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Unlicensed Contractor California Penalty Laws

Unlicensed Contractor California Penalty Laws

By now you should be aware that it is illegal to operate as an unlicensed contractor in the state of California. If this is the first time you’re reading this, then make sure you check out our other post on hiring unlicensed contractors in California. A big part of the reason that there are so many unlicensed contractors in the state is because so many don’t even know it is illegal.

In this post, we’re going to go over the unlicensed contractor california laws and help drill home the reasons that you should always, always, always, hire a licensed contractor over an unlicensed contractor.

It Is Illegal to Operate as an Unlicensed Contractor

Let’s just say it again: It is ILLEGAL to both operate as an unlicensed contractor and to hire an unlicensed contractor. Both sides of the equation can be held liable in certain situations.

Contracting jobs in the state of California require that the contractor have a valid license from the Contractors State Licensing Board (CSLB). There is not one all-encompassing license either — the contractor needs to have the specific license intended for their area of work. One license cannot be used for another job in another specialty.

Specifically, those contracting jobs which have a cost of over $500 in materials and labor require the contractor to be licensed. Jobs under that threshold do not require a license, however, it is still in the homeowner’s best interest to use a licensed contractor for any job regardless of price. We’ll get into more on that later.

For any job over $500, the contractor must provide their license number for any contract on which they place a bid. Using a license number that is assigned to another specialty, or one that is in any other way false, could lead to some severe penalties for the contractor.

Regardless of the risks involved of hiring an unlicensed contractor, there are still countless currently operating in California. Their low prices and the overall negligence of the public keeps this “underground economy” booming, but as more and more homeowners learn the potential consequences of hiring an unlicensed contractor, and likewise, the unlicensed contractors see the true risk in working without a license, perhaps the numbers will decrease.

Having a license does not guarantee a homeowner that their contractor will do superior work, but it does assure them that they are protected if something goes wrong. Unlicensed contractors can offer no such assurances.

Luckily, the California Contractors’ State License Law (“License Law”) is in place to protect homeowners against the unlawful practices of unlicensed contractors.

The California Contractors’ State License Law Protects Homeowners Against Unlicensed Contractors

Homeowners and the general public do have an ally against unlicensed contractors in California: The California Contractors’ State License Law (“License Law”).

This law was created to protect the public from incompetent and dishonest services by unlicensed contractors in the California construction industry. The law states that all California contractors must possess a valid contractor’s license unless that are able to meet a few narrow statutory exceptions. Those who do jobs under $500 also do not need a license.

However, for those looking to bid on and work on larger projects, a license specific to the nature of work will be required. There are actually over 40 types of construction licenses each covering a specific specialty. Roofing jobs have their own set of licenses, plumbing and electrical work too. In order to legally complete these certain jobs, the specific matching license will be required and no license overlaps to another activity are allowed.

The License Law also applies to workers not directly associated with construction, such as landscapers or tree trimmers, interior decorators, painters, and even sprinkler system installers. The Law covers work done not only to the physical home itself, but also the yard, driveway, garage, porch, pool and hot tub, and anything else on the homeowner’s property.

The Law also covers materials, known as “home improvement goods,” which are used in the construction project and permanently affixed to the home. These goods might include heating and air conditioning equipment, carpeting, fencing, etc.

Are There Any Situations In Which a License is Not Required?

Yes, actually there are some situations where it is okay to hire an unlicensed contractor, at least legally.

For example, any construction, improvements, repairs, or alterations made to personal property such as your television or computer does not require your contractor to be licensed. As we mentioned previously, home improvement jobs under $500 also do not require for your contractor to be licensed.

The installation of any finished products, materials, or merchandise that does not become a fixed part of the home also is not covered under the law. Therefore, suppliers of finished cabinets or flooring do not need to be licensed, however, those who install the materials likely do. House cleaners and chimney sweepers do no need to be licensed either.

What are the Potential Consequences for Unlicensed Contractors?

Unlicensed contractor law is pretty stiff in the state of California, and those who operate without a license should be rather careful that they are not caught conducting their business. Hundreds of unlicensed contractors are caught each year, and some face rather serious penalties for not having a license.

The California Contractors’ State License Law outlines that no person in California may perform any construction services billed at $500 or over, which can range from smaller repair jobs to the construction of an entire home. Obviously, bigger jobs will be easier for the authorities to catch someone who is unlicensed, however, contractors have been known to complete work on jobs big and small.

The License Law is enforced by the Contractors State License Board (CSLB), which upholds construction standards throughout California and protect consumers. According to the CSLB, those who operate without a state-issued license actually cause harm to the public and thereby tarnish the respectability of the construction industry. The CSLB says this undermines California’s financial foundation. As you can see, they take cracking down on unlicensed contracting very seriously.

So serious in fact that those contractors who are caught operating without a license during a kitchen remodel, bathroom remodel, or any other home improvement may have to appear before a Superior Court judge on misdemeanor charges. These charges can carry with them a potential jail sentence and/or steep fines.

