How Much Work Can You Do Without A Contractor License In California?
It may be tempting to hire a contractor who is unlicensed in California but homeowners should be aware of the consequences. In fact, operating without a license in the state of California is one of the worst occupational decisions you can make for a number of reasons.
Though, it is possible to hire an unlicensed contractor in California, you can only hire them for projects that are less than $500, including labor and materials. Therefore, the only work that can be completed without a contractor license in California is any project that does not equal or exceed $500.
For contractors, operating without a license is a seriously bad business decision. They can face serious criminal and financial penalties, and also possess no legal right to enforce the contracts that they form with their customers.
Who Needs a Contractor License in California?
If you’re questioning whether or not you require a license in the State of California, the answer is most often yes. The general rule is that a person or entity requires a license if they are constructing or altering any of the following:
- railroad, excavation
- parking facility
- or other structure
- If the total cost (including materials and labor) is $500 or more.
The state guidelines continue on to assert that contractors, subs, and specialty contractors that engage in home improvement projects must possess a license before submitting any bids. In most cases, these guidelines apply to all contractors including General Contractors, painters, or even if your company simply sells windows and siding.
Although the Contractor State Licensing Board (CSLB) is very strict on enforcing these guidelines in California, there are a few exceptions.
Exceptions to Contractor License in California
A business, such as a handyman service, in California that completes projects that amount to less than $500 in value (material and labor included) are not required by law to have a license. However, they are not permitted to break down a larger job into smaller $500 increments to try to find a loophole to this law.
For example, imagine that you are remodeling your kitchen and the total cost of the project is $6,000. You decide to sublet the flooring work, which only costs $200. This flooring worker that you hired is not exempt from licensure, since the entire cost of the project was over $500.
Additionally, owner-builders – or, those who are building a structure on their own property – are not required to have a license. This similar exception applies to satellite installers, security alarm companies, or any other artisan selling or installing finished products that will not be part of the structure.
As outlined above, it is much easier to name those who are exempt for a license in California than the other way around. Therefore, if you’re working on a project that is valued higher than $500 in California, there’s a strong chance that you need to go through the contractor licensing process.
Contractors Who Work Without a License
As a contractor, the decision to not obtain a license will never work to your beneift. Contractors who work without a license in California have no legal right to enforce contracts they hold with their customers. They also face stiff penalties if they are discovered.
If an unlicensed contracted takes on work that requires a license, they have no legal recourse if the customer doesn’t hold up their end of the deal. This is defined under the California business and professions code 7031. Contracts between customers and unlicensed contractors are not legally enforceable. This means that even if the work is performed well, the homeowner still has the right to sue has the right to sue the contractor. The unlicensed contractor also has no defense if the homeowner decides to sue them for payments that have already been made.
What Does California Law Say?
The state is clear that all work that should be performed by a licensed contractor cannot be done by an unlicensed one. If they do take on the work, they have not legal rights to get paid or to sue if the contract is not fulfilled.
California law clearly states in their Contractor’s State License Law that no unlicensed contractor cannot, “bring or maintain” any action for compensation for performing any act or contract for which a license is required unless the contractor was duly licensed “at all times” during performance. (Business & Professions Code § 7031(a)”.
Additionally, California law stipulates that unlicensed contractors cannot advertise themselves as licensed and they cannot take on work that is valued more than $500 in labor and materials.
Any contractor found misleading customers by claiming that they are licensed can face felony charges. This is also true of anyone who uses another contractor’s license. Unfortunately, some contractors attempt to “sub” out some of their work to unlicensed contractors to meet deadlines and save money. Under California law, this is a misdemeanor.
Penalties that Unlicensed Contractors Face
If a contractor is discovered working without a license in California, they can be charged with a misdemeanor. The charge can lead to a six month jail term and a $15,000 fine. Often unlicensed contractors are unaware of these consequences.
When unlicensed contractors are discovered more than one time, the penalties get more severe. This is particularly true for those working on projects that require a contractor’s license and those who are caught illegally contracting for federal or state disaster assistance. When discovered, they are placed on the most wanted list of the California State License Board (CSLB). Contractors with a second offense face a mandatory 90-day jail term. They will also have to pay the equivalent of 20% of the project contract.
There can be additional penalties if an unlicensed contractor is discovered. In some cases, they have been required to return all funds they have received from work they have done. In one case, Twenty-Nine Palms Enterprises Corporation v. Bardos (2012), an appeals court forced an unlicensed contractor to return the full amount of his contract. This amounted to $751,995.
California Licensing Process
The first step in applying for a contractor’s license in California is to determine that you are eligible. Before you begin the process, you must:
- Be 18 years or older
- Have the necessary skills and experience to handle the daily activities of a construction business, including field supervision. Alternatively, you can have proper representation, that has all the necessary experience and skills, to serve as your qualifying individual.
- Possess four years of demonstrable experience at the journey level, or as contractor, supervisor, or foreman in the category you are applying for.
- Obtain a $15,000 bond to safeguard consumers against flawed craftsmanship and employees from non-payment.
In addition to these requirements, you must pay a non-refundable $330 application fee. Once you have determined that you qualify, you must fill out the application on the CSLB website and submit it along with the application fee.
Hiring Licensed Contractors
For homeowners, the best course of action is to hire a licensed contractor for projects valued at more than $500. For the unlicensed contractor, they face jail time, lack of legal recourse and no rights over payment. This is not the best way to engage in work.
Contractors need to be professionals. For homeowners, this means that they are licensed and carry appropriate levels of insurance. Problems happen on worksites every day. Knowing that you are working with a professional can give you peace of mind and offer you protection, should things go awry.
While an unlicensed contractor may save you money on a remodeling job, as a homeowner, you must weigh the consequences if the project experiences difficulties. Although, in the state of California, homeowners have more rights than an unlicensed contractor, you should still avoid hiring a contractor that is not properly licensed.
Can I be sued for using an unlicensed contractor?
Homeowners have more rights under California law. It is the unlicensed contractor that has no rights to sue under California law. For projects that cost more than $500, contractors need to be licensed.
What do I do if I discover that my contractor is unlicensed?
If you have unknowingly hired an unlicensed contractor, there is recourse for you. The situation can be reported to the California Contractors State License Board (CSLB). They will be able to advise you on the steps to resolve your situation. California takes a tough stance on the standing of contractors so when someone is reported, they can face jail time and stiff fines.
Under California law, anyone who uses an unlicensed contractor is protected. The law considers them to be victims of a crime. This is regardless of whether the person understood that the contractor was unlicensed or not.
The Bottom Line
In the end, it’s never advisable to hire unlicensed contractors in California. The exception is for projects that have a total value of less than $500, labor and materials included. While an unlicensed contractor may be a reputable person with high-quality skills, the risks involved far outweigh possible benefits.
As a contractor, if you are questioning whether or not you need a license to perform work in California, the answer is almost certainly yes. Obtain the proper licensure to protect you and your company from strict penalties.
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