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Fact or Fiction: California Law Does Not Require You to Pay an Unlicensed Contractor

September 10, 2016







Image Source: starbaseatlanta.com

Image Source: starbaseatlanta.com

Fact! It is illegal for an unlicensed person to perform contracting work on any project valued at $500 or more in combined labor and material costs.

Under California Contractor’s State License Law, an unlicensed contractor may not “bring or maintain” any action for compensation for performing any act or contract for which a license is required unless the contractor was duly licensed “at all times” during performance. Business & Professions Code § 7031(a). This means that if an unlicensed contractor tries to sue someone who hired him/her for unpaid work, no California court will enforce payment!

But perhaps the most onerous penalty of all is that an unlicensed contractor may be required to disgorge any compensation it has previously been paid for performing work requiring a license. Bus. & Prof. Code § 7031(b). For example, in Twenty-Nine Palms Enterprises Corporation v. Bardos (2012) 210 Cal.App.4th 1435, the Court of Appeal affirmed disgorgement by an unlicensed contractor of the entire amount paid to him under his contract – a whopping $751,995.

In Wright v. Issak (2007) 149 Cal.App.4th 1116, a contractor had a California contractor’s license, but his license was automatically suspended for his failure to obtain workers compensation insurance for his employees. The contractor had to return all amounts he had been paid in connection with a home remodeling project.

California public policy is clear – the State does not want unlicensed contractors to be able to get paid for work that should be performed by a licensed contractor.

Furthermore, an unlicensed contractor is not just a contractor without a license, but could also be a contractor who is not correctly licensed or a contractor who has the correct license but whose qualifying individual – a responsible managing officer (RMO) or responsible managing employee (RME) – is not as involved in the operations of the contractor to maintain proper licensure.

Image Source: bjstlh.com

Image Source: bjstlh.com

Criminal Charges for Unlicensed Contractors 

Those who are caught contracting without a license likely will have to appear before a Superior Court judge to answer to misdemeanor charges that can carry a potential sentence of up to six months in jail and/or a $5,000 fine, as well as an administrative fine of $200 to $15,000. If illegal contracting continues, the penalties become more severe. A second offense results in a mandatory 90-day jail sentence and a fine of 20 percent of the contract price or $5,000.

Felony charges could be filed against anyone who illegally uses another person’s contractor license or who tries to mislead consumers into believing that he or she is a licensed contractor.

There are severe fines and penalties for those who improperly perform construction work without a license.  In fact, simply entering into a contract between any contractor and an unlicensed subcontractor is a misdemeanor. An unlicensed contractor cannot simply avoid these requirements by “subbing” out all the work to licensed contractors.

In addition, a person who uses the services of an unlicensed contractor is a victim of a crime and may be eligible for restitution of economic losses regardless of whether that person had knowledge that the contractor was unlicensed.  Bus. & Prof. Code §§ 7028, 7028.16.

How Can You Report Unlicensed Contractors?

Go to the Contractors State License Board website to make reports of unlicensed activity.

Have you ever hired an unlicensed contractor or discovered someone you hired didn’t actually have a license? Has an unlicensed contractor ever tried to collect money from you? Do you think it’s unfair that even an unlicensed contractor who does solid work cannot collect on unpaid invoices? Or do you agree that the law should discourage unlicensed activity as much as possible?

Posted by Mary Mock at 8:08 am - no comments
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