The Harsh Reality of Working Without a Contractor’s License
California’s contractor license laws exist to protect the public from unqualified or dishonest contractors. Because of that, the penalties for working without a valid license are among the harshest in the nation.
California Business and Professions Code section 7031 is both a sword and a shield: it allows property owners to recover all money paid to unlicensed contractors while also barring those contractors from suing for payment. This harsh statute is designed to deter unlicensed construction work by making the loss of compensation absolute.
The Shield - No License, No Right to Compensation
Under Business and Professions Code section 7031(a), an unlicensed contractor cannot recover any compensation for work performed while unlicensed — even if the work was done perfectly and the owner knew about the lack of a license.
That means if a contractor was unlicensed for even one day during a job, they lose their right to be paid for all of it. Courts describe this as a “harsh rule,” but it’s meant to deter unlicensed contracting altogether.
The Sword - Disgorgement: Returning All Money Paid
Under Business and Professions Code section 7031(b), a property owner can sue to recover all money paid to an unlicensed contractor — known as disgorgement.
This strict penalty reflects California’s policy of protecting consumers over contractors’ financial losses. Courts have repeatedly upheld this as a necessary deterrent.
Note, however, that in Eisenberg Village of the Los Angeles Jewish Home for the Aging v. Suffolk Construction Co., Inc. (2020) 53 Cal.App.5th 1209, the court held that the statute of limitations for disgorgement under section 7031(b) is one year from completion or cessation of work. Property owners must act quickly if they wish to pursue the disgorgement remedy.
Bottom Line - California’s licensing laws are intentionally unforgiving. For contractors, the message is simple: stay licensed at all times. For property owners, verify licensing before and during your project — and act quickly if you discover a lapse.