Unlicensed Contractors:  Beware of the Dangers

Understanding Bonds, Liability Insurance and Workers Compensation

Having Insurance in California is a Must

Tort Reform, What Does it Really Mean?

Lawyers are Not Held in High Regard

Understand State and Federal Courts is Helpful

Unlicensed Contractors: Beware of the Dangers.

This article is intended for both the person contracted with, or intended to be contracted with the unlicensed contractor and the unlicensed contractor him or herself.  For the past 22 years, I have been engaged in representing individuals against unlicensed contractors and have consulted with unlicensed contractors that have come to me when they ran into problems  This article will give you some insights into the dangers of hiring unlicensed contractors as well as the risks associated with acting as an unlicensed contractor.

The State of California has declared that acting as an unlicensed contractor is a crime.  (B & P Code sec. 7028).  Additionally, acting as an unlicensed contractor can result in serious financial losses pursuant to B & P Code sec. 7031.  The expressed reason California does not want unlicensed contractors to perform work in this State, is to protect the public from the perils incident to contracting with incompetent or untrustworthy contractors.    Davis Co. v. Sup. Ct. (1969) 1 Cal.App.3d 156, 158.

So when does one work as an unlicensed contractor?  The rule is that if an individual performs construction work, meaning “construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building, highway, road, parking facility, railroad, excavation or other structure, project, development or improvement, or to do any part thereof, including the erection of scaffolding or other structures or works in connection therewith.”  B & P Code sec. 7026.  The simple sale of materials and prefabricated structures are not included within the definition.  If a person performs work that falls within these classifications, but the cost of that work is less than $500.00, then the individual is not considered in violation of the law.

If a property owner, or individual, has contracted with an unlicensed contractor, and whether the job was performed with perfect precision, the unlicensed contractor cannot sue for the collection of any unpaid amount due.  However, he can himself be sued by the other party for the recovery of all money paid to him for the work performed by him or his subcontractors, and be required to pay attorneys fees spent to collect the funds or to defend any action brought by an unlicensed contractor. 

You might say to yourself, how is that fair to the individual that worked hard and did his job well?  The answer is that it is not fair, nor was it intended to be fair.  Rather, the legislature wanted to create such a disincentive, that it would discourage people from contracting without a license.  While there may have been some positive affects in reducing the number of unlicensed contractors, there remains many unlicensed contractors throughout California.

The risk and burden is fully placed upon the shoulders of the unlicensed contractor for violation of this Code.  Can an individual knowingly contract with an unlicensed contractor, get all the work performed and then not pay the unlicensed contractor, or sue him for a return of all funds paid?  The answer is, yes.  Unfortunately, there are those that will use this provision to take advantage of others for their own gain instead of contracting with a licensed contractor and paying a fair price.  Assume that a contractor was unlicensed when the contract was signed, or through his own failure allowed his license to lapse.  The same rules may very well apply to prohibit recovery of any money for the work performed.  Contractors licensed out of State, doing work in California are considered unlicensed contractors, unless they secure a California contractor’s license.  Probably the best advise that can be given to a licensed contractor on this issue is to make sure your license is always in good standing.

Some reading this article might consider hiring an unlicensed contractor and attempt to stiff him.  Don’t!  Here are the problems.  First, they have no contractor’s license bond, no liability insurance, no worker’s compensation insurance, no assurance of assets in the event of a judgment after the work is performed and no ability to secure assistance from the Contractor’s State License Board.  The repair work may cost more than the original job.  Further, any damage, injury or loss than the original job.  Further any damage, injury or loss caused by your unlicensed contractor, to his employees or to others,  may end up your full financial responsibility.  Finally, many ask for and get more money up front than is allowed by law.  The next thing you know, you have no money, no work and a real mess.

For the unlicensed contractor, the best advise is to get your license.  It is not that difficult.  Otherwise, work as an employee for a licensed contractor.  Remember, that a borrowed license is no different than no license at all.  While some may get short term benefits, the financial risks are way too great.

For the licensed contractor, it is illegal to contract with an unlicensed contractor.  If you do, he becomes a de facto employee along with all his other employees.  You are fully responsible for his work, payment of his worker’s compensation insurance, payroll taxes, etc.

