WORKING WITHOUT A LICENSE – CALIF. COURTS  APPLY A HARSHER INTERPRETATION STANDARD THAN FOR ACCESSORY TO A MURDER

Is the purpose of courts to interpret laws so they are harsh and unfair?

If a court can interpret legislation to be enforced such that it is “harsh and unfair”, or choose to interpret the same legislation’s actual wording so that it’s application is more in line with equity to the working person, ensuring quality work, and deterring fraud, you would think they would not go with “harsh and unfair”.

Wrong:  at least in the context of unlicensed contractors.  In one California Court of Appeals case (Alatriste v. Cesar’s Exterior Design (2010) 183 Cal. App. 4^th 656) (“Alatriste”) and two cases that echoed it, the court deliberately chose an interpretation not in the text, that the court itself called harsh and unfair. 

As I mentioned in a blog a few days ago, an employee who wields a wrench, or shovels dirt in creating new landscaping, is entitled to an extensive degree of protection in the form of rules for lunch breaks, rest breaks, regular pay, overtime pay, a hearing conducted and decided by the agency enforcing the law, and a court procedure designed to scare off the employer or label him/her/it “wage thief” if he or she  does not prevail. 

But pick up the same wrench to unplug a sink, or shovel the same soil for landscaping work if you are working independently but not licensed as a handyman/plumber or landscaper respectively, then you are violating Penal Code § 7028: acting in the capacity of a contractor without a license.  The Courts will then rule that your customer may demand back your ‘wages’, and the value of every item for which the customer advanced the cost.  If the demand is made in court, the worker is forbidden all avenues of defense.  He cannot even argue that the customer knew he could do this from the start.  If it costs you, the unlicensed worker, bankruptcy including loss of home and life savings, tough. 

The “shield”

California has long had a law (Business and Professions Code 7031) preventing an unlicensed contractor from enforcing a contract to collect money due to him or her. 

Now, as  paragraph “a” of section 7031, it reads:

“…no person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract regardless of the merits of the cause of action brought by the person…”

This language is prohibitive.   The unlicensed “contractor” cannot make a claim for payment he or she regards as due. 

In normal contract disputes, a party seeking payment, even if the contract is invalid, can  assert “equitable claims”.  These include “unjust enrichment” if the other party has gained something for nothing, or quantum meruit  requiring reasonable payment for work the Customer has ordered.    Here section 7031 “a” bars these claims. 

However, there was an important limit to the “shield”.  It put the burden on the customer to stop paying the unlicensed worker.   At that point the unlicensed worker would, if he or she had any sense, stop working, because the worker could not make a legal claim for payment.

Turning the “shield” into a club. 

It was arguable under the terms of paragraph “a” that if a contractor, could allege that he got his license, or got it renewed, and that after that his actions were performed while licensed, he should get paid for those licensed “acts”.  Such a limitation would make sense if the purpose of the law was understood to be to get all work done by licensees while they were licensed in order to protect the public from shoddy work and to remove competitions with licensees.  Indeed, these are the only reasonable purposes.    This interpretation was turned down by the State Supreme Court.  

In a case with the issue of a contractor licensed part of the time of the ongoing job the court found:

 (1) Where applicable, section 7031(a) bars a person from suing to recover compensation for any work he or she did under an agreement for services requiring a contractor's license unless proper licensure was in place at all times during such contractual performance.  (2) Section 7031(a) does not allow a contractor who was unlicensed at any time during contractual performance nonetheless to recover compensation for individual acts performed while he or she was duly licensed.

…“This rule is based on the rationale that ‘the public importance of discouraging such prohibited transactions outweighs equitable considerations of possible injustice between the parties.’

MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412 (“MW Erectors”)

Temporizing, the Court added:

“….[C]ourts will not, under such circumstances, extend the harsh sanction of forfeiture beyond the bounds set by the Legislature absent a showing that such a result is essential to effectuate the statute's protective purposes.” 

It should be a source of alarm to find the California Supreme Court interpreting law in order to justify “possible injustice”, (actual injustice).   

The legislature adds a “sword”

The legislature amended the law around 2010 to add a paragraph “b” that reads:

“…[A] person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract.”

                                                    

This addition  threw the balance against the unlicensed independent worker who now could be sued to claw back everything for which she already had been paid while the worker was still prohibited from seeking any payment due.

Limits in words describing the “sword”

Note, though that the language is different between the two paragraphs:

·         Paragraph “a” prohibits an action to collect for work not yet paid, and quite possibly not yet performed “regardless of the merits of the cause of action brought by the person…”  Paragraph “b” says the Customer may bring an action but incorporates no language limiting defenses. 

