LEGAL ISSUES


sword in subsection b. Similarly, a licensee which allows its workers’ compensation insurance to lapse during the work, may find itself in the same predicament. Te CSLL abolished the judicial


doctrine of “substantial compliance,” which excused contractor license viola- tions under circumstances where it was equitable to do so. Te only exception to the sword and shield of Section 7031 is set forth in subsection (e) and is sometimes referred to as the substantial compliance exception. Under this limited exception, if the


violator was previously licensed: “… the court may determine that there has been substantial compliance with licensure requirements under this section if it is shown at an evidentiary hearing that the person who engaged in the business or acted in the capacity of a contractor (1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (2) acted reasonably and in good faith to maintain proper licensure, and (3) acted promptly and in good faith to remedy the failure to comply with the licensure requirements upon learning of the failure.”


Also at Risk: Specialty and GC’s Working with Unlicensed Subcontractors


Te CSLL requirements also apply


to specialty contractors. Specialty contractors are permitted only to perform work within the scope for which they are licensed and work which is “incidental” or “supplemental” to the licensed work. Contractors who stray outside of the confines of their “C” license(s) are subject to the shield (barring payment) and sword (disgorgement) of section 7031, at least to the extent that work is unlicensed. Tus, if a subcontractor with a C15


license (Flooring and Floor Covering) performs both flooring and tile work (requiring a C45 license), the value of the C45 work is not compensable,


www.AGC-CA.org


Contractors should jealously protect against violations which may lead to non-payment or disgorgement. Savvy contractors should confirm not only that a subcontractor has an active license, but that the licensee has an active qualifier and that its workforce is covered by workers' compensation insurance.


and to the extent payment was made on account of the tile work, those payments are subject to disgorgement. General


contractors who subcontract with unlicensed or invalidly licensed trades are also at risk. It is well settled in California that a licensed general contractor may not recover against an owner for work that was performed by an unlicensed subcontractor. (Holm v. Bramwell (1937) 20 Cal.App.2d 332.) Owners may contest payment to general contractors or, worse, seek disgorgement of


the value of unlicensed work, where a subcontractor is found to have violated the licensing requirements of the CSLL. Contractors should jealously protect


against violations which may lead to non-payment or disgorgement. Savvy contractors should confirm not only that a subcontractor has an active license, but that the licensee has an active qualifier and that its workforce is covered by worker’s compensation insurance. By doing these things, a general contractor can significantly mitigate the risk of unwitting violations of the CSLL. 


Robert G. Campbell is a partner at Cox, Castle & Nicholson LLP. Based in the firm’s Los Angeles office, he is one of Southern California’s leading construction lawyers helping his clients resolve a wide range of construction claims disputes. He can be reached at rcampbell@coxcastle.com.


The AGC Legal Advisory Committee has established a #COVID_19 taskforce to address the impacts of the virus on businesses and the #constructionindustry. Members also have free access to the


AGC Legal Hotline: https://bit.ly/2IWCDo3.


Associated General Contractors of California 21


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