California Court of Appeal Says To Licensed Contractors, “Hire Unlicensed Subcontractors At Your Own Peril!”
In an opinion that should be a warning to all licensed contractors in California, the Court of Appeal held that licensed contractors cannot collect payment from project owners for unlicensed subcontractor work under California Business and Professions Code § 7031(a). (Kim v. TWA Construction, Inc. (2022) 78 Cal.App.5th 808.) Until the California Supreme Court or the Legislature clarifies or overturns the decision, all licensed contractors should be aware that hiring an unlicensed subcontractor may prevent the licensed contractor’s recovery of payment from the owner for the unlicensed work—even if the licensed contractor’s license would cover the subcontract work if they were to perform the work themselves. This Law Note explains the Court’s holding and give practical advice on how licensed contractors might protect themselves in the wake of this decision.
Executive Summary
In a matter of first impression, the Court of Appeal held that a general contractor who hires an unlicensed subcontractor cannot recover compensation from the owner for the unlicensed subcontractor’s work under California Business and Professions Code § 7031(a). The ruling expands the reach of B&P § 7031(a), which permits a plaintiff to recover back all monies paid to an unlicensed contractor, to now withhold amounts paid to a licensed contractor for work performed by an unlicensed subcontractor.
