Construction & Contracts  ·  October 26, 2026

Unlicensed Contractor in California? 7031 and SB 342

The short answer

The California Supreme Court has said that the Contractors' State License Law, which includes Business and Professions Code section 7031, imposes "strict and harsh penalties for a contractor's failure to maintain proper licensure." (MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co. (2005) 36 Cal.4th 412.) Section 7031 cuts in two directions.

• The shield. A contractor who was not "duly licensed" at all times while performing work that requires a license cannot sue to be paid for it, "regardless of the merits of the cause of action." (§ 7031, subd. (a).)
• The sword. A person who used an unlicensed contractor may sue to "recover all compensation paid" for that work. (§ 7031, subd. (b).) The Court of Appeal has allowed no offset for the value of the labor and materials the owner kept.

The owner's disgorgement claim has a short fuse. The Court of Appeal has held it is governed by the one-year period in Code of Civil Procedure section 340(a), running from when the contractor completed or stopped performing, with no delayed-discovery rule.

On January 1, 2027, the rule changes for some projects. Senate Bill 342 (Stats. 2026, ch. 967), signed September 30, 2026, amends section 7031 for contracts for public works, commercial and institutional construction, and common interest developments and multifamily projects of four or more units where no tenant or resident is a party to the contract. On those projects, a contractor that was licensed when the contract was signed may recover for the part of the work performed while licensed, and the owner's refund is limited to what was paid for work performed while the contractor was unlicensed. An owner's own single-family home and other projects outside those categories stay under the all-or-nothing rule. Whether the change reaches contracts signed before 2027 is unsettled.

Can an unlicensed contractor sue me for payment in California?

The statute

Section 7031(a) provides that no person acting as a contractor "may bring or maintain any action, or recover in law or equity in any action, in any court of this state" for compensation for work requiring a license "without alleging that they were a duly licensed contractor at all times during the performance of that act or contract," regardless of the merits. Subdivision (c) adds that a security interest taken to secure payment for the work is unenforceable if the contractor was not duly licensed at all times during performance. That is the provision that reaches mechanics liens and similar security.

How far the bar reaches

The California Supreme Court has read the statute broadly and has repeatedly said it means what it says.

• Relabeling the claim does not help. In Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988, an out-of-state contractor sued for fraud, alleging the owner had falsely promised to pay. The Court held that "section 7031 bars all actions, however they are characterized, which effectively seek 'compensation' for illegal unlicensed contract work," and that the statute "operates even where the person for whom the work was performed knew the contractor was unlicensed."
• Licensure must be continuous. In MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co. (2005) 36 Cal.4th 412, the Court held that "a contractor is barred from all recovery for such an 'act or contract' if unlicensed at any time while performing it." Under the law in effect through 2026, the same decision allows a contractor who was licensed throughout performance to recover "even if he or she was not licensed when the agreement was signed."
• A licensed general contractor can be caught too. In Kim v. TWA Construction, Inc. (2022) 78 Cal.App.5th 808, the court held that section 7031 "bars even a licensed general contractor in California from bringing an action for compensation" for work its unlicensed subcontractor performed where a license was required.
• Sophisticated owners are protected as well. In Phoenix Mechanical Pipeline, Inc. v. Space Exploration Technologies Corp. (2017) 12 Cal.App.5th 842, the court held that "Nothing in section 7031 either limits its application to a particular class of homeowners" and barred a corporation that relied on a license issued to a different company its principal owned. The court let the contractor pursue its claims for services that did not require a license.

Who has to prove what

If licensure is disputed, the contractor must prove it with "a verified certificate of licensure from the Contractors State License Board" showing it was "duly licensed in the proper classification of contractors at all times during the performance" of the work. The owner does not have to produce a certificate, and "the burden of proof to establish licensure or proper licensure shall be on the licensee." (§ 7031, subd. (d).)

Can I get back what I paid an unlicensed contractor?

Under the rule in effect through December 31, 2026, and after that for an owner's own single-family home and other projects outside the five categories SB 342 covers, yes, and in full.

• No offsets. In White v. Cridlebaugh (2009) 178 Cal.App.4th 506, the Court of Appeal held that an unlicensed contractor must "return all compensation received without reductions or offsets for the value of material or services provided," and "cannot reduce the recovery authorized by asserting claims of offset arising out of the unlicensed work."
• Defect-free work is not a defense. In San Francisco CDC LLC v. Webcor Construction L.P. (2021) 62 Cal.App.5th 266, the court stated that disgorgement is allowed even "when the work performed by the unlicensed contractor is free of defects."
• The owner's knowledge does not matter. Alatriste v. Cesar's Exterior Designs, Inc. (2010) 183 Cal.App.4th 656 held that an owner who knew the contractor was unlicensed may still recover, and that section 7031(b) "does not permit an offset for work performed after a license is obtained" partway through the job.
• The claim can be raised defensively. In Wright v. Issak (2007) 149 Cal.App.4th 1116, a contractor whose license had been automatically suspended for lack of workers' compensation coverage sued homeowners for about $11,000. He recovered nothing, and the homeowners recovered on their cross-complaint. The one-year deadline discussed below still applies; an owner should not assume the claim can wait until the contractor sues.
• Prejudgment attachment may be available. In Goldstein v. Barak Construction (2008) 164 Cal.App.4th 845, the court held, for purposes of the attachment statutes, that a section 7031(b) claim "is fundamentally contractual in nature" and can support a writ of attachment.

