Can I sue an unlicensed contractor? Can an unlicensed contractor sue me? In California, the answers are surprising — and the law is ruthlessly one-sided in the homeowner’s favor.
California Business & Professions Code Section 7031: The Harshest Contractor Law in the Country
One of the harshest provisions in California’s contractor law is Business & Professions Code Section 7031, which governs unlicensed contractors. Under Section 7031, a client may legally refuse to pay an unlicensed contractor for any work performed or for any materials furnished if the contractor was unlicensed during any portion of the project. Going further, Section 7031 allows the client to sue and recover any compensation already paid to the unlicensed contractor — without any offsets for services or materials provided.
But it doesn’t end there. Under Section 7031, the unlicensed contractor is left without any defenses — in law or in equity. Equitable defenses such as unjust enrichment and unclean hands are unavailable to the unlicensed contractor. Tort claims such as fraud in the inducement are also unavailable. The unlicensed contractor may not recover any compensation for the project, even if the homeowner knew the contractor was unlicensed. This also means that an unlicensed contractor cannot file any lawsuit against the homeowner to recover compensation.
The harsh repercussions of Section 7031 affect many individuals, as the Business and Professions Code broadly defines a “contractor” as any person who offers — through themselves or through others — to construct, alter, or repair any structure.
Why Does California Have Such a Strong Law?
The purpose of Section 7031 is to deter unlicensed contractors from offering services and to protect the public from incompetence and dishonesty in the construction industry. Section 7031 also gives contractors an incentive to obtain a license, which requires a minimal understanding of applicable local laws, codes, and safety requirements. A motivating factor in Section 7031’s enactment was the urge to curb California’s estimated annual $60 to $140 billion underground economy, where many unlicensed contractors do not pay taxes and carry no insurance or bonds.
Are There Any Exceptions? The Section 7053 Exemptions
While Section 7031 is unforgiving, a few narrow exemptions exist within the Business and Professions Code.
The Owner-Builder Employee Exemption (Section 7053). Under this exemption, an unlicensed contractor may work under the supervision of the property owner as an “employee.” This arrangement must be carefully structured, because several factors can take the unlicensed contractor out of the employee classification and back into the unprotected independent contractor category. Factors that support an employee classification — and thus preserve the Section 7053 exemption — include: the contractor receiving wages as their sole compensation; the contractor not operating an independent company providing construction services; and the contractor not having control or discretion over the result of the work or the means by which it is accomplished.
The Owner-Occupant Exemption. Certain minor or incidental work performed by an owner on their own property may fall outside the licensing requirement entirely, depending on the nature and value of the work.
These exemptions are narrowly construed by California courts. If you are relying on one of these exemptions — or defending against a Section 7031 claim — the specific facts of the working arrangement are critical.
What If You Have Already Paid the Unlicensed Contractor?
Section 7031 allows you to sue and recover every dollar already paid, regardless of whether the work was completed or whether you were satisfied with it. The law provides no mechanism for the unlicensed contractor to offset the recovery by the value of the work. Courts have upheld this result even when it strikes judges as harsh — because the Legislature made a deliberate policy choice to impose strict liability on unlicensed contractors.
The time to bring a Section 7031 claim is governed by California’s statute of limitations for written or oral contracts, depending on the nature of your agreement. If you have recently discovered that a contractor who worked on your property was unlicensed, do not delay in seeking legal advice.
Speak With a San Diego Contractor Dispute Attorney
If you have hired an unlicensed contractor in California — or if an unlicensed contractor has threatened to sue you for unpaid work — contact Halimi Law Firm for a free consultation. The law gives California property owners powerful tools in these disputes, but the outcome depends on the specific facts of your case. Call (619) 800-2670 or contact us online to discuss your options.
