Masonry Magazine June 2006 Page. 49
Subcontractors Beware: The High Cost of Unlicensed Work
A recent case in California highlights the significant risks subcontractors face when performing work without the required licenses. In some jurisdictions, an unlicensed contractor may be barred from recovering payment for their work, even if the work was satisfactory and the general contractor benefited from it.
In one case, a subcontractor performed work under a contract that was later deemed illegal because the subcontractor lacked the necessary license. Nevertheless, the court permitted the unlicensed subcontractor to recover payment up to the amount that it had benefited the general contractor. While the court permitted the subcontractor's claim for "unjust enrichment" to proceed, it did not permit recovery for the subcontractor's lost profits on the project.
Conversely, in MW Erectors Inc. v. Niederhauser Ornamental & Metal Works Company Inc., the California Supreme Court recently held that an unlicensed subcontractor could not recover unless it was licensed at all times during a construction project, regardless of whether the contractor had been unjustly enriched.
In Niederhauser, a subcontractor entered into two second-tier subcontracts with MW Erectors for certain steel work. At the time MW Erectors entered into the subcontracts, it was not licensed in California to perform the work. About three weeks after beginning its work, MW Erectors obtained the required contractor's license to perform the steel work.
After a dispute arose between the parties, MW Erectors filed a breach of contract claim seeking damages in excess of $1 million. The defendant contractor raised the defense that MW Erectors was unlicensed. The trial court accepted the defense and ruled against MW Erectors. In upholding the lower court's decision, the California Supreme Court held that MW Erectors could not recover any sums of money because it was not licensed at all times during the performance of its work, as required by state law.
Conclusion
While the risks associated with accepting work in other states may prove to be financially rewarding, it is clear that subcontractors who perform unlicensed work can face damaging consequences. As a result, subcontractors should fully educate themselves about the licensing requirements in every state they perform work. Compliance with the applicable statutes and licensing requirements will go a long way in keeping subcontractors out of costly litigation and could mean the difference between getting paid and losing a fortune.
Bradley J. Hansen, Esq., is an attorney with the Northern Virginia law firm of Hughes & Associates PLLC. He specializes in franchise, construction and complex civil litigation. Brad can be reached at brad@hughesnassociates.com, or by calling (703) 671-8200.
This article is not intended to provide legal advice, but to raise issues on legal matters. You should consult with an attorney regarding your legal issues, as the advice you may receive will depend upon your facts and the laws of your jurisdiction.
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June 2006
Masonry
47