Robert C. Clifford On Wright v. Issak And Contractor Licensure Requirements

Robert C. Clifford On Wright v. Issak And Contractor Licensure Requirements

Plaintiff contractor sued for breach of contract against defendant homeowners over a job dispute. The trial court found that the plaintiff was unlicensed and ruled in favor of the defendants. Robert C. Clifford discusses the California appellate court's decision, which held that a contractor's license is automatically suspended as of the date the contractor is required to obtain workers' compensation insurance but does not.
 
Wright v. Issak ([2007] 149 Cal. App. 4th 1116, 58 Cal. Rptr. 3d 1) discussed the purpose of the contractor's licensing law as a means to protect the public. Wright v. Issak demonstrated the harsh result to a contractor for the failure to comply with the licensure requirement. Although denying compensation for a contractor who has provided extensive labor and material may be severe the Wright v. Issak court justified the result by citing Hydrotech Systems, Ltd. v. Oasis Waterpark ([1991] 52 Cal.3d 988, 995, 277 Cal. Rptr. 517, 803 P.2d 370), which stated that the purpose of the licensing law is to protect the public from incompetence and dishonesty in those who provide building and construction services. The licensing requirements provide minimal assurance that all persons offering such services in California have the requisite skill and character, understand applicable local laws and codes, and know the rudiments of administering a contracting business. Business and Professions Code section 7031 advances this purpose by withholding judicial aid from those who seek compensation for unlicensed contract work. The obvious statutory intent is to discourage persons who have failed to comply with the licensing law from offering or providing their unlicensed services for pay. Because of the strength and clarity of this policy, it is well settled that section 7031 applies despite injustice to the unlicensed contractor.

In Wright v. Issak, the contractor significantly underreported his payroll in his workers' compensation reports from the date of his initial application for workers' compensation insurance. The contractor under penalty of perjury stated that his payroll was $312 when in reality it was $135,000. The trial court found that the contractor was not a licensed contractor because his license had been automatically suspended by operation of Bus. & Prof. Code, § 7125.2, for failure to obtain and maintain workers' compensation insurance. The court stated that under section 7125.2, a contractor's license was automatically suspended as of the date the contractor was required to obtain workers' compensation insurance but did not. Thus, because the contractor underreported his payroll and consequently did not have workers' compensation insurance when he performed the work for the homeowners, his license was automatically suspended.

A court may determine that there has been substantial compliance with licensure requirements under this section 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, (3) did not know or reasonably should not have known that he or she was not duly licensed when performance of the act or contract commenced, and (4) acted promptly and in good faith to reinstate his or her license upon learning it was invalid.
 
In this Emerging Issues Commentary, Professor Clifford explains that the court relied upon State Compensation Ins. Fund v. Workers Comp. Appeals Bd. ([1985] 40 Cal. 3d 5, 219 Cal. Rptr.13), where the Supreme Court concluded that a homeowner, who hired an unlicensed contractor who fell from a scaffold, was required to assume the status of "employer" for workers compensation liability. This is because Business & Professions Code Section 2750.5 requires an independent contractor to be licensed as a matter of law. A general contractor who hired an unlicensed and uninsured subcontractor is the employer of the subcontractor and the subcontractor's injured employee. Heiman v. Workers Compensation Appeals Board, citing Blew v. Horner ([1986] 187 Cal. App. 3d 1380).
 
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