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New Construction Case in California Should Give General Contractors Pause When Hiring Unlicensed Subcontractors to Perform Work

California General Contractors are at serious risk if they hire Unlicensed Subcontractors. A recent construction case in California should give general contractors pause when hiring unlicensed subcontractors to perform work on a project, even though the general contractor is licensed. Section 7031 of the California Business & Professions Code provides that any unlicensed contractors doing work that requires a contractor’s license are barred from recovering payment for their work, and further that they must return all sums paid to them for their work performed without a license upon request.

In this way, Section 7031 is said to act as both a shield and a sword against unlicensed contractors performing work that requires a contractor’s license, and both the shield and sword apply even if the work was performed flawlessly and on schedule. Until recently, however, it was unclear whether a licensed general contractor could be penalized for hiring unlicensed subcontractors to perform work. 

Construction Case Kim v. TWA Construction, Inc

The case of Kim v. TWA Construction, Inc. (2022) 78 Cal.App.5th 808 (“Kim”) answered this question in the affirmative. In Kim, the general contractor was required to return all monies paid for a tree removal to the homeowner, due to the individual hired by the general to remove the tree not possessing a C-61 / D-49 Tree Service Specialty license. It seems that this ruling would apply no matter the general contractor’s knowledge of the tree contractor’s licensure status.

Action Required of General Contractor

With this case now in the field, general contractors should take extra precautions to verify licenses of all trades before permitting them to perform any work on a project, or they are at risk of having to return all monies paid to them by their client for any of the work performed by an unlicensed subcontractor.

Related Post: How CA AB 968 Aims to Protect Buyers of Flipped Real Estate.

Can a Subcontractor Work Under Someone Else’s License in California?

A general contractor who hires an unlicensed contractor to perform work on a construction project faces serious exposure in two respects. First, the general contractor may not be able to collect payment for any work performed by the unlicensed contractor. This places the general contractor in a precarious position and may negatively impact other work done by licensed trades. Second, the general contractor may be forced to return any money paid by the owner for work performed by an unlicensed contractor, regardless of whether the general contractor is able to recover any sums paid to the unlicensed contractor for their work. This would result in the general contractor having to pay twice for the same mistake. To avoid these unnecessary risks, general contractors should never hire an unlicensed contractor to perform work on a project.

With many laws affecting general contractors, it is impossible to stay up to date. That is why having a construction lawyer on your side like Putterman Law is essential. Learn about our construction law services here or click the button below to schedule a legal consultation.

This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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Matt Putterman

Managing Partner

Matt Putterman is a seasoned attorney who represents businesses and individuals in litigation, mediation and arbitration.