For the consumer of contracting services, here are some simple suggestions:

1. check if your contractor is licensed.
2. Actually speak with the license holder, not just someone who represents themselves as having authority.
3. Get your contract in writing.
4. Do not pay more upfront for the work than is allowed by law. 
5. Visit the CSLB website at www.cslb.ca.gov and learn more about what to do as a consumer of construction services.  
6. If something does not seem right, speak with a construction attorney.

If you are in a contract with an unlicensed contractor, have a construction problem or need representation in a construction related claim, seek an attorney like David H. Ricks who understands construction law and its many intricacies.

Understanding Bonds, Liability Insurance and

Worker’s Compensation

Many contractors advertise that they are bonded and insured.  Should that provide peace of mind for the consumer of construction services? The simple answer is “yes” and “no.”  Not so simple, is it? 

THE CONTRACTOR’S LICENSE BOND
Every contractor in the State of California must have a contractor’s license bond.  Unless the contractor is bonded, he or she can not hold an active license.  The amount of the bond for contractors is only $12,500.   The purpose of this bond is to provide some protection for those dealing with the contractor, assuming the contractor fails to do certain things.  That is not to say that in every circumstance will the bonding company be liable for the failure of the contractor. Some examples where the bond could be liable to pay the contracting party is when the subcontractors have not been paid, violations of building code requirements, abandonment of the project, failure to complete the project for the contract price, and diverting funds away from the intended project.  To recover from the bond, a bond claim must be presented to the bonding company .  Information about the contractor’s bond is available from the contractor or CSLB at www.cslb.ca.gov.

LIABILITY INSURANCE 
Liability insurance is an optional insurance for contractors.  However, if they are going to do any work on your home or construction project, the contractor is obligated to provide you with a form that indicates if they carry liability insurance and who the carrier is, along with a contact telephone number.  Beware of the contractor without insurance.

General liability insurance will generally only cover injuries to people caused by the acts of the contractor and property damage.  This insurance does not cover the actual work performed by the contractor, or any dispute with the contractor over the quality of his work.  Liability insurance has limited protections except when someone or something gets injured or damaged by the contractor or his subcontractors. 

If you want financial protection that the job will be completed, then the appropriate coverage is through a performance bond.  This bond can be called upon to pay for the completion of the project if necessary.  You can ask a contractor to provide for this bond, however, the project owner can expect to pay for the placement of that bond.

WORKER’S COMPENSATION INSURANCE
This insurance protects the contractor’s employees if they are injured on the job.  If a contractor does not have employees, then there is no need for worker’s compensation insurance.  However,  if even temporary employees are on the job, this insurance is necessary. 

Having Insurance in California is a Must

Before an accident happens, before a lawyer handles an auto accident case, having your vehicle insured is a must.  Several years ago, the people of
California were convinced by a well orchestrated effort by the insurance companies that Californians needed a law that prohibited the recovery of general damages, often known as pain and suffering, permanent disfigurement, or loss of enjoyment of life for persons that were uninsured at the time of an accident.  This proposition was published as an insurance cost reducing law.  Unfortunately, insurance rates have risen since the law passed, while the insurance companies reduced their possible liabilities. 

Consider the fact that this law would apply if a drivers insurance expired one day prior to an accident, or if a driver borrowed an uninsured car.  While having the minimum liability coverage protects your rights against the application of Civil Code sec. 3333.4, it is recommended that all drivers protect themselves with uninsured motorist coverage just in case youre involved in an accident with an uninsured motorist.

Tort Reform, What Does It Really Mean?

In the 1970s California adopted tort reform for medical malpractice claims.  The State imposed limits on the recovery of pain and suffering damages for victims of medical malpractice to a maximum of $250,000.  Civil Code sec. 3333.2.  Further, the recovery of medical expenses were limited to those not already paid by the victims own insurance.  The laws also limited the amount a victims attorney could receive for handling a malpractice lawsuit.  Finally, the court could impose limits on the manner which any malpractice judgment would be paid.  When all was said and done, the reforms only limited the victims rights while providing the doctors with reduced malpractice insurance rates and the insurance companies limited exposure.

