A Message to General Contractors from the California Supreme Court
The rule in California is that a contractor may not sue to collect compensation for performance of “any act of contract” requiring a licensing without alleging that he or she was duly licensed “at all times during the performance of that act or contract.” Thus, if a general contractor is not licensed at any point during its performance of the contracting work, the general contractor is precluded from suing to collect for the services it provided

Over the years, the California Court of Appeal softened the severity of a general contractor working without a license so long as that contractor substantially complied with the licensure requirements. It ruled that the prohibition bars the general contractor from recovering compensation pre license activities under the contract. However, the general contractor may recover for all performance rendered under the contract after the license was issued or was otherwise in effect. Thus, if a general contractor’s license was suspended for not paying the annual corporation tax of $800, and it takes 8 weeks to reinstate the contractor’s license, and during that 8 weeks the contractor spent two weeks on a contract while waiting to get its license reinstated and another 12 weeks after the license was reinstated, the general contractor can sue to collect for the 12 weeks it performed on the contract while licensed. The general contractor was only precluded from collecting for the services it provided for solely the two weeks it was while waiting to have its license reinstated.

Recently, the California Supreme Court sent a message to general contractors by closing the “substantial compliance” loophole that courts granted to contractors. The Supreme Court set a precedence requiring strict compliance with the statute, i.e., a general contractor is ineligible to recover any compensation if at any time during performance of an agreement for contractor services he or she was not duly licensed.

The Supreme Court denied MW Erectors the right to collect $1 million worth of structural steel in Disneyland Grand Californian Hotel in Anaheim because it was unlicensed for the first 18 days of the project’s 268 workdays. MW Erectors Inc.’s claim that there was a brief “technical lapse” and was otherwise in full compliance with the State’s contractor’s licensinglaws. The Supreme Court rejected the argument holding that the statute is clear and unambiguous. Either the contractor was fully licensed or it was not. If it was not, even for one day, the general contractor is precluded from recovering.

NOTICE: McCullogh & Associates has provided the contents of this page for general informational purposes only. You should not substitute this information for personal consultation with a qualified professional in the field, nor should you rely upon this information in taking any action. No attorney-client relationship will be created through your use of this letter or its web site.