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Can a California contractor be disgorged for failure to maintain an active license during the entire job?

CaliforniaLicenses Payment Disputes

We hired a contractor to complete a rather large landscaping project that lasted nearly three years. During the course of the project, the contractor's license was suspended for failure to maintain worker compensation. The contractor never informed us of the license suspension and continued the project to completion. We are currently in dispute with the contractor over overcharges, double-billing, billing for materials never delivered, substandard workmanship, breach of contract, etc. The contractor never rectified the license suspension and has let the license expire. Can the contractor be disgorged of all monies paid under B&P Code 7031?

3 replies

Jul 2, 2020

This fact pattern is what I call a wobbler, i.e. it could go either way. The contractor had a valid license when the work began but it was suspended duirng the work. While it is difficult to predict what any given court will do, one probable outcome would be to allow the payments for the portion of the work that he was licensed. As to the remainder of the work after the license was lost, section 7031(e) seems to be applicable. §7031(e) provides a “substantial compliance” exception. The court may determine that there has been substantial compliance if it is shown at an evidentiary hearing that the person who engaged in the business or acted in the capacity of a contractor (1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (2) acted reasonably and in good faith to maintain proper licensure, and (3) acted promptly and in good faith to remedy the failure to comply with the licensure requirements upon learning of the failure. Based on your recitation of the facts, it seems that many courts would find that the contractor probably did not act in good faith in taking care of the suspended license.

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Jul 2, 2020

Although it is important to keep in mind that disgorgement is a harsh statutory remedy and that some courts are hesitant to enforce it, the fact pattern you have recited strongly suggests that the contractor would be found liable for disgorgement. As noted above, the substantial compliance exception only applies if the contractor "acted promptly and in good faith to remedy the failure to comply with the license requirements upon learning of the failure." Otherwise 7031(a) requires that a contractor be properly licensed "...at all times during the performance of that act or contract..." To schedule a free legal consultation email me at ryan@huntortmann.com.

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Jul 7, 2020

The short answer is Yes. The contractor is required to have a valid contractor’s license throughout the entire project. If he doesn’t, then all of the money you paid him is subject to disgorgement.

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