The perils of hiring an unlicensed contractor are significant. They extend to other contractors and their subs, as well as members of the general public. But by far, the party facing the greatest exposure is the owner. The risks are numerous, and can sometimes manifest themselves in a surprising way. In one case, an unlicensed contractor turned the tables on an owner when the contractor’s lack of a proper license was actually used against the owner who had hired him. The unlicensed contractor was performing work on the owner’s property when he fell and sustained some injuries. The court held that since the contractor was not licensed, the owner was deemed to be his employer and as such was liable to the injured unlicensed contractor for damages resulting from his injuries. Surely not the sort of outcome one would expect.
Another risk from an owner’s perspective, inherent in the hiring of an unlicensed contractor, is the manner in which most professional or legal standards are overlooked. Because they aren’t regulated, such unlicensed contractors frequently use inferior materials and often provide shoddy workmanship. These workers are generally unfamiliar with building codes, disregard needed inspections, and provide a finished work product with a higher likelihood of violations. Moreover, in the event the unlicensed contractor fails to perform up to specifications, the chances are greater that it will not have the money or man power to repair any improperly constructed improvements. As the previously discussed case illustrated, many insurance policies will not cover liability exposure for injuries to others (as well as property damage) if such injuries or damages are related to work performed by an unlicensed contractor. All in all, the risks of hiring an unlicensed contractor from the perspective of an owner considerably outweigh the lower quotes and perceived savings presented by such an individual.
Significant risks also exist for any contractor on a project who hires an unlicensed subcontractor. Many states have statutes in place that make contracts entered into by unlicensed contractors unenforceable. A general contractor who hires an unlicensed sub could find himself with a big problem. Because the subcontract is unenforceable, the general contractor is unable to avail himself of customary remedies, such as proceeding against any available performance bond.
If all this isn’t enough to dissuade you from hiring unlicensed workers, imagine this scenario. A general contractor hires a number of unlicensed subcontractors believing they are independent contractors. But much to his dismay, he eventually discovers that the law considers such unlicensed subcontractors as statutory employees of the general contractor. And since they were employees, the general contractor was held liable for contributions required to be made to unemployment insurance, disability insurance and employment training funds on their behalf as well as for withholding of their personal income taxes. The general contractor quickly went from saving a bundle to spending a bundle.
Not only are the financial risks significant when hiring unlicensed contractors, but there is always an inherent danger that you will obtain an end product which just doesn’t meet required codes. The solution is simple – always hire licensed workers and verify that their licenses are current and in effect.
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Tags: Misc’l
