a copartnership, a
limited partnership, a corporation, or any other combination
or organization described in Section 7068.
"Person," as used in this section, is limited to persons
natural, notwithstanding the definition of "person" in
The board shall require every applicant or licensee
qualifying by the appearance of a qualifying individual to
submit detailed information on the qualifying individual's
duties and responsibilities for supervision and control
of the applicant's construction operations.