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Can An Unlicensed Contractor Sue You In California?

Can An Unlicensed Contractor Sue You In California?

If you ever have a construction project on your home, you may need to hire some help to get the job done right. Generally, you will turn to someone who is an expert in your given area of need. Whether that be a kitchen remodel, bathroom remodel, roof and gutter updates, more efficient windows and lighting, room additions,  etc., there will be a contractor who specializes in your area of need.

During your Google search to choose the best one, you will likely scan reviews and look at their portfolio of work, but there’s a big keyword you should also be on the lookout for: “licensed.”

While you might not think it’s a big deal to hire an unlicensed contractor vs. a licensed contractor to complete some work on your home, there are actually instances when it can be illegal and put you in a precarious position.

In this post, we’re going to go over the rules and regulations for hiring an unlicensed contractor in the state of California and unlicensed contractor rights, as well as answering the question that may have brought you here in the first place: Can an unlicensed contractor sue you?

It’s a lot to consider before you hire an unlicensed contractor or your neighbor who says he knows how to do that and will only charge you “X amount” for the work. But then that begs another question — why would you hire an unlicensed contractor in the first place?

Advantages of Hiring an Unlicensed Contractor

In reality, there is only one main advantage of hiring an unlicensed contractor — they’re cheaper! It basically boils down to your budget and the temptation to bring on someone who will do the work for less, even if it means some added risk.

But it can be expensive to maintain, repair, or update your home, which is why it makes sense for you to look for the most affordable contractor you can find. You may find someone through your own searching, or get a recommendation from a friend, family member, or neighbor. Sometimes, this person may be unlicensed.

This often will enable the person to give you a quote that is much lower than those from the licensed competition, with the promise of being able to deliver the same quality of work. This might sound a little too good to be true, and it probably is, yet often, people fall into this common trap. The temptation to save money on the job is often too much to overlook, and the unlicensed contractor ends up getting hired.

The problem is, this might cost you the most in the long run.

Unlicensed contractors are able to outbid their licensed competition for a few reasons. First, they don’t have to pay licensing fees, which can be costly to the contractor and cut into their profit margin. They also do not have to obtain a bond that protects their work.

Lastly, they often do not purchase liability insurance or workers compensation. This last one is where you, the homeowner and hiree, can find yourself in some trouble (we’ll get into more on that later.) Unburdened by these extra expenses, unlicensed contractors are able to provide the services at a much lower rate.

However, working on large projects without a license is technically illegal in the state of California, and there are potential financial and liability risks involved for both the contractor and the homeowner

Is Hiring an Unlicensed Contractor Illegal?

Most contracting jobs in California require the contractor to have a license that is currently valid with the Contractors State Licensing Board (CSLB). Any contracting job that costs $500 or more in labor and materials will require the contractor to be licensed. The contractor is required to provide their license number on any construction contract.

Regardless, there are countless unlicensed contractors in California who continue to be hired for work by homeowners and property owners who are not aware of the risks involved in hiring a contractor who does not have a valid license.

While it is true that having a license does not guarantee that your contractor will do the work well or even better than the unlicensed contractor, being licensed means that the property owner is protected against problems that could arise, while they are not if they hire an unlicensed worker.

Potential Consequences for Unlicensed Contractors

The Contractors State License Board (CSLB) was established in 1929 to uphold construction standards throughout California and protect consumers. The CSLB deems that those who operate without a state-issued license actually harm the public and tarnish the respectability of the construction industry, thereby undermining California’s financial foundation.

Contractors who are caught operating without a license may have to appear before a Superior Court judge on misdemeanor charges which can carry a potential jail sentence or steep fines. The person who hires the unlicensed contractor may be considered to be a victim of a crime and could be eligible for restitution. This is actually possible whether or not the person knew the contractor was unlicensed.

Consumers technically are not legally required to pay a person who is not state-licensed at all and cannot be sued for non-payment. However, there are also potential consequences for homeowners who hire an unlicensed contractor.

Potential Risks of Hiring an Unlicensed Contractor

There are several risks involved in hiring an unlicensed contractor, some of which could leave you, the homeowner, vulnerable to some costly penalties.

Homeowners Could be Held Liable for On-the-job Injuries

The main risk in hiring unlicensed contractors is liability. Homeowners who hire unlicensed contractors are actually at risk of being found at fault for their part in what’s called the “underground economy.” For example, if a homeowner were to hire contractors for a “significant” residential remodel project, classified as one that involves demolition and rebuilding a large portion of the residence or new construction, then the homeowner is considered an employer by law and is therefore required to provide a safe place of employment.

