Home improvement a hazard with unlicensed contractors

Injuries, mechanics' liens not worth the cost savings
By: Bill & Kevin Burnett: Inman News
Not long ago we answered a question from a reader who wants a new hardwood floor in her living room. Because cost was her main concern, we suggested that she consider nailing down the floor herself, but hire a professional to do the sanding and finishing.

To further reduce costs, we suggested that she might avoid the middleman and hire the finisher herself without involving a flooring contractor. We cautioned her to do her homework before hiring anyone and recommended against hiring an unlicensed worker unless she knew him and his work.

John Motroni, a consumer affairs producer at ABC television in San Francisco, took us to task for this advice, focusing on our remark about unlicensed workers.

He wrote, "I'm sure you know that it's illegal for an unlicensed contractor to bid more than $500 on a job in California. I've looked at the law and I don't see the exception 'unless you know them personally and trust them implicitly.'

"Unless you can get oak floors installed for less than $500, the homeowner could be hiring a criminal. The contractor who takes the time to get his/her license, bonding and insurance, plus pay workers' compensation, protects the homeowner from liability and provides the real 'trust' that you mention in your article."

Whenever we can, we prefer to do the work on our homes ourselves. Cost savings, the satisfaction of doing the job ourselves and assurance of getting the job that we want are critical factors in guiding us down this path.

But occasionally we will contract work. When we built Kevin's house we paid someone else to install the foundation, heating system and roof. An excavation contractor installed the foundation and a heating company installed the HVAC system. But a neighbor's son, Scott, home on summer vacation from Tulane University, nailed down the shake roof.

Scott had worked several previous summers for a local roofing contractor installing shake roofs and needed a summer job.

For Kevin, it turned out to be a perfect fit. After quizzing Scott at some length, we were satisfied that he had the knowledge and experience to do the job.

Kevin knew the risks of this arrangement. He also had the knowledge of how the job was supposed to be done. He weighed the risks against the cost savings and decided to proceed. The job went smoothly and 10 years later the roof looks great and continues to be watertight.

In advising our reader on her hardwood floor installation, we chose the word "workers" very carefully. We wanted to avoid any suggestion that we advocate hiring unlicensed "contractors." We do not. Besides its being illegal, often the risks are just too great.

That said, there are many expert tradesmen who are employees of licensed companies but who are not licensed themselves. We meant to warn Palacios against hiring unlicensed, unknown workers, while acknowledging that we believe it's OK for some workers to take the occasional "side job" provided that a homeowner knows them and their work, the scope of the job is limited, and the homeowner is willing to assume the risks associated with the job.

Those risks can include liability if the worker is injured, property damage if something goes wrong and the risk of the job being left unfinished, which can include responsibility for bills from unpaid suppliers.

We believe it's OK to have a handyman change out a kitchen faucet or to hire the building electrician you've seen at your job to install a lighting fixture or two in your home. But, we'd draw the line at having that same handyman convert the water lines from galvanized to copper or allowing the building electrician to rewire the entire house.

Although the handyman and electrician might be fully capable of doing the work, the potential risk posed by lack of insurance and bonding outweigh any benefits gained by the decreased cost.

Generally, we agree that a contractor's license is a strong indicator that the company hired is serious about its business and, assuming that the appropriate bond and insurance is in place, provides the homeowner with needed protection. We are also aware that a license is no guarantee that a job will be performed in a professional and workmanlike manner.

The California Contractor's Licensing Law was enacted to ensure that a contractor/tradesman has the minimum requisite skills, character and knowledge of the laws and codes to perform the work for which he or she is contracting.

Generally, a California state contractor's license is required for workers who wish to contract to do any kind of construction work. Insurance requirements protect the homeowner from damage for injury to property or workers. Bonding requirements give some assurance that a project will be completed.

While licensure is the general rule, there are a couple of limited exemptions. Each of these exemptions can apply to Palacios if she hires a floor finisher. The first deals with the cost of the work. If labor and materials total less than $500, a worker is exempt from licensing requirements for that job. This allows for a worker to contract for a small job.

The other exemption is that a homeowner can do his/her own work or hire someone to do the work provided that wages are the sole compensation and the building is not intended for resale. Palacios can hire her floor finisher to work on her house, provided she purchases the materials, and wages are the finisher's only compensation for the job.

(For his roof 10 years ago, Kevin bought all materials, then hired Scott for wages. The house was and is Kevin's private residence and was never intended for sale. Although Kevin's house is in Idaho, his hiring of Scott in this way would have passed any legal test in California.)

We agree with Channel 7's Motroni when he says that a contractor working outside these, or other exemptions, is breaking the law. And it's also true that the homeowner who hires that contractor is facilitating that fact.

While the Contractor's License Law is in place to protect consumers, the worker who chooses to contract without a contractor's license places himself or herself at considerable risk. The penalties for contracting without a license can be severe. California law prohibits a person from engaging in or acting as a contractor unless exempt. Conviction of a second offense is punishable by a fine of 20 percent of the contract price or $4,500, whichever is more, and 90 days in jail. Penalties for additional offenses are more severe.

Even if the unlicensed contractor avoids being brought before the authorities, a person who acts as a contractor, who is unlicensed and who is stiffed by a homeowner for work he performs has no legal recourse. He cannot go to court and sue to collect the money.

Homeowners hiring unlicensed contractors must understand that they are on the hook for workers' compensation (should the worker get hurt), damage done by workers and mechanic's liens (filed for unpaid wages or supplier's bills).

Motroni provided a couple of horror stories to drive these points home:

"A woman hired an unlicensed plumber who did 'great work' and had done several small jobs for her before. Unfortunately, he didn't pay his supplier and the woman ended up paying the supplier after she paid the plumber to avoid a mechanic's lien being placed on her home.

"In another case a San Francisco East Bay couple hired a retired roofer to fix a roof leak. He fell, and her insurance paid out a lot of money for his broken bones."

To sum up, there are substantial risks in hiring unlicensed workers and those risks can outweigh any rewards in the way of savings. Hiring licensed contractors provides some assurance of competence and some protection but does not guarantee satisfaction.