STAY SAFE, SHELTER IN PLACE - Contact Us safely via e-mail, VideoConference, or CellPhone.

When May Unlicensed Construction Workers Sue a Contractor or a Property Owner,

or Sue a Property Owner in California to Enforce a Mechanics Lien, to Recover their Agreed or Statutorily Required Wages for Construction Work?

One of the oldest obstacles to collection of payment for unlicensed construction worker in California is the Contractor’s State License Law’s prohibition against lawsuits by unlicensed contractors to recover payment for their work.

  1. Except as provided in subdivision (e), 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, except that this prohibition shall not apply to contractors who are each individually licensed under this chapter but who fail to comply with Section 7029.
  2. Except as provided in subdivision (e), 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. . . .” (Emphasis added)

Bus. & Prof. Code § 7031.

However, persons who perform construction work as employees are an exception to the License requirements of the Contractors State License Law, are not required to be licensed, and thus may sue to recover their wages against their hirer, whether the hirer is a property owner or a licensed contractor or subcontractor:

“Except as provided in Article 10 (commencing with Section 7150), this chapter does not apply to any person who engages in the activities herein regulated as an employee who receives wages as his or her sole compensation , does not customarily engage in an independently established business, and does not have the right to control or discretion as to the manner of performance so as to determine the final results of the work performed” (Emphasis added).

Bus. & Prof Code. § 7053.

An employee or “laborer”, even if unlicensed, may also be entitled to record and enforce a mechanics lien against private property to recover payment for wages performed on that property.

“A person that provides work authorized for a work of improvement, including, but not limited to, the following persons, has a lien right under this chapter:

  1. Direct contractor.
  2. Subcontractor.
  3. Material supplier.
  4. Equipment lessor.
  5. Laborer.
  6. Design professional.”

Civil Code § 8400.

And, unlike the other persons listed in Section 8400 (b) - (g), a “laborer” or employee does not need to serve a Preliminary Notice on the property owner as a precondition to recording or enforcing a Mechanics Lien. Civil Code § 8200(e)(1).

Another, more recent, statute, Labor Code § 2750.5, contains two presumptions that a worker is an Employee, and not an Independent Contractor, one of which is a Rebuttable Presumption, and one of which is a Conclusive Presumption - or precondition to the existence of independent contractor status - which may not be overcome by any evidence.

“There is a rebuttable presumption affecting the burden of proof that a worker performing services for which a license is required pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code, 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 . Proof of independent contractor status includes satisfactory proof of these factors:
  1. That the individual has the right to control and discretion as to the manner of performance of the contract for services in that the result of the work and not the means by which it is accomplished is the primary factor bargained for.
  2. That the individual is customarily engaged in an independently established business.
  3. That the individual's independent contractor status is bona fide and not a subterfuge to avoid employee status. A bona fide independent contractor status is further evidenced by the presence of cumulative factors such as substantial investment other than personal services in the business, holding out to be in business for oneself, bargaining for a contract to complete a specific project for compensation by project rather than by time, control over the time and place the work is performed, supplying the tools or instrumentalities used in the work other than tools and instrumentalities normally and customarily provided by employees, hiring employees, performing work that is not ordinarily in the course of the principal's work, performing work that requires a particular skill, holding a license pursuant to the Business and Professions Code, the intent by the parties that the work relationship is of an independent contractor status, or that the relationship is not severable or terminable at will by the principal but gives rise to an action for breach of contract.

In addition to the factors contained in subdivisions (a), (b), and ( c), any person performing any function or activity for which a license is required pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code shall hold a valid contractors' license as a condition of having independent contractor status. . . . .” (Emphasis added)

Labor Code § 2750.5.

While this statute was originally adopted to determine who is an employee for Workers Compensation Insurance purposes, as discussed below, it has subsequently sometimes been used to determine who is an ‘employee’ for purposes of avoiding the prohibition against suit by unlicensed builders or contractors in Bus. & Prof. Code § 7031, and in other contexts.

However, the cases are not uniform and often conflict or ignore the holdings in other cases under this statute. We discuss these cases in chronological order, and attempt to harmonize them below.

However, a final answer to when certain unlicensed workers - or groups of workers - may sue to recover their wages likely will have to await a decision by the California Supreme Court, or further Legislative clarifications.

In the first case, Fillmore v. Irvine, a partnership that owed real property contracted with a licensed architect and contractor (Tarman) to build a commercial structure on the land. Tarman subcontracted with Sutton1 for sheetrock and other work, and Sutton hired Plaintiff, who was referred by a mutual friend. Plaintiff immediately told Sutton he was not licensed and would have to be Sutton’s employee, but would work on a piece-work basis, and charge by the square foot installed, with Sutton providing the scaffolding, materials etc.

Sutton failed to pay, because the others had not paid him. At a meeting, Tarman told Plaintiff if he would go back to work, Tarman would pay Plaintiff directly, at the end of the job. Tarman then paid Sutton, but Sutton did not pay Plaintiff.

