Rights of an Injured Worker Employed by an Unlicensed Contractor

By Juan Flores

In situations where a worker is injured on the job while working for an unlicensed contractor, it may seem like there is no possible remedy. Unlicensed contractors usually do not have workers’ compensation insurance that will issue indemnity payments to their injured employees or pay the injured workers’ resulting medical expenses. In such a scenario, it may appear that an injured worker has no right of action or recovery against anyone besides the unlicensed contractor (who also likely does not carry liability insurance if sued directly).

However, all hope is not lost for this injured worker. California law incentivizes the hiring of licensed contractors by making the hirer of an unlicensed contractor the employer of the unlicensed contractor and their employees by operation of law. This is because under California law, a valid contractors’ license is a prerequisite for independent contractor status. (California Labor Code § 2750.5.) Without a valid license, the independent contractor is an employee of the hirer. As a result, the hirer may become liable for paying workers’ compensation benefits or civilly liable.

The typical scenario that arises under this theory is when a homeowner hires an unlicensed contractor to do work on their property and either the unlicensed contractor or one of their employees becomes injured on the job.

The Hirer of an Unlicensed Contractor Becomes Liable to the Injured Worker

Under Labor Code section 2750.5 “[t]here is a rebuttable presumption affecting the burden of proof that a worker performing services for which a license is required…, or who is performing such services for a person who is required to obtain such a license is an employee rather than an independent contractor.” (Lab. Code § 2750.5(a).) The “employee” presumption may be overcome with proof of independent contractor status. (Id.) However, Labor Code section 2750.5 states “any person performing any function or activity for which a license is required . . . shall hold a valid contractors’ license as a condition of having independent contractor status.” (Lab. Code § 2750.5(c).) The California Supreme Court has held that the second paragraph of Labor Code section 2750.5(c) “means that no person who performs any work for which a contractor’s license is required shall be found to be an independent contractor unless such person holds a valid contractor’s license.” (State Compensation Ins. Fund v. Workers’ Comp. Appeals Bd. (1985) 40 Cal.3d 5, 11.)

Furthermore, the independent contractor must have the specific type of license required to do the work they were hired to do before having independent contractor status. The type of license required for different types of work is determined by the California Contractor’s State Licensing Board. This means that a licensed drywall contractor (with a C-9 Specialty License) cannot have independent contractor status if they are doing plumbing work without a plumbing license (C-36 Specialty License). As the employer of an injured worker, the hirer is now responsible for providing workers’ compensation benefits to the injured worker. However, where the hirer fails to pay workers’ compensation benefits to the injured worker, the employee is permitted to bring a civil action against the hirer.

The Injured Worker May Bring a Civil Action Against the Hirer of the Unlicensed Contractor

Although an injured worker’s only remedy against their employer is workers’ compensation benefits (Lab. Code § 3600), there is a key exception to this “workers’ compensation exclusivity” rule when an employer fails to secure the payment of compensation, in which case “an employee or his dependents may bring an action at law against such employer for damages, as if this division did not apply.” (Lab. Code § 3706.)

Where the hirer is a homeowner, their homeowners’ insurance is required to pay workers’ compensation benefits to the injured worker only if they are considered a “residential employee.” In order to be considered a residential employee, the injured worker must have worked for 52 hours or more and earn $100 or more during the 90 days preceding the date of injury. As a result, the homeowners’ insurance will not issue workers compensation benefits and under Labor Code § 3706 the injured worker may bring a civil action for damages against the homeowner.

Presumed Negligence of the Hirer of the Unlicensed Contractor

Finally, where an employee of an unlicensed contractor or the unlicensed contractor brings a civil action against the hirer, it is presumed that the injury to the employee was a direct result and grew out of the negligence of the employer, and the burden of proof is on the employer, to rebut the presumption of negligence. (Lab. Code § 3708). Thus, if an employee establishes that they were injured occurred in the course and scope of employment, section 3708 creates a rebuttable presumption that an uninsured employer was negligent and the employer is precluded from claiming comparative fault or assumption of risk as a defense.

Thus, the hirer of an unlicensed contractor is barred from raising key affirmative defenses including that the injured worker had any comparative fault or that they assumed risk of the injury. The unavailability of these defenses is favorable and in support of helping the injured worker recover for the injuries they sustained.