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California Law on Using Unlicensed Construction Contractors, their Hiring, Non-Payment, and Liability Risks.

California Law on Using Unlicensed Construction Contractors, their Hiring, Non-Payment, and Liability Risks.


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California has a strict law that prohibits using an unlicensed contractor to complete construction work. Property owners face consequences of using a contractor who is unlicensed. Likewise, the contractor also faces stiff consequences.

Underground Economy

California’s state licensing board considers the practice of using unlicensed contractors as an insidious underground economy. This economy includes contractors who refuse to comply with state regulations that require a license to contract. It also includes hiring others without proper certification. Employees may not be trained. Payroll may not be properly reported. These contractors may thwart the requirement to obtain workers’ compensation insurance or pay premiums.

Criminal Consequences to the Contractor

Public policy prohibits using a contractor who is not licensed. It is believed these contractors harm the public and undermine the economy in California and the profession by practicing without a proper license. As such, there are strict penalties for those individuals who contract without a license

A person who contracts without a license may face misdemeanor charges that carry a maximum sentence of six months in jail and a fine of $5,000. Additionally, administrative fines may be assessed that range anywhere from $200 to $15,000. If the person continues to contract without a license, he or she can face a mandatory 90-day jail sentence and a fine of $5,000 or 20 percent of the contract price.

If a person uses another person’s contractor license, defrauds clients into believing that he or she is a licensed contractor or contracts for work in an area that has been determined to be a federal or state natural disaster, he or she can face felony charges.

Nonpayment of Contractor

Another potentially harsh consequence of contracting without a license is that a consumer is not legally required to pay a person who is not licensed by the state. The contractor cannot legally sue the client for non-payment. Because California lawmakers do not want a person providing contracting services without a valid license, they do not wish to incentivize these individuals by allowing them to be compensated for work that they should not be completing.

At Fault Homeowners

Homeowners who hire unlicensed contractors can be found at fault for their part in the underground economy. If a homeowner contracts for a significant residential remodel, he or she is treated as an employer and is required to provide a safe place of employment. A significant residential remodel is classified as one that involves demolition and rebuilding a significant portion of the residence or new construction. Homeowners must comply with California OSHA safety regulations. If an unlicensed contractor has an employee who is injured during the job, the injured worker may be able to file a lawsuit against the homeowner for violating the law regarding the hiring of an unlicensed contractor. Homeowners may mistakenly believe that homeowners’ insurance policies would cover such accidents, this is not usually the case.

Cracking Down on Unlicensed Practices

The state licensing board has conducted numerous sting operations to identify and find unlicensed contractors and businesses. Additionally, the LEVEL program was implemented to assist state agencies in identifying and prosecuting these individual. In addition to losing revenue by these individuals not following the rules, government agencies are concerned that these contractors may provide inferior work product and may expose homeowners to unnecessary financial risk.

Best Practices

Homeowners can follow the best practices highlighted by the Contractors State License Board to potentially avoid problems with unlicensed contractors. This includes verifying that the contractor is licensed by checking their license and photo identification to verify that the person with the license is the person who shows up for the quote. Additionally, homeowners can verify if a license is current by visiting the Contractors State License Board’s website. Additionally, this website can show if the contractor is in good standing. The CSLB also recommends that homeowners avoid paying in cash, paying early for work that is not performed or paying more than 10 percent down for a down payment. Homeowners should also receive multiple bids before hiring a contractor and get a written contract. They should also ask for and check references.

Legal Assistance

Before entering into a contract, a person may wish to consult with a California business lawyer. He or she can draft or review a contract. This allows him or her to write a contract that is specific to your needs and requires the contractor to establish that he or she is a licensed contractor.

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