With the state of the current economy, this information should be of interest to many.
Cal. Bus. & Prof. Code section 7026 defines a contractor as any person who undertakes to construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building, highway, road, parking facility, railroad, excavation or other structure, project, development or improvement, and/or to do any part thereof, including the erection of scaffolding or other structures or works in connection therewith.
In order to protect the public from the dangers of unqualified and/or dishonest contractors, California’s Bus. & Prof. Code section 7031 has long prohibited unlicensed contractors from bringing or maintaining any action to recover damages in law or equity for compensation for any act where a license is required. This is regardless of the merits of the cause of action.
As one can see, a good-faith worker doing superlative contractor work can find him or herself without any recourse for compensation for his work if the person contracted with for any reason decides to not pay.
Now, if that is not harsh enough, in 2001 the California Legislature amended section 7031 to allow one who utilizes the services of an unlicensed contractor to also bring an action to recoup all compensation previously paid to the unlicensed contractor. This is set forth in section 7031(b) and even includes money that was paid to a contractor and passed on to sub-contractors, irrespective of the fact that the consumer knowingly contracted with him as an unlicensed contractor and received full and satisfactory performance.
Previously, a person who knowingly contracted with an unlicensed contractor could not sue to recover monies already paid. Today, even a full disclosure by an unlicensed contractor of the fact that he is unlicensed will not defeat the consumer’s right to recover funds paid earlier.
Substantial compliance concepts, such as a licensed contractor becoming unlicensed during a job, still have some life, but even those have been amended to a court’s discretion if “a contractor (1) had been duly licensed as a contractor in this state prior to the performance of the actor or contract, (2) acted reasonably and in good faith to maintain proper licensure, (3) did not know or reasonably should not have known that he or she was not duly licensed when performance of the act or contract commenced, and (4) acted promptly and in good faith to reinstate his or her license upon learning it was invalid.”
The moral of the story is that if you are, or if you know (and perhaps like), an unlicensed contractor, you might want to do all you can to see to it that you and/or your friend become licensed and avoid what could be a life-changing financial dilemma for one working outside of this long-established California law.