Protecting Your Contractor Business: RME Agreements Posted on Mar 24, 2016
Many solar and other types of cleantech companies need a contractor’s license to operate. This often involves either the owner of the company or an employee with a contractor’s license agreeing to be the responsible managing officer or employee for the company’s activities. In order to set up this relationship, it is advisable to have an RME Agreement that defines obligations, expectations, risk and liabilities.
In California, RMEs are personally liable for events at the companies in two main instances: (i) RMEs are personally liable for ensuring their compliance with properly performing their RME duties, and (ii) RMEs are personally liable for complying with standard applicable laws when performing their own duties at the company. RMEs are not personally liable for all actions of the company and its employees.
In regard to performing their duties as the RME, an RME is strictly (and personally) liable when its principal acts wrongly if the RME fails to perform its duties as an RME. The liability in this situation, however, is limited to disciplinary and regulatory liability (not civil) and limited, as follows:
(e) Violation of this section shall constitute a cause for disciplinary action and shall be punishable as a misdemeanor by imprisonment in a county jail not to exceed six months, by a fine of not less than three thousand dollars ($3,000), but not to exceed five thousand dollars ($5,000), or by both the fine and imprisonment.
Cal Bus & Prof Code 7068.1. Thus, the liability for failing to perform the duties required of an RME is limited to discipline by the CSLB. Even if the RME fails to perform its duties as RME, it will not be liable for actions of the company and its employees unless it breaks some kind of other law.
Consequently, in California, the RME is not personally liable with respect to negligence, breach of contract, and other actions by the Company unless the RME is found to be guilty of negligent supervision or some other statutory/common law violation. Ironically, the lesson is that ignorance is bliss. In the only RME cases in which civil liability was found, the RME knew of and was personally involved in the wrongful behavior and did nothing to rectify the problems. For example, the RME’s behavior was egregious, knowing behavior. Courts have held there is no liability for the RME when he/she was unaware of the conduct at issue. Thus, the general rule is that an RME of a corporate contractor cannot be liable for negligent construction work unless he or she personally breaches a legal duty owed to a plaintiff by personally participating in the negligent work or authorizing or directing that the negligent work be done.
As one other comment, there is requirement in California that RMEs are “bona fide employees,” which are employees who are permanently employed by the applicant and are actively engaged in the operation of the applicant's contracting business for at least thirty-two hours or eighty of the total hours per week such business is in operation, whichever is less.
We just added an RME Agreement to our arsenal of contracts to help our customers set up these important relationships.