CSLB Contractor's Law & Business Practice Exam

Which action is NOT a cause for disciplinary action against a contractor?

1. Allowing a license to be used by an unlicensed contractor

2. Entering into a contract with an unlicensed contractor

3. Settling obligations during bankruptcy for less than the owed amount

4. Willful failure to pay for materials or services

The correct answer is: Settling obligations during bankruptcy for less than the owed amount

Settling obligations during bankruptcy for less than the owed amount is not typically a cause for disciplinary action against a contractor. In bankruptcy proceedings, individuals and businesses often negotiate that some debts be settled for less than the full amount owed, which is a lawful and accepted part of the bankruptcy process. This settlement may reflect a contractor's financial circumstances rather than poor business practices or misconduct. In contrast, the other actions outlined can reflect actions deemed unprofessional or unethical in the eyes of regulatory bodies. Allowing a license to be used by an unlicensed contractor undermines the integrity of the licensing system, and entering into a contract with an unlicensed contractor can expose both parties to legal risks and enforcement actions. Willful failure to pay for materials or services demonstrates a disregard for contractual obligations and can lead to severe ramifications, including disciplinary actions from licensing authorities.