Governor Arnold Schwarzenegger has signed SB 488, a bill by Senator Nell Soto (D – Pomona) to crack down on illegal contractors.

Soto’s measure enhances penalties for third and subsequent convictions for contracting without a license and provides that it is a misdemeanor for the qualifying person of a contractor's license to violate Workers' Compensation insurance requirements.

Specifically, SB 488 provides that third and subsequent convictions for unlicensed contracting are punishable by a fine of between $4,500 and $10,000, or 20% of the contract price under which the unlicensed person performed contracting work, or by imprisonment in a county jail for no less than 90 days and no more than one year, or both a fine and imprisonment.

Soto’s bill also establishes that a qualifying person of a contractor's license is guilty of a misdemeanor for committing, or failing to prevent the commission of, any of the following acts that are cause for disciplinary action:

• Filing of a false exemption certificate for a Certificate of Workers' Compensation Insurance or a Certification of Self-Insurance;

• Employment of a person subsequent to the filing of an exemption certificate without then filing a Certificate of Workers' Comp Insurance or Certification of Self-Insurance;

• Employment of a person subject to coverage under the Workers' Comp laws without maintaining coverage for that person.

Soto introduced her bill to address two ongoing issues occurring within the construction industry:  1) unlicensed contracting; and, 2) licensees who fail to comply with Workers' Comp insurance laws.

Proponents believe that for both issues covered by this bill, there is considerable risk of monetary injury to consumers who employ the services of individuals who are dishonest enough to engage in either type of business practice.  Mitigation of such risks is one of the underlying principles of SB 488, so Soto’s measure serves a valuable purpose by providing more stringent deterrents for individuals who, regardless of the penalties otherwise imposed, continue to violate the law.

According to the Contractors State License Board (CSLB), there are a considerable number of unlicensed contractors who are part of the underground economy, an element that compromises the financial security of legitimate businesses and undermines the state's revenue-generating programs.  Numerous approaches have been used to address this problem, but it continues to impact legitimate licensees and consumers alike with injurious economic results.  The victims of these violations include consumers, often the elderly, who pay thousands of dollars to an unlicensed person who never finishes the job or does incompetent or negligent work.

Further, as indicated by CSLB, participation in the underground economy is not limited to those who are unlicensed.  Some licensees occasionally hire employees without obtaining the Workers' Comp Insurance coverage required by law.  This is more common on smaller projects, such as roofing repairs.  In these cases the licensee does not want the competitive disadvantage that results from having to pay for an insurance policy.  This practice puts consumers at risk for any injuries sustained on their property, and undermines the businesses of licensees who are trying to compete and operate legitimately.