Hiring Unlicensed Contractors in California
Did you know that it’s illegal to hire an unlicensed contractor in the state of California? It’s true! And yet it happens all the time.
California’s “underground economy” is booming, and lawmakers have taken notice. In response, they have put legislation in place to protect both state homeowners as well as licensed construction and trade workers.
In this post, we’ll dive into the laws that exist to help protect homeowners against unlicensed contractors in California, as well as covering the potential penalties that contractors face for operating in the state without a license.
Is Hiring an Unlicensed Contractor In California Illegal?
The homeowner assumes many risks when they hire an unlicensed contractor, but the contractors themselves are sharing some of the burden. This is because it is technically illegal to hire an unlicensed contractor in California.
Many contracting jobs in the state of California will require the contract to have a currently valid license given through the Contractors State Licensing Board (CSLB). More specifically, all contracting jobs that cost $500 or more in labor and materials require that the contractor has a license. The contractor must provide their license number on any construction contract.
Homeowners continue to hire unlicensed contractors in California because they are either unaware of the risks involved, or are willing to take the risks to get a lower rate. Unlicensed contractors are often able to charge much less than their licensed counterparts because they don’t have many of the overhead fees that come along with working as a licensed contractor.
Hiring a licensed contractor does not necessarily guarantee that the work will be better than an unlicensed contractor, but having a license will protect you against problems that might come up, leaving you, the homeowner, liable for some major financial risks when hiring an unlicensed contractor.
However, despite the risks, that low rate keeps unlicensed contractors working in California.
What are the Advantages of Hiring an Unlicensed Contractor?
Well, there is really only one advantage to hiring an unlicensed contractor, and that is the price. Hiring an unlicensed contractor in California is typically much cheaper because they don’t have to pay many of the fees that go along with doing a job up to code, with a license.
Getting a contracting license in the first place is expensive for these trade workers, who then have to pay annual fees to keep their license active. They then need to acquire the necessary permits for certain jobs and make sure their work is up to code. They also need liability and workers compensation insurance to protect themselves and their employees.
Unlicensed contractors don’t have any of these financial burdens. They are uninsured, are not able to require permits, and may not even do the work to code specifications. More risk is involved, but there is much less overhead they need to pay, which enable them to charge a much lower rate.
An unlicensed contractor may be someone you found online, but is often a referral through a friend, family member, or neighbor. Someone “knows a guy” who can do the work for you for much cheaper, and the desire to help a friend while also getting a lower rate often leads to the unlicensed contractor being hired.
Maintaining, updating, and repairing a home is expensive enough, so it makes sense to want to find the lowest price to get the job done. However, when you consider the financial risks you are taking by using an unlicensed contractor vs. a licensed contractor who has no workers compensation or liability coverage, you may find that if something goes wrong, it isn’t cheaper at all in the long run.
Protecting Homeowners: The California Contractors’ State License Law
The California Contractors’ State License Law (“License Law”) was created to protect homeowners and the general public from incompetence and dishonesty by those who provide construction services in the state. According to the Law, all contractors who do business in California must possess a valid contractor’s license unless that are able to meet a few narrow statutory exceptions.
There are more than 40 types of licenses that are recognized under this law. These licenses primarily cover electrical, roofing, and plumbing contractors. Any contractor working on these types of projects must have the appropriate license in order to legally complete the work. The licenses are specific to certain types of work, so one license cannot be used for another activity that requires a different license.
Within the law, a “contractor” is a broadly defined entity, more determined by the conduct, activity, and work that the person offers to undertake. To find out if a contractor is licensed to take on your renovation project, you can file a simple inquiry with the Contractors State License Board to confirm whether or not they are appropriately licensed.
Which Contractors Must Be Licensed Under The California Contractors’ State License Law?
The “License Law” also applies to the provision of so-called “home improvement goods,” which are goods that are used in a construction project and affixed to the real property in a way that they become a permanent part of the home. Some examples of these goods include carpeting, fencing, heating and air conditioning equipment, and more. Even certain pest exterminations fit under this provision.
The License Law also applies to workers such as gardeners or tree trimmers, interior decorators, painters, and sprinkler system installers. This shows that the Law is not limited to the structure of the home itself, extending out to the driveway, yard, pool, hot tub, porch, garage, gazebo, or anything else adjacent to the home that is part of a homeowner’s property.
