ConstructionPro Week, Volume: 2 - Issue: 8 - 02/22/2013

Can Parties Knowingly Exploit Unlicensed Contractors?

By Bruce Jervis


Contractors performing work without proper state licenses are in great jeopardy. Under the statutes and/or case law in many states, unlicensed contractors cannot enforce the construction contract. To be blunt, they are not legally entitled to payment for their work, no matter how outstanding that work may have been.


What of the parties who do business with unlicensed contractors? In theory, they are the ones being protected against the shoddy work of the unlicensed. Sometimes, however, parties knowingly contract with the unlicensed. Can they accept the benefit of the bargain, construction work performed at considerable cost, and then refuse to pay on the grounds the contractor lacked a license?


The Florida Supreme Court recently addressed this question and concluded that under the statutes of that state the answer is yes. A party can knowingly contract with an unlicensed contractor, enforce the contract against that contractor, and then refuse to pay for the work. The court said, “To avoid the draconian effects of the statute, the unlicensed contractor need only comply with the law.”


It should be cautioned that this ruling was based on the wording of a specific statute. It applies only in Florida, where there are civil sanctions, such as fines and cease-and-desist orders, for those contracting with unlicensed contractors. But the issue arises in all states. What is your opinion? Should a party be allowed to knowingly contract with an unlicensed contractor, accept the benefit of the work, and then refuse to pay on the grounds the contractor lacked a license? I welcome your comments.



No, unjust enrichment and other equitable legal theories establish that you cannot rip off a person who provides a value to you, even if by mistake or without a contract. If the contract is void at law, equity should give you a remedy.
Posted by: Craig Smith - Friday, February 22, 2013 12:11 PM

In Arizona the law is even stricter. You can't even enter into negotiations unless you have a license. If you enter into an agreement and then get a license and then perform the work the party for whom the work was performed can refuse to pay and get away with it.

It may not be the moral thing to do but it is perfectly legal not to pay an unlicensed contractor. So, the moral of the story is simple- don't be a scumbag, unlicensed contractor and you will enjoy the legal protections offered to legitimate, licensed contractors.
Posted by: William - Friday, February 22, 2013 12:16 PM

to Craig Smith

You are incorrect. In this specific case the law is very clear and the case law is settled: equity does not apply.
Posted by: William - Friday, February 22, 2013 12:22 PM

The Question is a moral one... not a legal one.
Posted by: Mark Anderson - Friday, February 22, 2013 12:27 PM

My intial reaction is that a contractor who knowingly performed construction work without a license should be barred from seeking compensation for their work, even if the other party was aware that the contractor lacked a license and contracted with them because of the laws that bar the unlicensed contractor from seeking compensation for their work. We have laws in Oregon that appear to be similar to those in Florida which bar unlicensed contractors from seeking comnpensation, and filing construction liens, for construction work performed without a license. That's the risk the unlicensed contractor takes. In addition, the unlicensed contractor likely doesn't have liability insurance and a license surety bond--thus, less protection for the other party in the event of problems with the work performed by the unlicensed contractor (and it's probably more likely that there will be more problems associated with the work of an unlicensed contractor). Furthermore, if the unlicensed contractor received a down payment and/or progress payments from the other party, the windfall afforded the other party as result of contracting with an unlicensed contractor is lessened.
Posted by: Van White - Friday, February 22, 2013 12:32 PM

I would be very surprised if such a ruling, clearly skewed to the advantage of the contractor/business enterprize, isn't tested & handed down in Texas. As an Owner's rep, if I ever hear of such activity I would bar that GC or prime contractor from my projects. I would not be willing to deal with a firm of such low character or questionable contract management skills who then by association ties me up in the many negative impacts to my project and my client. Obviously such a case included the breakdown of any oversight in the award process, rather than an outright bait & switch for monetary gain. My reputation as an honest & fair CM is also at stake and I don't need bad press pushing the idea of incompetence or dishonesty. I'm prepared to hear feedback that I am naive, to which I'll be willing to compare my standing in the construction & A/E community against those who take that position.
Posted by: James Parks - Friday, February 22, 2013 12:39 PM

Craig is morally right, but William is legally right, at least in Michigan, for work that requires a residential Builder's license. Sad, but true under well-established precedent.
Posted by: Jim - Friday, February 22, 2013 12:43 PM