Plaintiff then sued defendants to foreclose a mechanic's lien and for breach of an oral contract arising from his failure to be paid for services as a drywall finisher. Fillmore v. Irvine (1983) 146 Cal. App. 3d 649, 652. Defendants contended that Plaintiff was an unlicensed contractor, and subject to the provisions of Bus. & Prof. Code § 7031(a), which prohibit suit by an unlicensed person to collect “compensation for the performance of any act or contract for which a license is required”, under Bus. & Prof. Code § 7000 et seq. 2

Defendants contended on appeal that the trial court misapplied the presumption in the penultimate paragraph of Labor Code § 2750.5 in deciding the issue of whether plaintiff was an “employee” within the meaning of Bus. & Prof. Code § 7053, so as to allow him to bring suit for breach of contract and to enforce a mechanics lien as an “employee”, exempt from the licensing requirements of Bus. & Prof. Code §§ 7000 et seq..

The Third District Court of Appeal agreed, and held that:

“While this provision of section 2750.5 may serve a salutary purpose of providing broad workers' compensation coverage to those injured on a job (see Webb v. Workers' Comp. Appeals Bd. (1980) 28 Cal.3d 621, 626, 170 Cal. Rptr. 32, 620 P.2d 618 . . . ), the provision results in untoward consequences when it is applied to determinations under sections 7031 and 7053. As noted above, the effect of sections 7031 and 7053 is to allow one to bring an action to recover compensation if one is an employee but not if one is an unlicensed independent contractor. But, as we have seen, section 2750.5 precludes a worker without a required license from obtaining independent contractor status and effectively designates the worker as an employee as a matter of law. Thus, if section 2750.5 were applied to determinations under sections 7031 and 7053, every unlicensed person performing work on a job would be characterized as an employee and not an independent contractor. This result would repeal by implication section 7031's ban on recovery by an unlicensed contractor. . . . ” (Emphasis added)

Fillmore v. Irvine , supra, 146 Cal. App. 3d at 657.

“[W]e hold that Labor Code section 2750.5 is not applicable to determinations of whether one is an employee or unlicensed contractor under Business and Professions Code sections 7031 and 7053". (Emphasis added).

Ibid.

Two years, later the Supreme Court addressed Labor Code § 2750.5 in a case where Virgil Meier submitted a bid a property owner to do an addition to a ranch house for a fixed price.

Meier several years earlier had held a contractor’s license, but no longer did. The owner did not ask whether or not he was licensed, and Myer said nothing about license status. During the job he fell and broke his neck, paralyzing him.

He sought workers compensation coverage under the ranch’s policy, which was disputed, based on the contention that Labor Code § 2750.5 did not apply in worker’s compensation cases.

The Supreme Court held that Labor Code § 2750.5’s penultimate paragraph made him an employee of the ranch owner for workers compensation purposes.

“However, by stating that a license is a condition of the status, the Legislature has unequivocally stated that the person lacking the requisite license may not be an independent contractor. To require the Legislature to add a phrase such as "in all cases" or "in all circumstances" would be a redundancy. The purpose of determining whether a person is an employee or an independent contractor is ordinarily to determine the rights and liabilities of the hirer of the person. . . .”

“Section 2750.5 does not purport to punish unlicensed contractors and is not in a division providing for penalties. Rather, the section purports to determine status of persons as independent contractors or employees, and the language of the section does not reflect legislative intent that a contractor lacking the requisite license shall be an independent contractor for some purposes but not for others .” (Emphasis added)

State Compensation Ins. Fund v. Workers' Comp. Appeals Bd. (Meier) (1985) 40 Cal. 3d 5, 15.3

The ranch owner’s Workers’ Compensation Insurance carrier raised an “estoppel” or equitable defense to the application of Labor Code § 2750.5 to Mr. Meier:

“State Fund claims that Meier by failing to disclose that he was not licensed when he contracted for the job should be estopped to deny his status as an independent contractor. " Whenever a party has, by his own statement or conduct, intentionally and deliberately led another to believe a particular thing true and to act upon such belief, he is not, in any litigation arising out of such statement or conduct, permitted to contradict it ." (Evid. Code, § 623.) CA(2) (2) The essence of an estoppel is that the party to be estopped has by false language or conduct "led another to do that which he would not otherwise have done and as a result thereof that he has suffered injury." ....”

“In Travelers Ins. Co. v. Workers' Comp. Appeals Bd. (Taylor), supra, 147 Cal. App. 3d 1033, 1038, the court held that in the absence of a representation that he was licensed there was no basis to estop the worker from establishing that he was unlicensed and, under section 2750.5, an employee.

“Concluding that there was no estoppel, the compensation judge found tha t Meier at no time represented that he held a valid contractor's license and that there was no reliance on any such representation. The board adopted the finding and conclusion.”

