Just got the quarterly newsletter from the California State Contractor's License Board.  Article on the first page states referral fees are against the law for those of us with a contractor's license.

From what I gather, it is OK to give a referral fee to someone without a contractor's license, but not one with a license.

Here is the article:

No matter what you call it—a referral fee, incentive, inducement, or kick-back, any time a fee is requested or required for referring contracting work, a state law is being violated and you risk having disciplinary action taken against your license.

CSLB is aware that referral fees in the disaster response industry are prevalent and are becoming more of a concern during the difficult economic times. There is evidence that such referral fees result in the artificial inflation of charges to homeowners and to the insurance companies called upon to reimburse who refuse to pay these referral fees are losing out on business and are victims of an uneven playing field.

California Business and Professions Code Section 7157(d), says referral fees are considered to be illegal inducements, a violation of Contractors State License Law. If, after investigation, a license is found to be in violation of the law, CSLB may take a formal administrative disciplinary action and/or refer the matter to the local authorities for criminal prosecution.

B&P Code Section 7157(d) – Prohibited Inducement; reads as follows:
“(d) No contractor shall pay, credit, or allow any consideration or compensation of any kind to any other contractor or salesperson other than a licensee for or on account of the performance of any work of improvement or services, including, but not limited to, home improvement work or services, except: (1) where the person to or from whom the consideration is to be paid is not subject to or is exempted from the licensing requirements of this chapter, or (2) where the transaction is not subject to the requirements of this chapter.

As used in this section ‘owners’ shall also mean ‘tenant.’Commission of any act prohibited by this section is a misdemeanor and constitutes a cause for disciplinary action.”

Penalties for Home Improvement Inducements:

The first offense could result in a citation with civil penalties ranging from $100 to $1,000. Subsequent violations will prompt an accusation that could result in further penalties, up to revocation of your contractor license.

Complete text of B&P Code Section 7157 is available in the 2011

California Contractor License Law & Reference Book, available on the CSLB website:
http://michie.lexisnexis.com/califo...6/c7f/c82/
c85/c88/c8c/12fd/1365?f=templates&fn=document-frame.htm&2.0se homeowners for the costs. Contractors

Fun Fun Fun.. I heard that some of the largest online vendors like amazon are pulling the plug on all "affiliates" residing in Cali due to California imposing a state tax requirement on all online purchases as well as the above law that you stated as a contributing factor.

I heard Nevada can be nice.

Andy,

It isn't "legal" to give a referral fee to a non-licensed individual, but the CSLB doesn't have jurisdiction over unlicensed people.  A kickback is a kickback, it just becomes someone else's jurisdiction.

Posted By Len Smith on 05 Jul 2011 03:28 PM
Andy,

It isn't "legal" to give a referral fee to a non-licensed individual, but the CSLB doesn't have jurisdiction over unlicensed people.  A kickback is a kickback, it just becomes someone else's jurisdiction.

So a referral fee is illegal all the time.

Direct tv give a kickback if you refer a friend.  Is that different than what we are talking about with our industry?

I don't see how a referal fee is any different than paying for advertising as far as artificially inflated the final cost, I don't get it.

I don't get it either, but apparently that is the law.

Now our contractors will have to sign the contract and mark it up on there end to make money.

In Michigan if you buy remodeling from me, I'm not allowed to give you x% off your job if your neighbor hires me too. This isn't just a California thing.

It really hurt my heart that those poor insurance companies were suffering.

Joe

Thats like fee splitting among doctors!

I have a great a joke about that!

A doctors office sink was stopped up, so being a lazy, too good to soil his hands doctor, he called a plumber!

The plumber arrives, and looks at the situation! He does some minimal work, but finally calls the doctor back in for a "aqueous distribution and waste water removal system" conference!

The plumber shakes his head says..........

wait for it,

Wait for it,

OK here it is..........

This is  major blockage of an important aqueous removal artery! Its going to require extensive "surgery"!


"Im afraid Im going to have call in in a "trap" specialist!"

Oh BTW the plumber billed the doctor for his time!

I'm not sure this is all-encompassing.
If I sell cabinets or tops to the customer of a remodeler, wh0 referred them to me, then I give the remodeler a set percentage of that sale, I believe I am acting as an agent for him, and I am simply giving him his mark up.

I Think.

Tom, I think it depends on how you are paying him. If it is a commission and you 1099 him, I think that's fine

Based on the CSLB law, you cannot give any inducements of any kind. What you are talking about Tom would be illegal.

The contractor would have to purchase the top from you and then invoice their customer separate from you.

I think.

I think Norm has it right. Andy, there has to be a way where you can act as a selling agent for a remodeler. I can't believe California does not allow for a representative transaction.

Posted By Tom M on 07 Jul 2011 07:56 AM
I think Norm has it right. Andy, there has to be a way where you can act as a selling agent for a remodeler. I can't believe California does not allow for a representative transaction.

Where the law is intended.. lets say mr architect calls his friend Andy and tells him to bid on a government job he is working on. Then the architect receives a $monetary$ gift when Andy gets the job.  That is the illegal part.  However, if Andy gets the job, Hires Tom M to do the work, Tom pays Andy an agreed upon part of the profits, that is not illegal... that is a business transaction.

Referral fees cannot be paid to consulting parties, when the funding comes from public funds.   Private party transactions are not involved, that is called the free enterprise system.

Posted By Kelsey Crisp on 10 Jul 2011 11:49 AM 
   Private party transactions are not involved, that is called the free enterprise system.

Kelsey:

In Michigan, it doesn't matter how private the party. A licensed contractor cannot give a discount or payment to an existing customer for referring or delivering a new customer.

Joe

Same in California. It's not limited to government jobs...the idea is that Contractors shouldn't be bribing people to get work.

On the contrary, paying for influence is a system reserved strictly for congressmen and senators.  They don't like it when contractors try to get into the act.

does this mean I might have to give the $100+ dollars i have received from Direct TV back?

So when you google it, it seems google returns a gillion ways Michigan and California attorneys can get refferal fees... so I guess they are immunue from the practice?

Come on Joe,  are you you telling me you cannot give a discount coupon to a customer and send them a box of chocolates for the referral?  The corporate gift market is worth billions.. is everyone going to jail?

Posted By Kelsey Crisp on 10 Jul 2011 07:52 PM
So when you google it, it seems google returns a gillion ways Michigan and California attorneys can get refferal fees... so I guess they are immunue from the practice?

Come on Joe,  are you you telling me you cannot give a discount coupon to a customer and send them a box of chocolates for the referral?  The corporate gift market is worth billions.. is everyone going to jail?

Kelsey:

Yes, that's what I'm saying. I didn't write the law, I just follow it. I'm familiar with it because it was on the licensing exam.

I've found that satisfied customers are very happy to give referrals and write rave reviews on servicemagic without incentive. I think it makes them feel vindicated and smart for having chosen the right guy.

There is no law against my waiving a fee or heavily discounting for a repeat customer on a small job either.

Joe

That is the way it is Kelsey. The law is ridiculous, but that is it until it gets changed.