Contracts that have a pre-award condition that the GC list their subcontractors and major suppliers would allow your Construction Manager or Owners Rep to effectively review the contract documentation for unlicensed subcontractors and deal with it before award of contract. You also have Davis Bacon and State wage determination and a requirement to submit certified payroll. Does the GC submit fraudulent documents?
Posted by: Will Weber - Friday, February 22, 2013 1:04 PM

Owners have to be very careful hiring unlicensed contractors. In California, if the contractor is not properly licensed, then everyone working for him or her and under them are statutory employees of the owner. If someone gets hurt, the owner better have workers compensation insurance for them or the owner can get sued for personal injury damages and the claimant can collect attorneys fees.
Posted by: Bryan Varner - Friday, February 22, 2013 1:13 PM

It is truly stupid to do construction work without a license. In California, an unlicensed contractor can be sued to disgorge 100% of what he or she has been paid, regardless of whether the work is done per the plans and specs, on schedule, and on budget. Worse yet, the unlicensed contractor is liable for defects, and treble damages up to $10,000 plus attorneys fees.
Posted by: Bryan Varner - Friday, February 22, 2013 1:22 PM

I think the GC should not be allowed to do any business with an un-licensed sub-contractor as he puts the workers for the un-licensed sub in jeopardy as most of the low life subs do not have proper insurances either, and it is just unethical to be allowed, law or no law, to take advantage of another company. Plus it takes away opportunities for guys who have done all the right things in regard to license and insurance and so forth to get the jobs in the first place!
Posted by: Bud Partlow - Friday, February 22, 2013 1:28 PM

Herein lies the cunumdrum, assume you "knowingly" hire an unlicensed individual/firm with the "intent" to use the law as a "legal" shield; some states see this as wrongful enrichment and others don't.

Hammarabbi says let the builder proceed at his/her own risk and suffer the consequence if their is a failure. Our laws require said individual to make the client whole and require the individual to have the knowledge and skills with which to proceed.

However, we have far more legal and illegal contractors to investigate then state staff to respond to complaints.

Both sides take their chances, some with a conscience and some without, winners and losers on both sides.
Posted by: JV Architect - Friday, February 22, 2013 2:19 PM

If an unlicensed contractor is willing to break the law by performing unlicensed work the law should have no legal obligation to protect them. If they should not get paid after a client knowingly contracts work with them, it is the contractor that gets what they deserve, Nothing. However, I strongly support that the client that knowingly hires an unlicensed contractor should receive the same penalty as the unlicensed Contractor that performed the unlicensed work
Posted by: Joseph Hovanec - Friday, February 22, 2013 2:22 PM

In Florida not only is it established in Statute that a non-licensed individual has no right to claim loss if not paid, the person contracting them can be charged with Aiding and Abetting if they Knowingly and Intentionally contracted with an unlicensed entity. But by the same statute the unlicensed entity if they have been caught just one prior time has on the second charge committed a felony. That being the case there is NO way for the unlicensed to recoup even material cost, though the supplier if not paid could file a material lien on the property. So the owner who intentionally hires an unlicensed contractor "May" come out ahead, but they also could come out way behind if the unlicensed entity didn't pay for the materials and labor on the project to any "employees" or sub-contractors who also enjoy lien rights in Florida.
Posted by: Jay E B. . - Friday, February 22, 2013 4:55 PM

I think that this may stop some of the fly by night operations and get them out or the business making room for reputable operators to compete on a level playing field.
Posted by: Ben Edwards - Sunday, February 24, 2013 5:00 PM

glad to find this info. I recently employed a man and his employees whom told me that he is licensed and insured to install fencing. The day that the fence was finished he was there with the bill to pay and adamant about payment. I said there are things that I am not happy about and I wish to take a few days before paying any more than I had (paid half upfront). He was angry and told me to pay today or he would call lawyer in morning. I could not understand the anger for me needing a few days to analyze the work performed as satisfactory. just went online today to verify his license..NONE, was not renewed with the state years ago. You see this law in Florida is good for the public. And we really should have all license info on all contracts being represented as licensed and insured as a law requirement for a contract. Now I do not know what to do.
Posted by: vg - Monday, November 11, 2013 7:30 PM


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