RME Walks Away from a Family LLC
Kailua Roofing LLC holds a Hawaii specialty contractor license in the roofing classification. The LLC has three members. Member A is the Responsible Managing Employee (RME); she is a licensed roofing contractor and works 40 hours per week in the office and on job sites. Member A plans to move to Nevada next month. She will keep her 10% membership interest but will work only about five hours per month as a consultant. Member B, who is unlicensed, wants to keep the LLC license active. He proposes to designate a friend, who is a licensed roofing contractor, as the new RME. The friend is already the RME for another roofing company and would work 15 hours per week for Kailua Roofing. No notice has been sent to the Contractors License Board. The LLC has two pending bids and one signed contract for a $62,000 re-roof.
1. Can the friend serve as Kailua Roofing's RME on a 15-hour-per-week basis while remaining RME for the other company? Explain the RME requirements and your conclusion.
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No. Under Hawaii contractor licensing law, an RME must be a full-time employee of the licensee who is actively engaged in the day-to-day operations and who is licensed in the same classification. A 15-hour-per-week arrangement is not full-time, even if the friend is licensed. In addition, a person may not serve as RME for more than one contractor at the same time; the friend's existing RME role for the other roofing company is disqualifying. Member A's proposed five-hours-per-month consultant role also would not satisfy the RME requirement. The LLC cannot cure the problem by giving the friend a title or a small membership interest; the test is the actual employment relationship and operational control. Kailua Roofing needs a qualified individual who is a full-time employee of the LLC and is not qualifying another contractor.
2. What must the LLC do when Member A stops full-time work, and what happens to the license if no qualified replacement is provided?
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The LLC must notify the Contractors License Board promptly-generally within 30 days-when its RME terminates full-time employment, and it must replace the RME with a qualified full-time employee. Until a compliant RME is in place, the entity license is at risk of suspension or revocation. The board may allow a short period to cure, but the LLC should not bid or enter new contracts during the gap. If it continues to contract without a valid RME, the board can treat the work as unlicensed contracting, and the LLC may be unable to enforce its contracts or collect payment. The pending bids should be withdrawn or held; the signed $62,000 contract should be reviewed by counsel because the license status may affect enforceability.