Since the passage of Civil Code 3333. 2, there has been no increase in the allowable limit for pain and suffering.  This means that a victims recovery today is worth less (due to inflation) than a victims recovery in the 1970s.  At the same time, the insurance rates have increased and the medical insurance companies have reaped the profits.

So when the talk is about tort reform, what that really means is limiting victim rights.  The insurance companies push legislation that restricts a victims ability to engage a qualified attorney or recover for legitimate injuries and losses.  The insurance companies have no limitations to fight legitimate claims.  Proper tort reform requires a balance of rights and responsibilities.

Lawyers Are Not Held in High Regard

I have always said that attorneys are their own worst enemy.  Why?  Arrogance, greed, ego, controversy, etc.  However, whenever you hear a significant news story you can bet there is a lawyer somewhere around that story.  Take for example, O.J. Simpsons multiple trials,  the bankruptcy of Circuit City, McDonalds spilled coffee, disputed elections such as Proposition 8, and on and on.  While attorneys are crucial to societal maintenance they often cause more disruption than repair.  Despite all the negatives about lawyers, when we get ourselves in trouble, the person we want by our side, is our lawyer protecting us and representing our interests.  So why do we love to hate the lawyers, but at the same time, we rely on them when we get in trouble.

In 2002, the Litigation Section of the American Bar Association did a survey of 450 people, to find out what they thought of lawyers.  There were four positives expressed: (1) they are knowledgeable about the law; (2) personal experience with a lawyer supports a positive opinion; (3) they work hard for their case, and (4) they believe that a career in the law is a respectable profession.  Offsetting the positive, the survey found that people considered attorneys greedy, manipulative and corrupt.  Further, people claim that their attorneys charge too much, overpromise and underperform, take to long to solve their problems and fail to properly police themselves.  The lawyers favorable rating was only 19%.  Compare this rating to doctors that had a 50% positive rating.

I find the fact that lawyers have such a poor image reprehensible.  However, it has been earned.  How can this earned image be improved?  There is only one way, one lawyer at a time.  So, let me start.

First, we will continue to improve communications with  our clients. Returned calls and updates are essential. Second, we want you to fully understand your legal fees obligation, either the hourly fee or contingency basis.  Third, educate our staff and clients regarding proper lawyer‑client relations.  Forth, promote public service and community involvement.  Fifth, make sure our advertising and marketing is respectable to the profession and accurate in all respects.

As we handle a case, we will ask you to evaluate our service and let us know how we can improve our service.  After all, the best compliment is the one that comes from your referral. 
 

If my staff and I have earned your respect, we did our job.  Thanks for letting us be there.

Understanding Federal and State Courts is

Helpful

In California, there are so many courts that it can become difficult to understand just why there are so many different courts.  Take first the Federal Courts.  California is divided up into four District Courts.  These Districts are then divided into divisions or by specialty courts, such as a bankruptcy court.  The U.S. Constitution set up Federal Courts to handle Federal Law matters,  disputes between States, disputes between residents of different States, if the amount in dispute is enough to meet a certain threshold, and other matters specifically providing jurisdiction to the Federal Courts.  Those courts then have appellate Circuit Courts and the U.S. Supreme Court.  Many of the decisions coming out of these courts, in California and in other States, can impact your life.  Sometimes those decisions involve Constitutional questions.  The judges assigned to these courts are selected by the President of the United States and approved by the Senate.  Once appointed they are often there for life or until they decide to quit. 

California also has its own set of courts.  These Courts are divided by County, then the County divides the court further by districts.  Within the Districts the Courts have different levels.  Small Claims, limited jurisdiction and finally, unlimited jurisdiction.  Often the judges with the districts are assigned to a particular type of case, such as, criminal, family law, probate or civil.  These Courts are subject to appellate divisions and the California Supreme Court.  These judges may be appointed by the Governor and/or elected by the voters.  Generally, they are voted on every ten years.

These Courts are the ones that handle State law matters,  and local, business or State disputes.  They are often stressed beyond capacity due to the number of cases filed and/or defendants presenting meritless defenses to claims.

Disclaimer:  The information contained on this website is not legal advice.  Only a consultation with one of our attorneys will constitute legal advice.