Proving Licensing Now Less Onerous in California

Sep 28, 2016

California has eliminated one of the requirements contractors must prove when invoking the “substantial compliance doctrine.”

In most states, builders are required to maintain contractors’ licenses. The penalties for not doing so are very harsh. California’s statute is no exception.

An article in Construction & Infrastructure Law Blog by Robert Sturgeon discusses the recent revision to the California licensing law.

Typically, as is the case in California, a contractor who builds without a license “may not bring or maintain a court action to recover compensation for performance of construction work for which a license is required without alleging that it was validly licensed at all times during the performance of the contract or work for which it seeks to recover.” A person who hires an unlicensed contractor can sue to recover all money they paid the contractor even if the contractor is not in breach of contract or negligent.

Contractors argue that the California statute, and similar statutes in other states, should not apply “if they have ‘substantially complied’ with the requirements of the contractor licensing statutes.”

The California legislature established four criteria for use by courts when determining whether the substantial compliance standard defense should be allowed. One of these was that “the contractor did not know or reasonably should not have known that he or she was not duly licensed when performance of the work or contract at issue commenced…”

As Mr. Sturgeon notes, if a license has expired or “been suspended because the contractor did not maintain workers compensation insurance” contractors could legitimately argue they were unaware their licenses were no longer valid. This, however, was often difficult to prove.

AB 1793 eliminates this requirement. Contractors no longer have to demonstrate they did not know their license had expired when invoking the substantial compliance exception.

The amendment to California’s substantial compliance defense is reasonable and fair. Contractors must still prove they have acted in good faith. Owners are still protected from unscrupulous builders.

Hopefully, other states will follow California’s lead if their substantial compliance statutes need revision.

Source—

AB 1793 Amends Requirements for Contractors to Establish Substantial Compliance With State Contractor Licensing Requirements, Robert Sturgeon, Construction & Infrastructure Law Blog, Sept. 7, 2016.