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NEW JERSEY REGISTER
VOLUME 37, NUMBER 4
TUESDAY, FEBRUARY 22, 2005
RULE PROPOSAL

LAW AND PUBLIC SAFETY
DIVISION OF CONSUMER AFFAIRS
NEW JERSEY BOARD OF EXAMINERS OF ELECTRICAL CONTRACTORS
JOINT VENTURES; SUBCONTRACTING OF ELECTRICAL WORK

Proposed Amendment: N.J.A.C. 13:31-3.5

Authorized By: New Jersey Board of Examiners of Electrical Contractors, Barbara A. Cook, Executive Director.

Authority: N.J.S.A. 45:5A-6.
Calendar Reference: See Summary below for explanation of exception to calendar requirement.
Proposal Number: PRN 2005-53.

Submit comments by May 3, 2005 to:

Barbara A. Cook, Executive Director

New Jersey Board of Examiners of Electrical Contractors

124 Halsey Street

PO Box 45006

Newark, New Jersey 07101

The agency proposal follows:

Summary

Pursuant to its general rulemaking authority at N.J.S.A. 45:5A-6, the New Jersey Board of Examiners of Electrical Contractors (the Board) is proposing an amendment to N.J.A.C. 13:31-3.5, in order to eliminate any confusion which may currently exist in the electrical contracting industry regarding the permissibility of subcontracting the performance of electrical work to unlicensed persons. N.J.A.C. 13:31-3.5(a) currently provides that where two or more persons form a joint venture for the purpose of contracting to perform electrical work, each party to the joint venture must hold a business permit issued by the Board to engage in electrical contracting in New Jersey. The Board's intent in promulgating the joint venture rule was to ensure that all electrical work performed in the State is appropriately supervised by licensed electrical contractors holding business permits. Such a requirement helps to promote the health, safety and welfare of consumers in New Jersey by ensuring that all electrical work performed in the State complies with appropriate industry practice and safety standards. The Board notes that it also recently promulgated amendments to its supervision rule, set forth at N.J.A.C. 13:31- 3.4, in order to require all electrical work performed by electrical contractor employees to be appropriately supervised and monitored so as to ensure compliance with recognized practice and safety standards.

Despite these requirements, the Board has become aware that some licensees are entering into arrangements to perform electrical work with persons who are not licensed electrical contractors and who do not hold business permits issued by the Board, and that the work performed by such persons is not being appropriately supervised. The Board has noted too many consumer complaints where problems have arisen in connection with the quality of electrical work performed, rooted in the fact that some licensees have been subcontracting electrical work to unlicensed persons on an occasional basis, in effect, "lending" their licenses, business permits, and pressure seals to these unlicensed persons. Often such complaints are brought to the Board's attention by municipal inspectors who become aware that the contractor who signed and sealed the permit to perform certain electrical work is not available when problems with the work emerge. The Board has further found that it is characteristic of such subcontracting relationships for the licensee to pay the subcontractor on an Internal Revenue Service Form 1099 (as opposed to a Form W- 2).

Because of the attenuation of accountability when there is no ongoing employer-employee relationship, the Board cannot be confident that appropriate supervision, pursuant to N.J.A.C. 13:31-3.4, takes place where licensees subcontract electrical work to unlicensed persons. Where an employer-employee relationship exists, self interest alone encourages appropriate supervision of employees; while in a contractor-subcontractor relationship, which is more likely to be occasional or even a one-time-only relationship, there is less impetus for the licensee to monitor the work performed. As often as not, the contractor-subcontractor relationship is in fact a sham: it is the unlicensed person who has contracted with the consumer, and the electrical contractor with a business permit signs and seals a municipal permit for work with which he or she is not connected in actuality. In those cases, the "contractor- subcontractor" relationship may even be a construct invented as a justification in the face of a Board investigation.

Not the least of the Board's concerns with respect to the issue of subcontracting electrical work to unlicensed persons is that such subcontracting diminishes the Board's ability to regulate electrical contracting in the State of New Jersey. For example, the intent behind the legislative and regulatory requirements that electrical contractors must secure a letter of credit or a certificate of liability insurance (N.J.S.A. 45:5A- 9.1), obtain a bond (N.J.S.A. 45:5A-19) and obtain worker's compensation (N.J.A.C. 13:31-3.1) may be entirely frustrated.

26 U.S.C. 3121(d) of the Internal Revenue Code sets forth a definition of an "employee," to whom a Form W-2 is issued. 26 C.F.R. 31.3121(d) further defines the term, which it distinguishes from an independent contractor whose compensation is reflected on a Form 1099. The Board has found that when a licensee subcontracts electrical work to an unlicensed person who is an independent contractor, supervision is virtually non-existent in practice, even if possible in theory. Consumers find themselves dealing with a fly-by-night unlicensed individual who provides deficient work, while the enabling electrical contractor whose business permit has been used to sign and seal the municipal permit utterly disclaims responsibility for the work. In light of these concerns, the Board is proposing to amend N.J.A.C. 13:31-3.5 in order to clarify the permissible scope of subcontracting arrangements.

