Can California Contractors Hire Unlicensed Subcontractors?

Your contractor license won't protect you from every problem caused by an unlicensed subcontractor. If you're a general contractor, hiring one for work that requires a license can put your payment rights and your own license at risk.

You generally must hire properly licensed tradespeople for work that requires a license, even when you supervise them. A narrow exemption covers some minor jobs, but usually not work that's part of a larger construction project.

Assess licensing separately from insurance, permits, and employee responsibilities.

Can You Hire an Unlicensed Subcontractor?

Generally, no. In California, a subcontractor that independently contracts to perform work requiring a license needs its own active license with the proper classification. Your general contractor license doesn't extend to another business.

An unlicensed subcontractor's experience, insurance certificate, or relationship with your company doesn't replace its own contractor license. Neither does your promise to oversee the work.

Employees are different. They generally don't need individual licenses when they work for wages within a properly licensed business. But calling an independent crew your employees doesn't settle their legal status.

Key Takeaways

• Hire a business with an active license covering the contracted work, and confirm the license belongs to the entity signing your agreement.
• Treat the under-$1,000 exemption as a narrow exception, not permission to divide larger projects into smaller contracts.
• Keep license records throughout the job, because unlicensed work can affect collection rights even when your own license stays active.

Your License Can Be Affected

Hiring an unlicensed business can create disciplinary exposure for the licensed contractor, separate from the business's penalties. California also prohibits aiding or abetting unlicensed contracting.

A signed agreement doesn't remove that risk. Licensing requirements apply regardless of what the contract says.

When the $1,000 Exemption Applies

AB 2622 took effect on January 1, 2025, raising the licensing threshold for qualifying minor work from $500 to less than $1,000.

Under AB 2622, the exemption applies when the aggregate contract price is under $1,000, including labor, materials, and other items. A contract price of exactly $1,000 doesn't qualify.

Small Jobs Must Meet Every Condition

Price alone isn't enough. The exemption doesn't apply when the work requires a building permit or the person performing it employs someone to help.

The work must also be casual, minor, or inconsequential. A low invoice doesn't automatically make a construction operation exempt.

Don't count only the subcontractor's labor charge. The combined project value matters, including materials. Having the homeowner purchase materials doesn't automatically remove their value from the calculation.

Larger Projects Don't Become Exempt

California excludes work that's part of a larger or major operation, whether performed by the same contractor or different contractors.

That matters when you're hiring subs. A small subcontract within a larger renovation generally doesn't become exempt because its individual price falls below $1,000.

Splitting an operation into several smaller contracts to avoid licensing doesn't create an exemption. Keep the full project scope in view before treating anyone as exempt.

Section 7031: Collection and Repayment

California's Contractors License Law reference book includes Section 7031 of the Business and Professions Code, a payment rule contractors need to understand.

The statute separates two consequences: losing the right to collect and having to return compensation already received.

Subsection (a) Blocks Collection

An unlicensed contractor generally can't sue to collect compensation for work that requires a license. The contractor must have been properly licensed throughout the work.

According to CSLB, consumers aren't legally required to pay for license-required work, and the contractor can't sue them for nonpayment. A subcontractor's collection limit is separate from any potential exposure for the prime contractor, discussed in the next section.

Good workmanship doesn't cure the licensing failure. A completed job, satisfied customer, or unpaid invoice doesn't create an exception by itself.

Subsection (b) Allows Recovery

Subsection (b) allows someone who hired an unlicensed contractor to seek recovery of compensation paid for unlicensed work. This repayment remedy is called disgorgement.

The potential repayment isn't limited to repair costs. Compensation can be recoverable even when the work was performed flawlessly. The rule addresses work that requires a license and doesn't automatically resolve every mixed-scope contract.

The law addresses licensing, not the value of the finished work. Proving that the customer received a useful improvement doesn't automatically preserve payment rights.

A narrow substantial-compliance exception exists, but it isn't a general defense for someone who never obtained the required license. That exception may affect whether disgorgement applies in a particular case.

What Kim v. TWA Changed

Kim v. TWA Construction, Inc. (2022) 78 Cal.App.5th 808 shows why checking your own license isn't enough.

The court applied Section 7031 to a licensed general contractor that hired an unlicensed subcontractor. In these circumstances, TWA's lack of knowledge didn't preserve its payment rights.

The $10,000 Tree-Work Dispute

The owners paid $10,000 for tree removal performed by an unlicensed contractor. That work required a C-61/D-49 Tree Service Specialty license.

The decision barred TWA from collecting the contract price for that tree work and supported recovery of the payment.

