In 2013 D.L. Falk Construction, Inc. entered into a contract with the Central Contra Costa Sanitary District under which Falk was to be general contractor on district project No. 8226, “Seismic Improvements for HOB.”

The project involved seismic upgrades for the District in Martinez, which required removing various existing finishes to expose the building’s structural steel columns; strengthening the columns by welding on specially manufactured pieces; testing the columns; and restoring the building’s finishes to make it ready for occupancy.

B.A. Retro, Inc. was a subcontractor on a project on which D.L. Falk Construction, Inc.was the general contractor. Retro began sending workers to the project, who were from the union hall. Retro’s work on the project was, as its President acknowledged, dangerous: it included working “with heavy metal objects”; lifting “big plates from trucks into the work site”; some “welding” that required a “fire watch” mandated by law; and similar dangerous activities.

At the conclusion of the project, Retro sued Falk for $260,000, the amount it claimed Falk owed on the balance of the subcontract. This was in addition to the $440,447 Falk had had paid Retro on the contract by that time.

During litigation, Falk learned that Retro had begun work on the job at a time when it did not have workers’ compensation insurance, the effect of which was to cause an automatic suspension of its license. Retro’s certified license certificate showed that at the time of the subcontract with Falk Retro had an “exemption from workers’ compensation” insurance, which exemption is available only if the contractor had no employees.

The case proceeded to a court trial on the licensure issue,as a defense to the contract balance, and a cross complaint by Falk for restitution of the $440,447 it had previously paid on the contract. The court ruled against Retro, rejecting its claim of substantial compliance with the licensing law, and entered judgment against Retro on both its claim and Falk’s restitution claim. Retro appealed, and the court of appeal affirmed the trial court in the unpublished case of B.A. Retro, Inc. v. D.L. Falk Construction, Inc.

The Contractors Licensing Law, Business and Professions Code 7031, provides that no person “engaged in the business or acting in the capacity of a contractor” can bring an action for compensation for work requiring a contractor’s license if the person was not properly licensed at all times during the performance of the work. Subdivision (b) permits a person “who utilizes the services of an unlicensed contractor” to bring an action for disgorgement of “all compensation paid to the unlicensed contractor.“

The California Supreme Court has acknowledged that the statute, while punitive, is necessary to protect an important public policy. (Hydrotech Systems, Ltd. v. Oasis Waterpark, supra, 52 Cal.3d at pp. 995, 997.)