What licensed contractors should know about the new laws and how they affect contractor liability
By Jacob Yoneda, Attorney, Employment Law and Litigation
Whether you are a licensed contractor or someone hiring a licensed contractor, there are several changes to the California laws that took effect in January 2026 that affect licensed contractors and their businesses. While some changes in the law are largely administrative, others may require immediate updates to contracts in use. Read this summary prepared by JRG Attorneys at Law to understand how new laws may affect you and your projects.
Assembly Bill 521(B&P Code § 7071.4) – Limits CSLB’s liability in handling license bond alternative deposit claims
The Contractor State License Board (CSLB) is responsible for protecting consumers by licensing and regulating the construction industry. AB 521 is a minor amendment to Business and Professions (B&P) Code § 7071.4 to limit the CSLB’s liability with respect to civil actions seeking to recover license bond deposits.
As most contractors know, posting a bond in the amount of $25,000 is a prerequisite of licensure. Contractors have two options for posting the bond – obtaining a surety bond from an admitted surety bond company, which posts the bond on behalf of the licensee, or depositing the $25,000 with the registrar of contractors (a body within the CSLB/Dept. of Consumer Affairs).
How do the changes in the law affect licensed contractors who obtain bonds through a surety company?
The majority of small businesses contractors utilize a bond surety company and are unaffected by the change in this bill. A bond company is a surety and may be liable for attorneys’ fees and costs based on delayed bond fund release. This change to the statute makes it clear that the CSLB does not face similar liability as it is required by statute to only release the deposit funds pursuant to court order.
This change will not affect most contractors and does not change the general bond requirement. It is unlikely that a small business contractor will need to change any practices based on this bill, but you may want to consult with an attorney if you have any questions about your current license bond or deposit.
How does the new law affect licensed contractors who deposit with the registrar?
When a bond claimant (usually a homeowner) is seeking to recover against this kind of deposit, they join the licensing board as a defendant instead of the bond company. AB 521 clarifies that the CSLB is limited from liability for legal fees or costs in a civil action seeking recovery from the deposit.
Assembly Bill (AB) 1002 (B&P Code § 7036) – Authorizes licensing actions arising from employee wage claims
AB 1002 concerns claims by the employees of a contracting business. In addition to all the other issues that will arise if an employee makes a claim for unpaid wages against you, the state can now also use a judgment for unpaid wages or a court order to pay wages as grounds for revoking your license. “Failure to pay wages” as required by law is included in the grounds, indicating that a final judgment is not necessarily required for the Attorney General to file suit.
To clarify, a contractor who pays a judgment for wages or complies with a court order to pay wages is not at risk of license discipline. This law puts your license at risk based on unpaid judgments or violated court orders.
How does the state implement licensing actions due to wage claims?
AB 1002 provides the state Attorney General the power to revoke or deny the license of a contractor who has a judgment or court order against the contractor for unpaid wages. The Attorney General must notify the CSLB registrar 30 days before filing suit, and the CSLB can intervene. If the CSLB does not intervene, it will be bound to revoke or deny licensure if the Attorney General prevails in the action.
What should contractors do to avoid license actions related to wage claims?
Small and medium-sized contracting businesses often face wage and hour and employment law issues. Injuries both on and off the job are common, and wage claims often accompany injury claims and wrongful termination claims. Contracting employees are often in the field at job sites, making time keeping, break monitoring, and supervision difficult.
This new enforcement power is a reminder that contractors must not ignore employment law and wage and hour claims, either from private attorneys or from the DIR/Labor Board, even when apparently frivolous. Ignored claims and suits can progress to judgments, which can in turn expose your license to risk. Consulting with your attorney about timekeeping, payroll practices, and written policies can go a long way towards minimizing risk, though some labor claims are an all but inevitable reality of doing business in California.
Assembly Bill 1327 (B&P Code §7159) – Requires home improvement contracts to include telephone contact information provisions for email notices of cancellation
AB 1327 adds language to the already lengthy text of B&P Code § 7159, the section detailing all the requirements of a home improvement contract. Among those requirements is the rule that home improvement contracts must tell the consumer of their 3-day cancellation period (5 days for seniors) during which they can notify the contractor that they changed their mind and can cancel the contract so long as they return any furnished materials.
With the goal of modernizing the requirement for notice of cancellation, the new law allows notices of cancellation to be submitted by email and requires contractors to provide in a home improvement contract an email address at which cancellations will be accepted and a phone number for the consumer to call to seek help submitting cancellation.
How should contractors comply with the notice of cancellation requirements pursuant to AB 1327?
This change will affect any contractor or business using home improvement contracts, and contracts should include a correct cancellation notice provision. Failure to do so will be grounds for a complaint to the board. All kinds of problems may arise from using non-compliant contracts with homeowners, particularly if you need to sue to enforce the contract for non-payment. It’s a good idea to review Section 7159 on a regular basis and inquire with your attorney if you aren’t certain that you’re in compliance.
Some contracting businesses already have a monitored business email, and others do not. At this time, any contractor using home improvement contracts will need a business email address, and it is highly advisable to monitor it routinely.
