According to California law, all contractors hired for jobs worth over $500 (labor and materials included) are required to hold a license.
This law is in place to protect Californians from unsafe and fraudulent contractors.
The California Contractors State License Board (CSLB), which is in charge of licensing contractors, awards more than 40 different types of licenses, mostly pertaining to plumbing, electrical, and roofing issues – ensuring California contractors adhere to a set of safety, quality and professionalism standards.
Once licensed, a contractor is limited to performing the work for which they have a license. So, even if they know how to do it, a licensed electrician, for example, can’t use their license to perform painting jobs, which requires a different license.
While the law is clear on the type of work licensed and unlicensed contractors can take on, it’s not uncommon to find individuals and businesses working with unlicensed contractors on projects exceeding $500 to save on costs or because of a lack of due diligence when hiring the contractor to ensure they have a valid CSLB license and the necessary skills to do the job.
Such an error in judgment can have serious legal and financial implications for you or your business, which we will discuss in this blog post.
3 Potential Disastrous Consequences of Working With an Unlicensed Contractor
If a contractor is found to be operating without a license, they’ll likely be charged with a misdemeanor, punishable with up to 6 months in jail and a maximum fine of $5,000.
Repeat offenders face more severe penalties, including up to a year in county jail, a fine equal to 20% of the contract price or $10,000, and the humiliation of being placed on the infamous most-wanted contractor list maintained by the California Contractors State License Board.
The following legal and financial repercussions might arise for a person or business that hires an unlicensed contractor:
You Could Be Sued for Personal Injuries
All licensed contractors are required by the CSLB to carry workers’ compensation insurance. This pays for medical bills, lost wages, funeral expenses, and other benefits in the event a contractor or their employee is hurt while working.
Unlicensed contractors often lack worker’s comp, and if they’re injured when working on your property, they can file a personal injury lawsuit against you.
California law also demands that all employers, even those with just one employee, maintain worker’s compensation coverage. So, to hold you liable for their medical expenses and other damages, the unlicensed contractor could argue they were working for you as an employee and not an independent contractor.
If their claim is successful, you’ll have to compensate them, likely out of pocket, which can be pretty expensive, if they suffered serious injuries.
You Could Be Responsible for Costly Repairs
Let’s imagine you hire a contractor to renovate your home’s bathroom, and while demolishing the bathroom walls, they strike multiple pipes, resulting in thousands of dollars in water damage.
Ideally, a licensed contractor’s liability insurance would pay for the damage in such a case, but if they don’t have liability insurance, your homeowner’s insurance policy should cover any repairs needed.
You’ll have a big problem if you hired an unlicensed contractor because your home insurer is unlikely to pay you once they discover the contractor was responsible for the property damage. Most homeowner insurance policies stipulate that only authorized contractors be used for home improvements or repairs.
Therefore, again, because of dealing with an unlicensed contractor, you may be facing a hefty financial expense to fix the water damage, potentially straining your finances.
Your Property’s Selling Price Might Be Reduced
When selling your California home, you may be compelled to fully disclose all the upgrades and repairs you’ve done to the property.
If prospective buyers realize that part or all of the repairs you conducted were performed by an unlicensed contractor, they can demand a substantial price reduction. They would be taking this action to shield themselves from future costs related to property damage resulting from subpar repairs made by the unlicensed contractor.
Many unlicensed contractors lack the skills necessary to complete a job up to code — and to save money, they frequently cut corners or use inferior materials, which results in shoddy workmanship and costly maintenance down the line.
If you don’t reveal repairs made by an unlicensed contractor, you can also encounter future legal challenges if the new homeowner later sues you for fraud and misrepresentation after experiencing problems caused by poorly done repairs.
If the buyer wins in court, you’ll likely be ordered to compensate them for their losses or, even worse, refund their money.
Although there is no legislation prohibiting you from employing an unlicensed contractor in California, doing so may seem like a cost-effective alternative at first, but there are plenty of other hidden risks that can result in monetary and legal nightmares, which we are sure you want to avoid.
Gallagher Krich, APC: Experienced California Contract Attorneys
To protect you and your assets, it’s imperative to consult a contract attorney before starting to work with any contractor.
The lawyers at Gallagher Krich, APC, have 30+ years of experience in contract law and can help you put your work agreement with a contractor in writing – ensuring the scope of work, materials for the project, compensation, and more are clearly defined. This will guarantee that you’re well protected from legal action should any disputes occur while the work is being performed.
We believe hiring a licensed contractor shouldn’t be a preference but rather an absolute must, so one of the first things we will do before creating the contract is to verify if the contractor you intend to work with is licensed.
Contact Gallagher Krich, APC today, at (858) 926-5797 or fill out our online contact form to schedule a free consultation to discuss how we can assist you avoid the financial and legal hazards of working with a licensed or unlicensed contractor.