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 homeowners for the costs. Contractors who abide by the law and 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) Prohibited Inducement, 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.

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.