General Contractors: Watch Out for Unlicensed Subcontractors

As a General Contractor, did you know that under California law you can be held responsible to pay the wages of unpaid employees of an unlicensed subcontractor? According to California Labor Code section 2750.5, as a general contractor you could be considered the employer of the people who work for your subcontractor, and thus held liable to pay their proper wages. 

The 2009 California Court of Appeal case, Sanders Const. Co., Inc. v. Cerda confirmed this fact and also held that the California statutes prohibiting unlicensed contractors from recovering payment did not bar the employees of the unlicensed contractor from recovering unpaid wages. 

In Sanders, the employees of a subcontractor, Humberto Figueroa Drywall Company (Humberto) filed claims with the Labor Commissioner asserting that the general contractor, Sanders Construction Co., Inc. (Sanders), should pay their wages because Humberto failed to do so. Sanders hired Humberto as a subcontractor and paid him for his work. Sanders found out that Humberto’s contractor’s license had expired prior to being hired, but nevertheless continued to use him on the job. Humberto’s workers were not getting paid, so they stopped working. 

The California Court of Appeal held that a general contractor is the employer of not only its unlicensed subcontractors but also those employed by these subcontractors. The fundamental principle behind the Labor Code is to be sure workers are paid for their work. Sanders was responsible for Humberto’s employees, and for ensuring they were properly paid. Additionally, the Court turned to the Business & Professions Code in holding that the laws prohibiting unlicensed contractors from getting paid did not apply to their employees. As a result, Humberto’s employees were not barred from recovering their unpaid wages from Sanders.

What is the takeaway? As a general contractor, you are responsible for the wages of every single person on your jobsite. To avoid the fate of Sanders, you must be diligent about routinely checking the license status of your subcontractors throughout the life of the project, ensuring that they are properly licensed and in good standing. If you don’t take these precautions, you might be paying more for the project than you ever anticipated.