These outcomes can look severe to the contractor. The Supreme Court has acknowledged as much and applied the statute anyway: "it is well settled that section 7031 applies despite injustice to the unlicensed contractor." (Hydrotech, 52 Cal.3d 988.)

What counts as being unlicensed?

Section 7031 disputes do not always involve someone who never held a license. The reported cases include licenses that lapsed, were suspended, sat with the wrong entity, or lost their qualifying individual.

• Workers' compensation. Failing to obtain or maintain required workers' compensation coverage "shall result in the automatic suspension of the license by operation of law." (§ 7125.2.) That was the problem in Wright, where the contractor underreported payroll. In Loranger v. Jones (2010) 184 Cal.App.4th 847, the court disagreed with Wright to the extent it can be read to treat any underreporting of payroll as a failure to obtain coverage when the contractor has a policy in effect.
• Losing the qualifier. When the individual who qualifies a company's license leaves, the company has 90 days to replace that person, after which "the license shall be automatically suspended or the classification removed." (§ 7068.2.) White v. Cridlebaugh arose from a qualifier problem of this kind.
• Suspension through an associated license. In Pacific Caisson & Shoring, Inc. v. Bernards Bros. (2015) 236 Cal.App.4th 1246, an affiliate that shared the contractor's qualifier failed to report an unsatisfied judgment, and the contractor's license was suspended along with the affiliate's.
• The wrong entity. In Judicial Council of California v. Jacobs Facilities, Inc. (2015) 239 Cal.App.4th 882, the contracting company kept acting as the contractor after its license expired in a corporate reorganization, while an affiliate held a license. The court found a violation and sent the case back for a hearing on substantial compliance. By contrast, in E. J. Franks Construction, Inc. v. Sahota (2014) 226 Cal.App.4th 1123, a sole proprietor's license was reissued to his new corporation partway through a job, and the court held section 7031 did not apply because "Proper licensure was in place at all times." The Jacobs Facilities court later said Franks should be applied only cautiously beyond the precise situation before it, while Manela v. Stone (2021) 66 Cal.App.5th 90 followed Franks on similar facts. And in Ball v. Steadfast-BLK (2011) 196 Cal.App.4th 694, a licensed sole proprietor who signed under a different business name was not barred from foreclosing his mechanics lien.
• Classification. Subdivision (d) refers to the "proper classification." Classification arguments are fact specific. In Pacific Caisson & Shoring, Inc. v. Bernards Bros. (2011) 198 Cal.App.4th 681, a contractor's Class A license was held sufficient even though the prime contract called for a C-12 license.

The substantial compliance exception

Section 7031(e) lets a court find substantial compliance, after an evidentiary hearing, only if the contractor (1) had been duly licensed in California before performing, (2) "acted reasonably and in good faith to maintain proper licensure," and (3) acted promptly and in good faith to fix the problem once it knew. The doctrine does not apply at all to someone who has never been licensed in California. Courts apply it narrowly; in the 2015 Pacific Caisson decision, the court, quoting an earlier decision, described it as available "only where a contractor was without a license owing to circumstances truly beyond his control."

Work that does not need a license

The "minor work" exemption in section 7048 covers work on one undertaking or project where the aggregate contract price for labor, materials and all other items "is less than one thousand dollars ($1,000)" and the work "does not require a building permit." The statute treats such work as being "of casual, minor, or inconsequential nature." The threshold was $500 until AB 2622 (Stats. 2024, ch. 240) took effect January 1, 2025. The exemption does not apply if the job is only part of a larger operation, or is divided into contracts of less than $1,000, whether to evade the law or otherwise. It also does not apply if the person advertises or puts out a sign or card that might indicate to the public that the person is a contractor, or employs another person to perform or assist in the work.

Owners who do their own work, or who contract directly with properly licensed trades, may fall within the owner-builder exemption in section 7044, which has its own limits on selling the improved property.

What changes on January 1, 2027?

SB 342 adds an exception to both subdivision (a) and subdivision (b) for contracts for any of these:

1. A public work of improvement.
2. A commercial construction project.
3. An institutional construction project.
4. Construction of a common interest development, as defined in Civil Code section 4100, if a tenant or resident is not a party to the contract.
5. Construction of a multifamily residential project of four or more units, if a tenant or resident is not a party to the contract.

