Governor Signs Industry Sponsored Legislation to Protect Contractors
Governor Newsom has signed AB 830 to protect contractors who use a “Responsible Managing Employee” (RME) as the qualifier on their contractor license. The legislation clarifies that an RME qualifier on a contractor license is a valid qualifier and that the requirements for “supervision and control” on a construction project may be accomplished by the RME either directly, or indirectly by supervising designated employees.
AB 830 was necessary in response to recent litigation; D.A. McCosker Construction Co. v. California Department of Water Resources. In the case, a judge in the Superior Court of Sacramento found that because the contractor was working on multiple projects, the RME could not be satisfactorily involved in the California Department of Water Resources project, and as such, the contractor was operating as an unlicensed contractor. By the judge determining independently what “supervision and control” means and declaring the contractor unlicensed, he placed the contractor in a position of being disgorged of all funds paid on the project. As a result of the Court’s decision, it became possible for an RME’s status as a qualifier on a license to no longer be determined by regulation, but instead by individual judges.
As a practical matter, contractors and subcontractors who perform work on large public and private construction projects have multiple jobs underway at any given time. Each project is assigned a project manager who is responsible for managing each individual project, whereas the RME is often an employee responsible for managing the operations of the licensee. Pursuant to the Judge’s ruling, it would be unclear how a contractor whose license is held by an RME could continue perform on multiple jobs without being placed in jeopardy of being found to be unlicensed.
AB 830 address this issue long term, by placing in state law, clarity that an RME is a valid qualifier on a license and can provide “supervision and control” either directly, or indirectly by supervising designated employees.
Newsom Signs Legislation to Extend Industry Exemption to AB 5 for Construction Trucking
The Governor has signed AB 1561 to extend the sunset on the exemption granted to construction trucking subcontractors from the provisions of AB 5. AB 5 codified the “ABC test,” the test now broadly used to determine whether a worker is considered an independent contractor or an employee. This test was established by the California Supreme Court’s ruling in Dynamex Operations West, Inc. v. Superior Court, (2018) 4 Cal.5th 903.
The exemption language was placed into AB 5 to remove the holding in the Dynamex court decision from determining employee or independent contractor status between contractors and independent owner operators providing construction specific trucking services. In its place, AB 5 created a new standard that allowed for the previous and long-standing test adopted by the California Supreme Court in the case of S. G. Borello & Sons, Inc. to provide the determination of employee or independent contractor status, so long as the independent owner operator providing the construction trucking service can demonstrate true independent contractor status. The exemption was necessary to address significant operational impacts that AB 5 brought to the industry, which would have shutdown jobsites. The exemption will now sunset on January 1, 2025, providing the industry three additional years to develop compliance with AB 5.
Communication provided by Sweeney Mason LLP