AB-1278: DON’T GET NAILED! New California Law for Licensed Contractors

- Stephen J. Guichard, Esq.

construction

In October 2017, Governor Brown signed AB 1278 into law. Previously, licensed contractors who failed to pay a final court judgment entered against them could simply avoid the judgment by not working under their license issued by the Contractor's State License Board ("Board"); form a new entity; or work under another contractor's license.

Further Implications for Contractors

This Bill reduces the possibility of avoiding a judgment by suspending a contractor's license until the contractor:

(1) Pays the judgment and notifies the Board,

(2) Submits a notarized settlement agreement to the Board, or

(3) Files a bond equal to all outstanding judgments against the contractor.

Caution! Hiring the suspended contractor to work under your contractor's license or hiring personnel of the suspended contractor to work under your contractor's license may result in suspension of your contractor's license as well. The "peripheral" suspension will continue until you terminate the suspended contractor and personnel of that contractor from your employment or until the Board receives notice that the suspended contractor has paid the judgment, settled the judgment, or filed a bond to cover the judgment.

Next Steps for Employers

Contractors should consider negotiating notarized settlement agreements with their creditors. Employers should consider reviewing:

(1) New hire work history,

(2) Their standard employment application forms,

(3) Creating proper procedures for interviewing prospective new hires about their employment history, and

(4) Screening that information to discover unpaid judgments to protect against a peripheral suspension.