Anyone who is caught operating without a contractor’s license, as well as those who are caught operating with an improper license (using a license specific to another job on a project with a different classification for which they do not have a license), or fraudulent license (using a fake license number or someone else’s license number) will be subject to penalties that some may find surprising.

Operating without a license is typically a misdemeanor charge which comes with a maximum sentence of six months imprisonment, and/or a $500 fine. These fines can grow north of $15,000 if convicted. Repeat offenders will be given a minimum sentence of 90 days in state prison and face even steeper fines.

Being an unlicensed contractor in California can be a felony offense if the contractor used someone else’s license when they bid or worked on a job. Any attempt by an unlicensed contractor to falsely represent in any way that they are licensed will be charged as a felony.

They may face an additional “identity theft” charge if the contractor attempted to use, or has been using someone else’s contractor license number without that person’s knowledge. This could lead to a more lengthy sentence. Those who attempt to financially abuse the elderly will face even stiffer penalties still, as there are clauses in place to protect customers over 65 years of age.

Laws & Codes Against Unlicensed Contractors in California

The following codes and unlicensed contractor California penalty laws are as followed.

  • Business and Professions Code section 7028 – contracting without a license. The penalty for operating without a license on a first offense is up to six months in jail and/or a fine of up to $5,000, plus the potential for additional administrative fines and penalties.
  • Business and Professions Code section 7027.1 – illegal advertising. This penalizes any unlicensed contractor who posts advertising and does not state in the ad that they are unlicensed. Unlicensed contractors are allowed to advertise for jobs under $500, but still must state that they are unlicensed, otherwise, if caught, they may face a fine from $700 to $1,000.
  • Business and Professions Code section 7159.5 – requesting an excessive down payment. Home improvement down payments cannot exceed 10 percent of the contract total, or $1,000, whichever turns out to be less. In California, this is a misdemeanor charge that carries a maximum penalty of six months in jail and/or a fine of up to $5,000.
  • Business and Professions Code section 7127) – stop order to halt job site activity where any person found with or without a contractor license does not have workers compensation insurance coverage for employees. If the contractor then fails to comply with the Stop Order, it may result in misdemeanor charges and a penalty of up to 60 days in jail and fines as high as $10,000.

Unlicensed Contractors Cannot Enforce Work Contracts

While this is not meant to be seen as a loophole through which homeowners can take advantage of unlicensed contractors, it can be used as a backdoor through which they can achieve financial restitution.

Unlicensed contractors actually have no legal recourse to recover any payment that they have not received from their customer. If a job requires a license, and your contractor does not have one, you do not have to pay them, even if they completed the work to your specifications. And there is nothing that the unlicensed contractor can do about it.  

No contract between a homeowner and an unlicensed contractor is legally enforceable for the contractor, but the homeowner has the right to sue for any and all payments made. Even if the work was done to your satisfaction, you can still get your money back.

While you cannot be sued for non-payment by an unlicensed contractor in California, there are some potential consequences for the homeowner as well.

Why You Should Hire a Licensed Contractor

Homeowners aren’t completed free of fault when it comes to hiring an unlicensed contractor, and they certainly take on a hefty amount of risk as well.

Most of this risk stems from the fact that unlicensed contractors have to cut corners in order to offer their lower prices and get the work done. Since they are unlicensed, they are unable to acquire the necessary permits needed for certain jobs.

This can come back to bite you later on it you wish to sell your home, as you will have to disclose that information to your potential buyers, and this can lower the overall value of your home. Should you not disclose this information, you could be held liable if the work in question is later found to not be up to code.

While you are under no legal obligation to pay an unlicensed contractor, the contractor also does not have to fix anything for you that they did wrong. If their work isn’t up to your standards, or worse, they cause damage, you will likely have to pay someone else to come and fix it. This negates those savings you were hoping to gain when you hired the unlicensed contractor, and puts you in a worse situation.

But the biggest risk homeowners face when hiring an unlicensed contractor is liability.

Unlicensed contractors do not have workers compensation or liability insurance. This means that if the contractor, or any subcontractor, is injured on the job, it will be the homeowner’s responsibility and you could be held liable for damages.

California state law, under Insurance Code §2750.5, states that “an unlicensed worker performing services for which a license is required is not an independent contractor.” Therefore, an unlicensed contractor is actually legally considered to be the employee of the homeowner, as well as any subcontractors brought on for the project.

Is it then the homeowner’s responsibility to comply with California OSHA safety regulations, and if the contractor or subcontractor is injured, they can file a lawsuit against the homeowner for violating the law by hiring an unlicensed contractor, and for providing an unsafe workplace. Your homeowner’s insurance will not cover you in such a situation, and the injured worker’s medical bills, plus coverage for their lost wages, can be financially crippling to a homeowner.

Licensed contractors will have workers compensation and liability insurance, which is perhaps the greatest reason they are the safe play. It doesn’t mean their work will be better, but if something goes wrong, it won’t be you who is on the hook to cover the expenses.

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