·         Paragraph “a”  prohibits  “collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract”.   Paragraph “b” permits a suit to recover “all compensation paid to the unlicensed contractor for performance of any act or contract”.   Paragraph “b” thus lacks the “at all times” provision tarring the worker throughout the whole period of the job. 

·         Paragraph “a” bars a claim for “…compensation for the performance of any act or contract…”  while paragraph b permits the claim to recover all compensation “…paid to the unlicensed contractor…”  saying nothing about permission to sue to recover moneys paid to a licensed contractor even if he or she was only licensed part of the time.   licensed, should be taken away.  

·         Both paragraphs refer to “performance of any act or contract”.  Neither refers to supplying of material demanded and then retained by the Customer. 

The court turns the “sword” into a guillotine

It is a judicial maxim that interpretation must be reasonable (Civil Code § 3542).   But in one leading decision and two that followed it, the Courts decided, on the basis of some discussion in a legislative committee, that they should interpret the law harshly well beyond its text.   The decisions completely ignored the MW Erectors caveat that

“….[C]ourts will not, under such circumstances, extend the harsh sanction of forfeiture beyond the bounds set by the Legislature absent a showing that such a result is essential to effectuate the statute's protective purposes.” 

There was no showing that the reasonable purpose of ensuring contractors were licensed in their field was achieved, by allowing the retroactive economic destruction of those who began a job while unlicensed regardless of their skill and benefit to the customer. Yet in Alatriste the appellate court says:

“In short, those …who have paid may recover all compensation delivered. Thus, unlicensed contractors are not able to avoid the full measure of the [statutory scheme’s] civil penalties by … retaining progress payments relating to completed phases of the construction.”

And further

… that in enacting section 7031(b), the Legislature specifically intended to permit full recovery even if the hiring party had actual knowledge the contractor was unlicensed. 

            Note that the legislation said nothing of the kind.  This view means that a Customer can hire a temporary unlicensed worker, pay him, and obtain his services on a job for years, and satisfactory work being fully installed, get all the compensation paid back.  They may do so even if the worker was licensed much of the time the contract was in effect.  In permitting “full recovery”, the court also apparently bans equitable counter claim by the worker of quantum meruit or the defense that the complaint is brought short of fraud but with “unclean hands”. 

     The Alatriste court also rejected a claim for retention of part payment for materials expended, quoting (White v. Cridlebaugh (2009) 178 Cal.App.4th 506, a case decided prior to the addition of paragraph “b”.

“Cesar’s Designs contends that allowing Alatriste to obtain reimbursement for materials that remain in his possession is unfair and “serves no purpose other than punishment.” As noted, the legislative committee reports show that, in enacting section 7031(b), the Legislature was specifically aware that permitting reimbursement may result in harsh and unfair results to an individual contractor and could result in unjust enrichment to a homeowner, but nonetheless decided that the rule was essential to effectuate the important public policy of deterring licensing violations and ensuring that all contractors are licensed. As a judicial body, we are not permitted to second-guess these policy choices.”

Having a precedent, two cases enforce the results they claim to think are unjust:

Jeff Tracy, Inc. v. City of Pico Rivera (2015) 240 Cal.App.4th 510  quotes Aritriste’s belief the legislature intended “harsh and unfair” results, as does  People v. Walker (2016) 6 Cal.App.5th Supp. 38, 44 [211 Cal.Rptr.3d 829, 834]

The court was not obligated to read a harsh and unjust into a law where none appeared in the legislation itself.

Unfortunately what made B&P section 7031 (b) particularly harsh and unfair was that the Court read into it language that the legislature as a whole did not put it into writing and may have deliberately omitted.  For the Supreme Court of California and the appellate courts to invoke what was not in the legislation to achieve a result they observe is harsh, unjust, and a cheat, suggests they really are not doing their job as courts of justice. 

A California Appellate Court recently rejected the standard of decision used in Alatriste In  People v. Munoz, (2019) 39 Cal.App.5th 738 252 Cal.Rptr.3d 456 the court stated:

When the Legislature has employed a term or phrase in one place and excluded it in another, it should not be implied where excluded.  Murder liability is not imposed on a person who did not act with implied or express malice, was not the actual killer, did not act with the intent to kill, or was not a major participant in an underlying felony who acted with reckless indifference to human life. Cal. Penal Code S 189(e)

            Apparently, a passive participant in a felony where someone is murdered gets more lenient treatment in judicial interpretation than an unlicensed handyman who unplugs a sink. 

The foregoing is social commentary and should not be understood as legal advice in any case or legal matter.

Peter Liederman     (California licensed attorney).  

in order to keep some of its money because the other side had gained at least something from the contract; or “unclean hands”, because customer had deliberately lured the tradesman into doing work the customer knew he need not pay for.