November/December 2012 Newsletter

THE USE OF 'SALESPERSONS' FOR ACTIVITIES OTHER THAN SALES

A number of our clients utilize registered salespersons on Home Improvement Projects for more than just sales. Indeed, it is becoming more common in the industry that these persons, who are the first interaction between the customer and the contractor, continue on the project by acting in the manner of a construction manager. Many of these salespersons coordinate the subcontracts, supervise or inspect the work, and negotiate change orders and payments with the customer.

For some time, there has been a controversy in the Home Improvement industry whether salespersons can be independent contractors. The Contractors' Board has declared that a salesperson almost never can be an independent contractor, and requires workers' compensation insurance to be used by the contractor as a salesperson. The Employment Development Department and IRS each have factors that they use in determining whether a person may be deemed an independent contractor or an employee. It does seem to be possible that a pure salesperson, who only negotiates that sale, and nothing more, could possibly fall within the definition provided by the taxing authorities of an independent contractor notwithstanding the opinion of the Contractors' Board. However, when that person who is not an employee of the contractor does anything that would require a contractor's license, we now get into a gray area that can complicate the entire transaction.

Business and Professions Code sections 7026 and 7026.1, among other laws, define the activities of a contractor. The statute is inclusive:

"...any person who undertakes to or offers to undertake to, or purports to have the capacity to undertake to, or submits a bid to, or does himself or herself or by or through others, construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building, highway, road, parking facility, railroad, excavation or other structure, project, development or improvement, or to do any part thereof, including the erection of scaffolding or other structures or works in connection therewith, or the cleaning of grounds or structures in connection therewith, or the preparation and removal of roadway construction zones, lane closures, flagging, or traffic diversions, or the installation, repair, maintenance, or calibration of monitoring equipment for underground storage tanks, and whether or not the performance of work herein described involves the addition to, or fabrication into, any structure, project, development or improvement herein described of any material or article of merchandise. "Contractor" includes subcontractor and specialty contractor. "Roadway" includes, but is not limited to, public or city streets, highways, or any public conveyance." (emphasis added)

Recently, the Legislature passed AB 2237 which amended Business and Professions Code section 7026.1, which adds to the definition of a contractor on Home Improvement Contracts to include the term "consultant" as a person who: (1) provides or oversees a bid for a construction project, or (2) arranges for and sets up work schedules for contractors and subcontractors and maintains oversight of a construction project. The result of this change makes it crystal clear that a person who undertakes such tasks must either themselves be licensed as a contractor or be an employee of a contractor. Thus, if you classify a salesperson as an independent contractor and then have them perform these tasks, you are contracting with an unlicensed contractor to do these tasks and face the possibility of discipline as well as the inability to collect for the portion of work that they do.

It is a simple task (although perhaps not so easy economically) to make every salesperson an employee of your company. We recommend this to avoid potential ramifications and difficulties in the future.