California state law, under Insurance Code §2750.5, says that “an unlicensed worker performing services for which a license is required is not an independent contractor.” Therefore, when a homeowner hires a contractor and any employees of that contractor, then they all are considered to be an employee of the homeowner.

This means the homeowner must comply with California OSHA safety regulations. If the unlicensed contractor or anyone else they bring on to complete the work is injured on the job, they may be able to file a lawsuit against the homeowner for violating the law by hiring an unlicensed contractor. This is an instance in which an unlicensed contractor can indeed sue a homeowner. Unfortunately, your homeowner’s insurance does not cover you in these cases and you may be on the hook for expensive penalties.

Meanwhile, licensed contractors in California who hire employees are required to carry workers’ compensation insurance for the employees. This protects you in these cases, as the injured employee will not be able to sue the homeowner on the job the injury took place. However, if your contractor is unlicensed and therefore does not have workers compensation for their employees, you could be held liable. You then might have to pay for costly medical bills as well as compensate for lost income.

If a serious injury were to occur to a worker on the homeowner’s property, this could amount to thousands of dollars. This shows how a rather inexpensive home improvement project could turn into a real financial problem for a homeowner.

Work Completed by Unlicensed Contractors Could Hurt Your Property Value

This might seem like an outlandish claim, but it’s true — if you have work completed by an unlicensed contractor, it could harm your home’s property value. This often has nothing to do with the actual quality of the work, rather than corners were cut by the contractor and the proper permits for the work were not acquired.

Licensed contractors will attain the proper city, country, or state permits needed to complete the building or renovation project that requires them. However, unlicensed contractors usually skip out on this step, and rarely apply or obtain the proper permits for the job.

How does this affect your property value? When you sell a home, you have to disclose certain factors to the buyers. Sometimes, having work done without a permit or work that is not up to code may have to be disclosed to the buyer. This information could impact your overall property value, and failing to disclose the information could actually be your liability later on.

Not only that, but back to the quality of the actual work, if it’s found to be unsatisfactory, there is often nothing in place to guarantee that the unlicensed contractor will repair any defects in the construction since the contractor often will not have liability insurance. The financial burden of fixing any mistakes would then fall back on the homeowner.

Homeowners Can Also be Held Liable for Damage to Third Parties

There is more at risk than just the potential for an injured employee or harm done to your home or property value. Hiring an unlicensed contractor also makes you liable for that contractor’s negligence.

For example, let’s say your contractor has a messy work site, and a neighbor or passerby is injured by falling debris or a child steps on a nail, you could be held liable for damages. Since you are the contractor’s employer, you are responsible for your contractor’s actions during the entire duration of their employment.

What Can Homeowners do to Protect Themselves?

Do your homework! The California Contractors State License Board makes it easy for you to research your contractor and check on their work history. First of all, you can make sure they are licensed. But you can also check records of the work and see if there have ever been any complaints filed against the contractor.

All you have to do is go to the Contractors State License Board’s website and look up your contractor. You should be able to find records of work completed as well as any complaints or sanctions filed against them. If a contractor has enough complaints against them, they could actually lose their license. This is a great incentive for your contractor to do a good and professional job on your construction project.

The CSLB also has a long list of resources and guides available for you to follow when you are in the process of hiring a contractor. Some tips include verifying that your contractor is licensed and that the person in their license photo is the person who shows up to give you a quote. You can also double check their license number with what is listed online.

Some other general rules of thumb include not paying in cash, paying early for work that has not been completed, or giving more than a 10 percent down payment. Make sure you ask for and follow-up with references. You should also get multiple bids for your project before choosing a contractor and always get a written contract.

Before you enter into any contract, it may also be a good idea to consult with a California business lawyer who can draft or review a contract for you. This will help give you peace of mind that the contract is specific to your needs and requires that your contractor is licensed.

Summary

So… back to the question at hand: Can you be sued by an unlicensed contractor? As you read above, there are instances in which you can, such as if you are held liable for any injuries suffered on the job by an employee, or if damage is caused to a third party. To not leave yourself vulnerable to these potentially costly consequences, it is always best to hire a licensed contractor for your job. Although the potential savings of hiring a less-expensive unlicensed contractor can be tempting, the reward is far outweighed by the potential risk.

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