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Subcontractor/employee of unlicensed contractor filed mechanics lien and is now taking owners to small claims.

A subcontractor/"employee" of an unlicensed contractor has filed a mechanics lien, 90 days after job completion and is now taking the owhers to court for small claims to collect payment. This situation gets a little confusing and very messy very quickly. About a year ago, the tenants moved out of the property and the owners decided they wanted to repaint the property to put back on the market. The owners have a property manager so they told the property manager to find someone to do the job and provide quotes. The property manager took a few months to provide the owners with a quote, so the owners also went out looking for quotes. Unbeknownst to the owners, they stumbled upon the same contractor, an old contact the property manager had provided the owners in the past. Here's where it gets messy. The contractor provided a quote to the owners for the total of $7500, while the property manager provided a quote to the owners (with the same contractor) for the total of $9000. Neither amount was approved in writing or verbally by the owner. The work started, but the owner was unaware that it had started. Somewhere during the job, the cost ballooned to $13,000 as the owners decided they wanted to do some changes, but the additional cost was also never agreed upon and the work started. During the final stages of the job, the owners realized the quality of work was substandard so they informed the contractor and the property manager to have the issues repaired. Paint lines weren't straight, running paint on walls, different colors of paint on walls, and just overall poor quality of work. The property manager states that his duties are only valid when the property is occupied by tenants, basically saying that it's not his problem. The contractor was given an extra week to fix the issues, but nothing was done. No payment was ever made at the beginning or during the job to the contractor. When the final invoice came, the owner was shocked to see the final cost to be $13,000. The owner requests to see the company address and license of the contractor to find out that the contractor is unlicensed. Obviously the owner decides not to pay. Fast forward to 90 days after the job was "completed" and the owners are sent certified mail the "employee" of the unlicensed contractor has filed a mechanics lien on the property to collect payment of $3000 for work owed this "employee". Owners responded by stating they are not required to pay due to the fact that the job was over $500 and contractor was unlicensed. This was never resolved and now this "employee" of the unlicensed contractor is now taking the owners to small claims court to collect payment.

1 reply

Jun 14, 2019

This is indeed a complex and difficult situation. I'll attempt to provide some information that may be helpful to informing a path forward, below.

The classification of "employees," licensing requirements, mechanics liens, and wage claims, collide at an intersection of many complex laws - so the answer is rarely easy to determine, or specifically clear. First, the property owner in the situation above is correct that, generally, a party performing labor on a residence in excess of $500 cannot rely on the "handyman" exception to licensing requirements, and must be a licensed home improvement contractor in order to claim a lien against the property, or initiate a suit to recover money supposedly due for the work performed. Indeed, if a party is required to be licensed and is not, California allows the property owner to initiate a suit to recover any amount already paid to the unlicensed contractor.

However, the story does not end there. There is an exception to the licensing requirement other than the "handyman" exception. This exception is when the unlicensed party is an employee of some other party on the job. Employees are not required to be individually licensed, and may sue their hirer to recover their wages (note that a GC is determined to be the employer of not only his own employees but also those of subcontractors as well. Bus. & Prof Code. § 7053 sets forth qualities to be used in the determination of whether or not a party is properly classified as an employee.

Specifically, the licensing requirements do not apply to parties who:

1) receives wages as his or her sole compensation,
2) does not customarily engage in an independently established business, and
3) does not have the right to control or discretion as to the manner of performance so as to determine the final results of the work performed.

Further, since licensing requirements do not apply to an employee, an employee is able to file a mechanics lien. And, the preliminary notice requirements that apply to everybody else on a project do not apply to wage-laborers (employees) so the lack of providing a preliminary notice does not preclude a later lien filing.

Finally, however, an action to enforce a mechanics lien cannot be initiated in California small claims court. Small claims court does not have the jurisdiction to foreclose on a mechanics lien. Accordingly, it is unclear how the property owner is a proper party to an action in small claims the recover wages if there was no agreement between the property owner and the employee, unless the property owner was acting as the GC for the project.

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