Many homeowners try to save money on home improvement and repair projects by hiring unlicensed contractors. The law in many states requires that contractors have licenses in order to work on jobs above a certain total value. In addition, contractors doing work that requires a permit from local authorities must be licensed.

Of course, laws vary in their specific provisions from state to state. In California, It is illegal for an unlicensed contractor to work on any construction project with a total value of more than $500. Note that California law requires a license for 40 construction-related trades, from plumbers to electricians. And it is illegal for a contractor licensed in one trade to contract to provide services in another trade for which the contractor is not licensed.

Violation of the license requirement can result in conviction of a misdemeanor with a fine of up to $500 and/or up to 6 months in jail. There are more serious penalties for using another contractor’s license, and that crime could be charged as felony identity theft. And, in California at least, if a homeowner refuses to pay an unlicensed contractor, the contractor cannot sue the homeowner to collect their payment in a court of law. This is undoubtedly true in other states as well.

In Michigan, a contractor who agrees with a property owner to do residential construction or remodeling on a project with a total value of $600 or more, including material and labor, is required to be licensed as either a Residential Builder or a Maintenance and Alteration Contractor. A Residential Builder is legally authorized to build a new home or perform any kind of home repairs, except plumbing, electrical, and mechanical. A Residential Maintenance and Alteration Contractor is licensed to perform only the specific trades listed on their license.

Other states may have similar limitations or special provisions in their laws prohibiting unlicensed contractors. Most states have laws similar to those in California and Michigan. They require contractors to have licenses to do projects of a specified value.

A county building permitting agency defines the types of jobs that require a permit in their county. Examples of projects that usually require a permit include such jobs as roof replacement, trimming trees over a certain number of feet above the ground, installing a retaining wall above a certain height, or installing a deck. If work that requires a permit is done by an unlicensed contractor, the local authority can refuse to issue a permit for the project.

For a homeowner, not having a permit for a project can have consequences later on in the life of the house. For example, when they want to sell the house, the fact that work that has been done lacks a permit can reduce the value of the house. The owner may have to pay to have the work done again by a licensed contractor, so that a permit can be obtained. Clearly, this defeats the goal of hiring an unlicensed contractor, which was to save money. Now the homeowner has to get the job done twice and pay twice.

In addition, homeowners can end up with legal liability of various kinds for using an unlicensed contractor. While they may not end up in jail, In most states, if an unlicensed contractor or their employee is injured on the homeowner’s property, the homeowner, rather than the contractor, may be liable for the injury. And this could be true, even if the homeowner did not know the contractor was unlicensed. Therefore, it is in a homeowner’s interest to check the contractor’s license.

One of the advantages of hiring a contractor as opposed to a direct employee is that the contractor is responsible if they or their employees are injured on the job. The general rule in most states is that injured employees of contractors hired by a property owner cannot recover damages from the owner in the event of a work-related injury.

The contractor has primary responsibility for working conditions, tools, and other aspects of the project, so the contractor normally has primary control over the work and the manner in which it is done. Any employee injured on the job must seek compensation for their injuries from the contractor or the state’s worker’s compensation system and not the homeowner.

Of course, there are exceptions to this rule:

  • If the work is “inherently dangerous,” a homeowner might be liable;
  • If the homeowner should provide equipment for the work that turns out to be defective, the homeowner might be liable
  • If the homeowner fails to warn a contractor or its employees of a hazardous condition on the property;
  • If the homeowner acts as the contractor, retaining control of the work and hiring subcontractors to do elements of the job, the homeowner might be liable for the injury to the subcontractors..

There can be other technical exceptions in state law.

In addition, if the contractor is unlicensed, both the contractor and its employees are treated as employees of the homeowner. Then the injured worker/employee may sue the homeowner, and the homeowner becomes responsible for compensating them for their injuries. So, another thing to check is that a contractor is bonded and insured, in addition to being license

If this should happen, i.e., the injured employee of an unlicensed contractor sues a homeowner for compensation, the homeowner’s insurance policy would cover the loss. However, the company that provides the insurance coverage may well raise the cost of providing the insurance because of the claim. The employee may also be able to collect directly from the homeowner in a negligence lawsuit, if the homeowner was in fact negligent in some way. Or, the employee may be able to collect payment from a state worker’s compensation fund.

How Do I Know That the Contractor Is Unlicensed?

There are a number of different ways to find out whether a contractor is contracting without a license. One way is to ask the contractor if they have a license and if so, to produce it for the homeowner’s inspection. The homeowner can make note of the license number, any provisions it contains and who the licensing authority is. This last point is important. The homeowner would then want to contact the authority or agency that issued the license and verify that the contractor does in fact have the license that was shown.

In most states, contractor licenses are issued by a state agency. Nowadays this agency probably has a website where a homeowner can go and possibly communicate with licensing authorities to find out if a contractor has a license. In California, for example, contractor licensing is handled by the Consumer Affairs department. If a person has trouble navigating the website, they can call the state licensing agency on the telephone.

Another option is to contact the county permitting services agency in the county where a person lives. Construction inspection and permitting is usually a function of county or possibly municipal governments in the U.S. A person’s county or municipal building department should be able to answer a person’s questions or direct them to the agency that can provide assistance. They can probably confirm whether a local contractor is licensed. They may also have a list of licensed and approved contractors to help a resident find a licensed contractor.

What Is the Penalty for Hiring an Unlicensed Contractor?

Generally, a person who hires an unlicensed contractor cannot be charged with a crime. As noted above, a contractor who works without a license can, however, be criminally charged in some states. Most of the negative consequences for contracting without a license fall on the contractor.

There are, however, other potential, negative consequences for the homeowner. For one thing, if the contractor performs subpar, defective work, or if the building permitting service refuses to issue a permit, the homeowner may have to get the job done a second time. While they might avoid paying the unlicensed contractor in some states, they still have the loss of time and aggravation of having to figure out how to fix the problem. So, instead of enjoying the benefits of work done correctly and professionally, the homeowner has a problem and a big headache.

Finally, as noted above, if someone is injured on the job, there could be liability issues. Even if the homeowner is not liable for the injuries in the end, working that out with lawyers and insurance companies could get expensive. It is far better to avoid these issues and hire a contractor who has a valid license and solid references attesting to the quality of their work.

Do I Need a Lawyer for Help on Issues Caused by Hiring an Unlicensed Contractor?

If you have hired an unlicensed contractor and have problems as a result, you need to consult an experienced contract lawyer. Your lawyer can assess your potential liability if a contractor or employee has been injured on your property. A lawyer can advise you about hiring a contractor and could possibly offer assistance with a contract. A well-written contract can potentially help you avoid a number of problems.

An experienced real estate lawyer can provide valuable assistance before you hire a contractor for a home construction project and after the fact if problems arise.