California Business and Professions Code section 7031 is part of the Contractors’ State License Law. It imposes strict and harsh penalties for a contractor’s failure to maintain proper licensure. It states a general rule that, regardless of the merits of the claim, a contractor may not maintain any action, legal or equitable, to recover compensation for the performance of any act or contract unless the contractor is duly licensed at all times during the performance of that act or contract.

Contractors and Subcontractors are governed by this licensing law. Both owners and general contractors are entitled to protection against illegal subcontracted work by unlicensed persons. Therefore, an unlicensed contractor may not recover compensation for his or her work from either the owner or the general contractor.

This inability of an unlicensed contractor to receive compensation was recently driven home in the California Sixth Appellate Court case of Kim v. TWA Construction, Inc. In Kim, Kim and her husband (Kim) hired TWA Construction, Inc. (TWA) to construct a home on a wooded lot. Early in the construction, a subcontractor hired by TWA to do tree-trimming damaged a large eucalyptus tree that was partly owned by Kims’ neighbor. The neighbor sued Kim, Kim cross-complained against TWA for negligence and indemnity, and TWA cross-complained against Kim for, among other things, breach of contract. During trial Kim and TWA settled with the neighbor but proceeded to trial on their cross-complaints.

At trial, TWA presented no evidence that the subcontractor who worked on the eucalyptus tree was licensed to perform tree trimming work. The jury returned special verdicts finding TWA was 100 percent at fault for the neighbor’s damages and that Kim had paid TWA $10,000 for the tree trimming services performed by TWA’s subcontractor. The trial court entered judgment in favor of Kim for $10,000 on Kim’s cross-complaint and also in favor of Kim and Truong on their cross-claims against TWA.

TWA appealed. TWA contended the judgment must be reversed because the trial court erred in its interpretation of the relevant licensing statute, Business and Professions Code section 7031.3. In addition, TWA asserted the trial court misinterpreted the construction agreement, and substantial evidence did not support the jury finding that Kim paid TWA $10,000 for tree trimming. The Appellate Court affirmed the judgment in favor of Kim.

The Appellate Court noted, “The California Supreme Court has not directly addressed the factual situation presented here as applied to section 7031(a), where a licensed general contractor seeks compensation from an owner for work performed by an unlicensed subcontractor.” However, after a review of the intent and purpose of the law, the Appellate Court, it held:

To nevertheless enable a contractor to recover compensation for the performance of unlicensed work, simply because the work was accomplished by hiring a subcontractor, would circumvent the purpose of section 7031 and render meaningless the section 7031 bar and expansive definition of contractor to include work performed “by or through others. [Cites Om.]”

Thus, the Appellate Court decided that section 7031 bars even a licensed general contractor in California from bringing an action for compensation for an act or contract performed by an unlicensed subcontractor where a license is required.

It is essential the general contractors only hire licensed subcontractors. It is just as essential that contractors maintain their licenses in good standing if they want to be compensated for their work. If you are uncertain whether a licensed contractor is necessary, or discover a contractor you have hired is unlicensed, contact your legal counsel to assist you with the complex issues that arise when unlicensed contractors are involved.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.