The practical exposure was direct: payment associated with the unlicensed work remained at risk despite TWA's own license.

Paying the Sub Doesn't End Exposure

A contractor can pay the hired firm and still face an owner's repayment claim. Recovering that payment from the firm is a separate issue, not an automatic offset.

That creates the risk contractors describe as paying twice for the same work.

However, the decision doesn't settle every question about whether disgorgement reaches an entire mixed-scope contract or only the affected work. Don't assume every unlicensed arrangement requires repayment of the entire contract price.

Penalties for Unlicensed Contracting

Business and Professions Code Section 7028 makes contracting without a required license a misdemeanor. Repeat convictions carry higher penalties.

First and Second Convictions

A first conviction can bring a fine of up to $5,000, up to six months in county jail, or both.

A second conviction requires a fine of $5,000 or 20% of the contract price, whichever is greater. It also requires at least 90 days in county jail, unless the court finds a lesser sentence serves justice in an unusual case.

Repeat Offenses and CSLB Action

A third or subsequent conviction carries a fine of $5,000 to $10,000 or 20% of the contract price, whichever is greater. Jail time can range from 90 days to one year.

CSLB administrative fines range from $200 to $15,000. Its Statewide Investigative Fraud Team, known as SWIFT, conducts undercover sting operations and construction-site sweeps.

Fraudulently using another person's contractor license number can also lead to felony charges under BPC 7027.3.

Criminal and administrative enforcement is separate from Section 7031 payment or repayment claims. The same unlicensed work can lead to enforcement action and a repayment demand.

What Your Class B License Covers

Your classification controls what your business can contract for and perform. Hiring employees doesn't expand that scope, and hiring a subcontractor doesn't let another business borrow your contractor license.

For a Class B general contractor, the project's scope matters.

Framing and Multi-Trade Projects

A Class B contractor can take framing or carpentry contracts. Class B authority also covers qualifying building projects involving at least two unrelated trades other than framing or carpentry.

On those qualifying multi-trade projects, Class B authority can permit self-performance beyond framing. California doesn't require every electrical, plumbing, or HVAC task to be subcontracted.

Your business still needs to stay within the scope allowed by its classification.

Standalone Specialty Work

A standalone electrical, plumbing, or HVAC contract raises a different issue. A Class B contractor generally needs the appropriate specialty classification or must subcontract that work to a properly licensed specialty contractor.

Examples include C-10 for electrical, C-36 for plumbing, and C-20 for HVAC.

Our CSLB licensing process guide explains how classifications fit into licensing requirements. Match the contract's actual scope to your classification before awarding work.

Verify the Sub Before Hiring

Use CSLB's official records, not a business card or license screenshot supplied by the subcontractor. CSLB's licensed contractor search guidance explains how to search by license number, business name, or contractor name.

Build these steps into your intake process:

1. Search the contracting entity's license number or business name in CSLB's "Check a License" tool. Match the business name to your subcontract.
2. Confirm the entity's active status and matching classification in CSLB records. Review the expiration date and disclosed disciplinary information.
3. Review the listed bond and workers' compensation information, including any reported exemption.
4. Save a dated record before signing the subcontract and before work starts.
5. Recheck status during the job and before payment applications, especially after renewal or insurance changes.

A person's license doesn't automatically cover a separate corporation or LLC. The contracting entity matters.

An inactive, expired, or suspended license doesn't authorize work that requires a license. A pending application isn't an active license.

Keep the records with your contract, scope, invoices, and change documentation. This creates a clear timeline if licensing becomes disputed.

Don't overlook your own status. Our California contractor license bond guide explains the $25,000 bond requirement and why keeping the bond active matters.

Licensing, Employees, and Insurance

These requirements overlap, but they answer different questions. A contractor license authorizes contracting within its classification. Employment rules determine your obligations to workers, and insurance addresses covered risks.

A Subcontract Doesn't Decide Classification

A written subcontract, W-9, or 1099 doesn't automatically make someone an independent contractor.

California Labor Code Section 2750.5 generally makes a required contractor license relevant to independent-contractor status for license-required work. Licensing is one part of California's classification analysis, not the only factor. Even a licensed subcontractor must satisfy applicable worker-classification rules.

If an unlicensed worker is treated as your employee, wage, payroll, and workers' compensation responsibilities can follow. Calling the arrangement "subcontracting" doesn't remove them.

Insurance Doesn't Fix Licensing

Workers' compensation is required when you have employees. Some CSLB classification records show a workers' compensation requirement even without employees, but verify current coverage and your own obligations.