What Workers or Situations Do Not Need to Be Licensed?
However, the Law does not apply to any construction, alteration, improvements, or repair made to personal property. For example, this would include the repair of your TV or computer. Any contractor who does this work for you does not need a license.
The Law also does not apply to the sale or installation of any items that are already finished products, materials, or merchandise that will not become a fixed part of the home. Therefore, a supplier who delivers finished cabinets to your home but does not perform the installation is not required to have a license. Likewise, anyone who sells a patented prefabricated kitchen to you does not need a license either.
Finally, those who perform cleaning work, such as house cleaners or chimney sweepers, also do not need to be licensed.
What is the Penalty for Contractors Who Are Caught Operating Without a License?
Every year, hundreds of workers are arrested for contracting without a license in California. This is a criminal charge that can even come with a potential jail sentence.
The License Law states that no person in the State of California may perform any construction services billed over $500. This applies to smaller handyman fix-it services all the way up to building a house. The Law penalizes those who are caught operating without a license as well as those who are licensed for one classification, but bid on or work on a job in another classification in which they do not have a license. (For example, an electrician working on a roofing job.)
Getting caught contracting without a state license is typically a misdemeanor that comes with a maximum sentence of six months in jail and/or a $500 fine. A conviction may also carry with it some administrative fines of up to $15,000. Repeat offenders are subject to a mandatory 90-day jail sentence plus steep fines.
The offense for operating a license can become a felony if the offender uses someone else’s contractor license when they bid for a job or attempt to falsely represent in any other way that they have a contractor license. The offender could even be charged with identity theft if they are using someone’s contractor license number without the actual contractor’s knowledge. This conviction could lead to a lengthy stay in state prison.
There are also very serious charges for those who take advantage of the elderly. If the customer is over 65 years of age and the prosecution finds that the unlicensed contractor took advantage of them financially, then the offender could be facing more jail time and stiffer fines.
How Are Unlicensed Contractors Caught?
California state authorities will often conduct sting operations to catch unlicensed contractors. A typical sting will involve soliciting bids for construction or handyman work and then arresting everyone who is unlicensed and puts in a bid over $500. In the sting, this will be every unlicensed bid they receive, as the nature of the work will purposely call for a high price.
Authorities may also scan through online ads on sites like Craigslist and look for people advertising their services as handymen, plumbers, painters, etc. The authorities will then call the creators of the ads and get a bid for work that they know will be over $500. On top of the charge for operating without a license, these offenders may be on the hook for illegal advertising charges if their ad did not explicitly state that they are unlicensed.
The illegal advertising charge is an additional misdemeanor and applies to any job, even if it is under $500, as state law requires that any unlicensed person who advertises for a service that requires a contractor license must state that they are unlicensed. Unlicensed contractors are allowed to perform jobs under $500, but must state in their advertising that they are unlicensed.
The specific codes for these infractions are as follows:
Business and Professions Code section 7028 – contracting without a license. Penalty is up to six months in jail and/or a fine up to $5,000.
Business and Professions Code section 7027.1 – illegal advertising. Penalty of a fine from $700 to $1,000.
If this all wasn’t cause for alarm enough to any contractor operating without a license, perhaps the next bit of law will be…
Unlicensed Contractors Have No Legal Recourse To Enforce Work Contracts
A big part of this growing issue with unlicensed contractors is that many unlicensed contractors are unaware that operating without a license in California is a misdemeanor. However, those who do may be shocked to learn that they cannot legally recover any damages that they may have incurred as part of a contract for work that requires a license.
In layman’s terms, this means that a homeowner is under no legal obligation to pay an unlicensed contractor. The homeowner can even sue the unlicensed contractor for all payments made, and the unlicensed contractor will have no legal recourse. So no contract between an unlicensed contractor and a homeowner is legally enforceable from the contractor’s perspective, however, the customer still has the right to sue for any and all payments made even if the work was performed in accordance with the contract.
This might seem a bit messed up, but it shows how serious California is about having contractors operate with a license and not operate in the “underground economy.”
Not only is operating as an unlicensed contractor illegal for any project over $500, but the contractor can do all of the work, and then the customer can refuse payment, and there is nothing the unlicensed contractor can do about it.