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Contractors: Another Good Reason not to Hire Unlicensed Subs

Contractors know that hiring unlicensed subcontractors is a bad idea for a number of reasons.  Sometimes it happens, however, because the prime contractor does not carefully check paperwork or just cannot pass on the price offered by an unlicensed sub.  However, this carelessness or desire to cut costs can cost a prime contractor dearly.  The court of appeal recently held that a prime contractor that hired an unlicensed drywall subcontractor could be liable not only for the wages of that unlicensed sub's employees but for statutory penalties arising from unpaid wages.  Sanders Const. Co. v. Cerda(2009) 175 Cal. App. 4th 430.

In Sanders, the general hired the drywall contractor not knowing that it was unlicensed.  After several months of shoddy work by the drywall contractor, the general discovered that the contractor was unlicensed.  During this time, the general had been paying the sub, believing he was paying his employees.  The unlicensed sub, of course, did not pay his employees everything they were due.  With a deadbeat unlicensed sub, the workers pursued a Labor Commission claim against the general and prevailed.  The general filed an appeal in superior court.

The superior court upheld the Labor Commission, finding that the unlicensed sub's employees were statutory employees of the general under Labor Code section 2750.5.  The general then took its grievance to the court of appeal, where the ruling was once again upheld.  The court of appeal soundly rejected the general argument that the "statutory employee" language of section 2750.5 applied only to workers' compensation cases and unemployment benefits.

Again, the lesson is do not hire unlicensed subcontractors.  If you take a chance and do so, the unlicensed sub's employees are likely to become your employees for purposes of workers' compensation benefits, unemployment benefits, and claims for unpaid wages in the event something goes wrong.

Posted by Michael McMahon

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