It is critical for contractors in California to be familiar with the key provisions of the Contractors’ State License Law (CSLL) (§7000 et seq.) The CSLL requires that contractors performing construction work on California roads, buildings, and other structures be licensed by the Contractors State License Board on projects costing more than $500. The penalties for non-compliance are severe, and include the inability to sue an owner for nonpayment. In other words, an unlicensed contractor who performs work has no legal means of securing payment if an owner chooses not to pay.
The licensing requirements are intended to provide minimal assurance that all persons offering construction services in California have the requisite skill and character, understand applicable local laws and codes, and know the rudiments of administering a contracting business. Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988, 995. Such requirements help to “protect the public from incompetent or dishonest providers of building and construction services” and prohibits a contractor who has violated the statute from recovering “for the fruits of his labor.” Pacific Caisson & Shoring, Inc. v. Bernards Bros. Inc. (2011) 198 Cal.App.4th 681, 687 (internal quotations omitted).
Section 7031 of the CSLL specifically prohibits unlicensed contractors from maintaining actions for compensation. “Because of the strength and clarity of this policy, it is well settled that section 7031 applies despite injustice to the unlicensed contractor. Section 7031 represents a legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties, and that such deterrence can best be realized by denying violators the right to maintain any action for compensation in the courts of this state.” Hydrotech Systems, Ltd., 52 Cal.3d at 995 (internal quotations omitted). California courts interpret the word “compensation,” as used in the CSLL, broadly to include not only damages based on breach of contract, but other theories of recovery, including quantum meruit, foreclosure of mechanic’s lien, and fraud. As a further deterrent, people who use unlicensed contractors are permitted to recover all compensation paid to the contractors. This remedy includes situations in which a licensed contractor has his license suspended while working. Such contractors can be required to repay compensation received from an owner. Contracting without a license can also carry criminal penalties including fines and jail time.
In short, the penalties for performing unlicensed construction work worth more than $500 in California are harsh. Contractors should familiarize themselves with the licensing requirements and obtain the necessary education, insurance, and licenses necessary to work in California. The consequences of noncompliance can be disasterous.