The Board is proposing a new subsection (c) at N.J.A.C. 13:31-3.5 which provides that an electrical contractor holding a business permit issued by the Board may only subcontract electrical work to a person or persons holding a business permit issued by the Board. Proposed new subsection (d) prohibits an electrical contractor who holds a business permit from subcontracting electrical work to any unlicensed persons. This prohibition would not prohibit an electrical contractor who holds a business permit from assigning electrical work to his or her unlicensed employees. The term "employee," however, is defined to mean, in proposed new subsection (e), any person hired to work on an ongoing and continuous basis, whose remuneration is reported to the Internal Revenue Service on a Form W-2, and whose work is supervised by the business permit holder pursuant to the provisions of N.J.A.C. 13:31-3.4.

The Board has determined that the comment period for this proposal shall be 60 days. Therefore, pursuant to N.J.A.C. 1:30-3.3(a)5, this proposal is excepted from the rulemaking calendar requirement.

Social Impact

The Board believes that the proposed amendment to N.J.A.C. 13:31-3.5 will have a positive impact upon New Jersey citizens by prohibiting electrical contractors from subcontracting the performance of electrical work to unlicensed persons. The proposed amendment will help to ensure that all electrical work that is performed in the State is appropriately supervised by a licensed electrical contractor holding a business permit issued by the Board, thereby, ensuring that the work performed conforms to recognized practice and safety standards.

Economic Impact

The Board anticipates that the proposed amendment to N.J.A.C. 13:31-3.5 may have an economic impact upon licensed electrical contractors holding business permits who currently subcontract the performance of electrical work to unlicensed persons, to the extent that such arrangements will now be prohibited. Electrical contractors holding business permits who wish to subcontract electrical work in the future must subcontract with other business permit holders, or hire additional employees, which may generate an economic impact, to the extent that the costs associated with retaining the services of a business permit holder, or hiring employees, may be higher than the costs associated with retaining the services of an unlicensed person. The Board, however, believes that any costs that may be borne by the licensed electrical contractor who holds a business permit as a result of the proposed amendment are outweighed by the need to protect the health, welfare and safety of the general public in the performance of electrical work.

Federal Standards Statement

A Federal standards analysis is not required because the proposed amendment is governed by N.J.S.A. 45:5A-1 et seq., and is not subject to any Federal standards or requirements.

Jobs Impact

The Board does not believe that the proposed amendment will result in an increase or decrease in the number of jobs in the State.

Agriculture Industry Impact

The Board does not believe that the proposed amendment will have any impact on the agriculture industry of the State.

Regulatory Flexibility Analysis

The Regulatory Flexibility Act (the Act), N.J.S.A. 52:14B-16 et seq., requires the Board to provide a description of the types and an estimate of the number of small businesses to which the proposed amendment will apply. Currently, the Board licenses approximately 9,550 active electrical contractors and approximately 6,600 electrical contracting business permit holders. If Board licensees and business permit holders are considered "small businesses" within the meaning of the Act, then the following analysis applies.

The Act requires the Board to set forth the reporting, recordkeeping and other compliance requirements of the proposed amendment, including the kinds of professional services likely to be needed to comply with the requirements. The Act further requires the Board to estimate the initial and annual compliance costs of the proposed amendment, to outline the manner in which it has designed the proposed amendments to minimize any adverse economic impact upon small businesses, and to set forth whether the proposed amendment establishes differing compliance requirements for small businesses.

The proposed amendment does not impose any reporting or recordkeeping requirements upon Board licensees or business permit holders. The proposed amendment, however, does impose various compliance requirements upon Board licensees and business permit holders. N.J.A.C. 13:31-3.5(c) requires an electrical contractor holding a business permit who wishes to subcontract electrical work to do so only to persons holding a business permit issued by the Board. N.J.A.C. 13:31-3.5(d) prohibits an electrical contractor holding a business permit from subcontracting electrical work to any unlicensed persons.

No additional professional services will be needed to comply with the proposed amendment. In addition, the Board does not believe that there will be any additional economic impact upon licensed electrical contractors or business permit holders as a result of the proposed amendment. The costs of compliance with the proposed amendment are discussed in the Economic Impact statement above. The Board believes that the proposed amendment should be uniformly applied to all licensed electrical contractors and business permit holders in order to ensure the health, safety and welfare of the general public in the provision of electrical contracting services and, therefore, no differing compliance requirements for any licensees or business permit holders are provided based upon the size of the electrical contracting business.

Smart Growth Impact

The Board does not believe that the proposed amendment will have any impact upon the achievement of smart growth or upon the implementation of the State Development and Redevelopment Plan.

Full text of the proposal follows :

<< NJ ADC 13:31-3.5 >>

13:31-3.5 Joint ventures<<+; subcontracting of electrical work+>>

(a)-(b) (No change.)

<<+(c) An electrical contractor holding a business permit issued by the Board may only subcontract electrical work to a person or persons holding a business permit issued by the Board.+>>

<<+(d) An electrical contractor holding a business permit shall not subcontract electrical work to be performed by unlicensed persons. This provision shall not be interpreted to prohibit an electrical contractor holding a business permit from assigning electrical work to be performed by his or her unlicensed employees.+>>

<<+(e) The term "employee," as used in (d) above, is defined to mean persons hired to work on an ongoing and continuous basis, whose remuneration is reported on a Form W-2 to the Internal Revenue Service, and whose work is supervised pursuant to the provisions of N.J.A.C. 13:31-3.4.+>>



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