Senate Bill 517 (B&P Code § 7159) – Requires disclosure of subcontractors in home improvement contracts
This bill also concerns the home improvement contract requirements. Looking at the changes in order, first it adds some language confirming that the general contractor on a home improvement contract is ultimately responsible for completing the project according the specifications. But it adds that this designation of responsibility does not preclude administrative discipline against a subcontractor, making a clear indication that subcontractors must comply with licensing requirements and the CSLB can take action based on complaints against subcontractors for violations of the B&P Code.
The more notable change is a requirement that home improvement contracts include a section specifying whether subcontractor(s) will be used on the project in the form of yes/no check boxes. If “yes” is checked, a disclaimer is required stating that a subcontractor will be used and that a list of subcontractors must be provided including names, contact information, license numbers, a classification to the consumer upon request. This disclaimer must also be included in change orders.
How should contractors comply with the subcontractor and home improvement contracts provisions of SB 517?
Once again, any contractor working in home improvement projects must update their contracts accordingly. At the start of a job, one should be prepared to provide the subcontractor list.
This change does not affect the basic division of responsibility between prime and subcontractors, and one imagines it might be ignored by most clients. That said, a savvy or careful consumer should be able to use this disclosure to keep track of subcontractors and ensure they are licensed.
The apparent idea of this law is to assist consumers in avoiding surprise mechanics liens from subcontractors, as well as to ensure that all subcontractors are licensed and subject to discipline.
Senate Bill 291 (B&P Code § 7099.2) – Increases penalty for workers' compensation coverage violations
SB 291 makes an immediate change to the penalty for failure to maintain worker’s compensation insurance and deals with some changes to the process in verifying when a contractor has no employees.
The immediate change to B&P Code § 7125.4 increases the minimum penalty for employing a worker without workers compensation coverage or filing a false certification of no employees to $10,000 for a sole owner business and $20,000 for a partnership or jointly owned business.
The exact changes to the verification process for contractors without employees is yet to be determined, but if you currently report no employees and do not maintain WC insurance, be prepared for additional paperwork in 2027/2028.
How should contractors comply with the workers’ compensation provisions of SB 291?
The law already requires WC insurance for any contractor with employees; this change adds some additional teeth to those rules and seeks to discourage contractors from falsely reporting no employees to avoid paying for insurance.
Most business owners recognize the importance of workers’ compensation insurance and can imagine the potential fallout of dealing with a serious workplace injury without a policy. What some may overlook is that California has recent and evolving rules about who is classified as an “employee.” If there is any doubt that someone you are paying is a truly independent subcontractor, it may be worth reviewing the rules and consulting with your attorney.
Senate Bill 779 (Various Statutes) – Increases penalties for unlicensed work and other violations
SB 779 increases fines for work requiring a license that is done by unlicensed workers. Minimum and maximum penalties are increased for unlicensed contracting work, and the penalty now ranges from $1,500 to $15,000. To those complying with license laws, penalties on unlicensed competition skirting the rules is probably a good thing – though there are more factors to enforcement than the penalty amount alone.
In addition to increased penalties for unlicensed work, penalties for violations of the B&P Code are also increased. For willful disregard of building laws (§7110), aiding or abetting unlicensed contracting work (§7114), and entering into a contract with an unlicensed contractor (§7118) the minimum penalty is now $1,500, with a maximum penalty of $30,000.
Various other minor penalties that were once $200 are increased to a minimum of $500. All of the penalties are subject to increase according to inflation index every five years.
How should contractors comply with SB 779?
The discussion of this bill considered that many fines that are assessed are appealed and reduced to statutory minimums by administrative judges for the board. Contractors should, in addition to reviewing their contracts and policies to avoid violations, consider appealing high fines when mitigating circumstances exist. The higher penalty category of violations is also a reminder of the importance of ensuring that all contractors and subcontractors one works with are duly licensed, even if one knows one’s own business is licensed.
Senate Bill 456 – license exemptions for mural artists
Probably the least likely change to affect your licensed business – California wishes to make it easier for artists to paint, restore, and maintain murals. Some critics have complained that some “maintenance” might be included in the exceptions that should really be licensed contracting work, like pressure washing or texture application. If you’re already licensed, the bill should not affect your practices.
How can contractors ensure compliance with new laws?
Keeping apprised of changes in laws affecting licensed contractors is important in managing risk and ensuring your business has procedures in place to avoid the worst of exposure to fines and civil actions.
These recent changes in law show us the state legislatures current areas of focus, which can be summarized as 1) enforcing license requirements strictly, 2) providing consumers, particularly homeowners, information and protections, and 3) ensuring that contractors pay their employees and comply with labor laws including workers compensation rules.
Consulting an attorney to review your home improvement contracts and employment practices is a relatively small investment considering the risks that can be mitigated. JRG Attorneys at Law is experienced in handling both administrative and civil proceedings affecting contractors, including OSHA appeals, DIR claims, contract and construction disputes, and employment law and wage and hour claims and actions.
Contact JRG Attorneys at Law to discuss how the changes may affect and how best to manage and mitigate risk of financial liability.