A recent California Court of Appeal decision clarified the scope of California law prohibiting contractors from enforcing agreements to receive payment for work requiring a license. In UDC-Universal Development v. CH2M Hill, the court ruled that California’s contractor licensing statutes did not preclude an unlicensed contractor from enforcing an indemnity agreement related to work requiring a license.
California law generally deals harshly with unlicensed contractors. An unlicensed contractor may not sue to recover payment for his work if the law requires a license for such work. Further, anyone who pays an unlicensed contractor for work requiring a license may sue the contractor for a refund of those payments, even if the work was performed perfectly.
The UDC-Universal case arose from an indemnity agreement between UDC-Universal as developer and CH2M Hill as engineer. (The case also discussed the interpretation of the indemnity agreement, an issue that will be discussed in a separate post.) When UDC-Universal was sued by homeowners for
construction defects, UDC-Universal sued CH2M Hill to enforce the indemnity agreement and require CH2M Hill to pay to defend the lawsuit. CH2M Hill argued that UDC-Universal could not do so because it lacked the proper license for the underlying work. The court rejected CH2M Hill’s argument, reasoning that claims other than those seeking “‘compensation for the performance of any act or contract for which a license is required” are beyond California’s contractor licensing laws. The court was not willing to impose punishment on an unlicensed contractor beyond the sanctions expressly authorized by California’s licensing statutes.