A claimed workers' compensation exemption needs to match the actual operation. A business claiming no employees while sending a crew creates a separate compliance concern.

General liability insurance doesn't replace workers' compensation or authorize unlicensed work. Likewise, a contractor license bond protects eligible claimants under its terms, but it doesn't make an unlawful subcontract lawful.

We help contractors arrange bonding, workers' compensation, and liability coverage. Our California contractor insurance guide explains those different protections.

Permits, Contracts, and Payment

A building permit and a contractor license are separate requirements. Getting one doesn't excuse the absence of the other.

Permit-required work is excluded from the minor-work exemption, even when the price is below $1,000. An owner-obtained permit doesn't authorize unlicensed contracting.

The home-improvement contract threshold is separate. AB 2622 changed contractor licensing rules, but the AB 2622 change didn't alter the threshold in BPC 7159. That law covers qualifying home-improvement contracts with an aggregate contract price exceeding $500.

Payment rules need separate review. For retention, California Civil Code Section 8814 generally requires a direct contractor to pay a subcontractor's share within 10 days after receiving it, subject to applicable exceptions.

Retention rules don't set one deadline for every progress payment. Payment obligations depend on the project, payment type, contract, and governing statute.

Keep Section 7031 disputes, including possible disgorgement claims related to unlicensed work, separate from ordinary payment administration. Document the disputed scope and get legal advice before withholding or demanding repayment.

What to Do When You Discover It

Act promptly, but preserve the facts before changing contracts or making repayment demands. This is general information, not advice about a particular dispute.

For General Contractors

Stop assigning license-required work to the unlicensed business. Save the licensing record, contract, payment history, insurance documents, and communications.

Separate completed unlicensed work from unfinished work. Arrange for properly licensed completion and get legal advice about owner disclosures, payment exposure, and any claim against the business.

A replacement business can finish the project legally, but it doesn't erase the earlier licensing problem.

Don't try to resolve the issue by rewriting the subcontractor as an employee after the work. Employment classification depends on the actual relationship.

For Homeowners

Preserve contracts, invoices, canceled checks, bank records, messages, and photographs. Record who performed the work and when.

The unlicensed contractor complaint process can lead to a warning, citation, or referral to the district attorney. A CSLB enforcement action doesn't guarantee repayment.

Recovery under Section 7031(b) may require a civil claim. Depending on the amount and circumstances, small claims court or a construction attorney may be appropriate.

Act promptly because filing deadlines differ. A complaint doesn't automatically preserve every civil claim.

How to Report Unlicensed Work

You can report an unlicensed contractor in California. Use the CSLB's construction complaint and referral options to choose the route that matches the project's status.

1. For active work, submit a SWIFT lead referral with the job address, work schedule, contractor identity, and suspected licensing problem.
2. For completed work or an existing dispute, submit the construction complaint form with contracts, payment records, and supporting documents.
3. Keep your submission and reference number, then provide additional records if requested.

Give concrete details. Explain the work being performed, identify the business, and state whether the license search showed no license, a suspension, or an incorrect classification.

Advertisements, proposals, vehicle information, and messages can help identify the subcontractor. Supply records you already have without entering restricted areas or confronting workers.

The agency investigates licensing violations. It doesn't guarantee that a complaint will return your money, repair the project, or resolve every contract issue.

Keep any civil recovery effort separate from the enforcement report.

Frequently Asked Questions

Does Supervision Make an Unlicensed Sub Legal?

No. Your supervision doesn't give an independent unlicensed subcontractor a contractor license. It needs its own appropriate license unless a genuine statutory exemption applies.

Employees working within your licensed business are a different category.

Does Later Licensing Fix Earlier Work?

Generally, no. Getting a license after performing work doesn't automatically restore collection rights for the earlier unlicensed period.

Section 7031 focuses on licensure throughout performance. Its narrow substantial-compliance exception isn't permission to start before licensing is complete.

Can Insurance Cover the Repayment Demand?

Don't assume it will. General liability insurance covers eligible injury and property-damage claims under the policy, not every contractual or statutory repayment demand.

Bond protection also depends on the claimant, violation, and applicable bond terms. Neither insurance nor bonding removes the license requirement.

Protect Your Payment Rights

Hire a licensed business, verify the subcontractor's CSLB record, and save the records. Keep licensing active throughout the job to reduce avoidable payment disputes and enforcement exposure.

Start before work begins. A late license or replacement subcontractor won't automatically fix work already performed without the required license.

For your own contractor bond and insurance needs, Get quote today. We'll help you arrange the coverage and filings your business needs.