July 2017

News from Abdulaziz, Grossbart & Rudman
Having trouble viewing this email? Click here
Abdulaziz, Grossbart & Rudman Newsletter
July 2017

We hope that you enjoy this edition of our Newsletter.
Remember, if there is anything that you would like to see in the future, please let us know.
The Staff at
Abdulaziz, Grossbart & Rudman
Underreporting Payroll Can Make You Unlicensed
By Sharice B. Marootian
Abdulaziz, Grossbart & Rudman
The conversation often goes like this: Lawyer to client - "You can be deemed unlicensed" Client to lawyer - "But I have a contractor's license...see!" Lawyer to client - "Yes, I know. But you can be deemed unlicensed by operation of law." In my practice, I have come across many situations where a contractor is surprised to learn that failure to obtain or maintain workers compensation insurance can mean that his or her contractors' license is suspended.

If you have employees, you must obtain and maintain workers' compensation insurance for all of your employees. Under Business and Professions Code Section 7125.2, the failure to do so results in "the automatic suspension of the contractor's license by operation of law." The ramifications are harsh - not only can the contractor not collect for work performed, but it can be sued for disgorgement. Disgorgement is defined as "the act of giving up something such as the profits obtained by illegal or unethical acts on demand or by legal compulsion. The court can order wrongdoers to pay back illegal profits to prevent unjust enrichment."

Even if it appeared on the records of the Contractor's Board that the person was validly licensed, that license is subject to automatic suspension as a matter of law for not properly maintaining worker's compensation insurance.

In a 2007 California Court of Appeal case, Wright v. Issak, a dispute had arisen from a home remodeling project, where the contractor, Laurence Wright, sued the homeowners for breach of contract and related causes of action. The homeowners answered by alleging that the contractor was not a licensed contractor and filed a cross-complaint for fraud and related causes of action. The contractor worked on the defendants' home during a four month period in 2004. In June, he paid a crew of three to five employees approximately $15,000 for approximately 4000 man hours. State Compensation Insurance Fund records for November 2003 through August 2004 showed that the contractor reported, under penalty of perjury, a payroll of $312 while having an actual payroll of $135,000. The homeowners attorneys showed that contractor reported zero or next to zero payroll for every payroll period between his initial application for workers' compensation insurance in May 2002 and the end of 2004

The Court found that the contractor's underreporting was not inadvertent and that it was his pattern and practice from the first moment he applied for workers' compensation insurance. It held that a "contractor's underreporting of payroll resulted in automatic suspension of his license, thereby precluding his action against homeowners." The Court also found that if a contractor underreported his payroll, he did not obtain worker's compensation insurance and his license was automatically suspended. The Court confirmed that "[a] case about underreporting payroll is, by definition, a failure-to-obtain case rather than a failure-to-maintain case."

Section 8152.2 has two failure prongs: failure to "obtain"; and failure to "maintain." The Code section goes on to state the effective suspension dates for the two prongs: the failure-to-maintain prong's effective date of suspension is the date that coverage lapses; whereas the failure-to-obtain prong's effective date of suspension is the date that coverage should have been obtained. A registrar's notice is only required if the suspension is for failure to maintain. Since the contractor had workers' compensation insurance but underreported payroll, he failed to obtain workers compensation insurance. Therefore, he would not have received notice from the Registrar. He could not expect it nor rely on the lack of notice as a defense.

The bottom line is if you have employees, you must properly obtain workers compensation insurance by reporting your accurate payroll, and you must maintain the insurance without any lapses. Just because you have a contractor's license in hand, does not mean you cannot be deemed unlicensed by operation of law.

It has just been leaked by the secret service that there is a new protocol for when the president is in danger. Instead of yelling, "Get down!" they must yell, "Donald, duck!" To which heads of security have commented, "That's just goofy."

Are you aware that California employers are required to take the following steps to prevent heat illness?
  1. Train all employees and supervisors about heat illness prevention.
  2. Provide enough fresh water so that each employee can drink at least 1 quart per hour, or four 8 ounce glasses, of water per hour and encourage them to do so.
  3. Provide access to shade and encourage employees to take cool-down rest in the shade for at least 5 minutes. They should not wait until they feel sick to cool down.
  4. Develop and implement written procedures for complying with the CalOSHA Heat Illness Prevention Standard.
Click here for a poster that has great advice on how to prevent and treat heat exhaustion and heat stroke.

The other day, my wife asked me to pass her lipstick to her but I accidentally passed her a glue stick.

She's still stuck on giving me the silent treatment.
Abdulaziz, Grossbart & Rudman
provides this information as a service to its friends and clients. This Newsletter is of a general nature and is not intended to be a substitute for legal advice. This Newsletter does not establish an attorney-client relationship with the reader. Since laws are ever changing, please contact an attorney before using any of the information contained within this Newsletter.
Abdulaziz, Grossbart & Rudman
6454 Coldwater Canyon Ave.
North Hollywood, California 91606
(818) 760-2000; (818) 760-3908 (fax)
In This Issue

Like us on Facebook

Follow us on Twitter
Visit the CSLB's Website at www.cslb.ca.gov