For the contractor, new section 7031(a)(2)(B)(ii) allows an action for compensation on those contracts "if the person was a duly licensed contractor at the time the contract was executed and during the portion of the performance of the contract for which compensation is sought."

For the owner, new section 7031(b)(2)(B) limits recovery on those contracts to "the portion of compensation paid to the unlicensed contractor for work performed during the time in which the contractor was unlicensed."

What stays the same: the all-or-nothing rule for an owner's own single-family home and other work outside the five categories, the lien rule in subdivision (c), the verified certificate and burden of proof in subdivision (d), and the substantial compliance limits in subdivision (e).

Questions the amendment leaves open

• What is "commercial" or "institutional"? The statute does not define either term. Mixed-use projects, and residential projects of fewer than four units built by a developer, are likely places for that fight.
• Does it apply to existing contracts? The chaptered bill has one section and no provision addressing contracts signed, work performed, or claims that arose before January 1, 2027. Commentators disagree. Until a court decides, an owner or contractor on a project that straddles that date should not assume either answer.
• A stricter signing-date rule. On covered projects, the contractor must have been licensed "at the time the contract was executed." Under MW Erectors, a contractor unlicensed at signing but licensed throughout performance could recover. On a covered project after 2026, that contractor appears to have no claim under the new paragraph.
• The never-licensed contractor. For someone who was never licensed, "the time in which the contractor was unlicensed" is the whole job. On the text, an owner on a covered project can still recover everything paid to a contractor who never held a license.

The deadline

In Eisenberg Village of the Los Angeles Jewish Home for the Aging v. Suffolk Construction Co. (2020) 53 Cal.App.5th 1201, the court held: "We hold that the one-year statute of limitations applies to claims for disgorgement under section 7031(b)," and "the discovery rule does not apply to section 7031(b) claims." The claim accrues when the contractor completes or stops performing. Webcor followed that holding. SB 342 does not address the limitations period. Webcor involved a hotel and Eisenberg a 108-unit assisted living facility, and an owner on a project covered by the amendment should assume the same one-year rule applies, even where the amount recoverable shrinks. If the date the contractor stopped work is unclear, count from the earliest plausible date.

The practical consequence: an owner who learns about a licensing problem more than a year after the contractor walked off the job may have lost the disgorgement claim, whatever else remains. Our statute of limitations guide covers the related construction deadlines.

Other remedies, and their limits

• The license bond. Licensed contractors must carry a $25,000 bond (§ 7071.6, operative January 1, 2023). A homeowner improving the homeowner's own family residence is among the protected claimants (§ 7071.5). A contractor who was never licensed has no bond to claim against.
• Treble damages against the unlicensed person. Code of Civil Procedure section 1029.8 makes an unlicensed person who causes injury or damage as a result of providing goods or performing services for which a license is required liable for treble damages, with the additional amount capped at $10,000, and allows the court to award costs and attorney fees. It does not apply to someone acting under a good-faith belief that they were properly licensed and acting within the proper scope of that license. It runs against the unlicensed person only. In Rony v. Costa (2012) 210 Cal.App.4th 746, the court reversed a fee award against the homeowner who hired an unlicensed worker: "The statute contains no language extending its reach to those who use the services of unlicensed persons."
• Criminal restitution. Contracting without a license is a misdemeanor (§ 7028), and, for any conviction under that section, the person who used the unlicensed contractor "is a victim of crime" eligible for restitution "regardless of whether he or she had knowledge that the person was unlicensed." (§ 7028, subd. (h).)

Disaster-area work carries additional rules and penalties, which our article on rebuild contracts signed after a fire addresses. If the contractor has recorded a lien, our mechanics lien deadlines article explains the separate timing rules.

What to do

If you are an owner:

1. Look up the license on the Contractors State License Board site and save a dated copy. Check the license holder's exact name against the name on your contract, the classification, and the history of suspensions, workers' compensation coverage and qualifier changes.
2. Write down when the contractor completed or stopped work. That date starts the one-year clock; if it is unclear, count from the earliest plausible date.
3. Gather every payment record: checks, wires, card charges, change orders.
4. If the project is commercial, institutional, a common interest development or multifamily of four or more units, identify the dates of any licensing gap. Starting in 2027 those dates may decide how much is recoverable.

If you are a contractor: pull your own license history before you send a demand, record a lien or file suit. A suspension you did not know about, a lapsed workers' compensation policy, or a contract signed in the wrong entity's name can turn a collection case into a disgorgement case.

These disputes can turn on license records, entity documents and payment histories, and both sides have reason to evaluate them early. Our construction defect and contract dispute practices handle them for owners and contractors.

Common questions

This article is general information about California law, not legal advice, and reading it does not create an attorney-client relationship. Statutes and case law change, and how they apply depends on the specific facts. Attorney advertising. Prior results do not guarantee similar outcomes. Robert B. Mobasseri, State Bar No. 193193, ROMO Law Group, Encino, California.