“Moreover, State Fund has failed to establish that as a matter of law [the ranch owner] was mislead and would not have entered into the agreement if he had been aware that Meier was unlicensed ” (Emphasis added)

40 Cal. 3d at 16.4

The Supreme Court more recently briefly addressed Labor Code § 2750.5, the Meier case, and estoppel against the claims of an employee/independent contractor in Fernandez v. Lawson (2003) 31 Cal.4th 31, 34, and in Justice Brown’s concurring opinion 31 Cal.4th at 39-44.

After Fernandez v. Lawson, the Second District Court of Appeal also directly addressed these same topics in a case of a Mr. Chin, who had been a licensed painting contractor when he first started working as a painter for the owners of a shopping center. Four years later, he allowed his license to lapse without telling the owners, closed his painting company, and began working as a handyman.

Chin later also still gave fixed price estimates for and did some painting work.

Chin then brought his own ladder and scaffolding to do the work.

Chin then fell off the ladder and broke his leg, and the shopping center owner refused to pay and terminated him. Chin and his wife sued the owner for negligence, Labor Code wage violations, discrimination, and loss of consortium, and other claims, all of which assumed Chin was an employee.

After a bench trial, the Court ruled against Chin, on the basis that Chin was “estopped” to apply Labor Code § 2750.5 or to assert his status as an employee. The Court of Appeal affirmed, and extensively discussed “estoppel” as applied to or in the context of Labor Code § 2750.5, explaining prior cases, much of which discussion and explanations are quoted below.

“Notwithstanding the conclusive presumption established by the second to last paragraph of section 2750.5, one who misrepresents himself as a licensed contractor is estopped from asserting that his unlicensed status makes him an employee under the statute. (Rinaldi v. Workers' Comp. Appeals Bd. (1988) 199 Cal.App.3d 217, 223 [244 Cal. Rptr. 637] (Rinaldi).) “ The essence of an estoppel is that the party to be estopped has by false language or conduct ‘led another to do that which he would not otherwise have done and as a result thereof that he has suffered injury .’ [Citation.]” (State Compensation Ins. Fund v. Workers' Comp. Appeals Bd. (Meier) (1985) 40 Cal.3d 5, 16 [219 Cal. Rptr. 13, 706 P.2d 1146] (Meier).) In the absence of a representation by the contractor that he or she is licensed, there can be no estoppel. (Meier, supra, at p. 16; see also Travelers Ins. Co. v. Workers' Comp. Appeals Bd. (1983) 147 Cal.App.3d 1033, 1038 [195 Cal. Rptr. 564] [same].)”

. . . .

“B. Substantial Evidence Supported the Trial Court's Estoppel Findings

Whether a party's conduct estops it from taking a particular legal position usually, though not always, involves a factual determination. “The existence of an estoppel is generally a question of fact, and the party relying on the estoppel must prove all of the elements.” (Meier, supra, 40 Cal.3d at p. 16.) Occasionally, a court may rule on estoppel as a matter of law. (See General Accident Ins. Co. v. Workers' Comp. Appeals Bd. (1996) 47 Cal.App.4th 1141, 1149 [55 Cal. Rptr. 2d 272].) We acknowledge that it is difficult to create a hard and fast rule for every situation in which the status of a contractor's license changes over a period of time. On the one end of the spectrum might be the following: worker affirmatively lies when asked if he is licensed, commences work, and shortly thereafter is injured. These were essentially the facts discussed in Rinaldi. We agree that in the absence of extenuating circumstances, the unlicensed worker in this setting is estopped from claiming employee status.

On the other end of the spectrum: the hirer does not inquire and the worker makes no representation about his licensing status. In this situation, in order to effect the mandatory language of the penultimate paragraph of section 2750.5, the unlicensed worker cannot be estopped, and is deemed an employee. This is akin to Meier which suggests estoppel in this context may be a matter of law. (See Meier, supra, 40 Cal.3d at p. 16.) To apply estoppel in this setting would convert estoppel from a defense to the rule.

“The gray part of the spectrum is presented by the worker who initially accurately informs the hirer that he or she is licensed but over time his or her license expires or is revoked, the worker says nothing, and the employer makes no further inquiry. In this situation, our case being an example, estoppel becomes a factual question to be resolved by the trier of fact. We uphold that determination if supported by substantial evidence. (See Feduniak v. California Coastal Com. (2007) 148 Cal.App.4th 1346, 1360 [56 Cal. Rptr. 3d 591].)Relevant factors include the nature of the worker's initial disclosure and the hirer's initial inquiry, thelength of time the license was valid and how long since it had lapsed, the parties' expectations, the nature and length of the relationship between worker and hirer, . . .

The burden is on the hirer to prove that the worker is estopped from claiming employee status. This is in keeping with estoppel being a defense (Meier, supra, 40 Cal.3d at p. 16), and with the language and purpose of section 2750.5. It is also consistent with evidentiary realities. Usually, it will be the hirer who claims he or she was misled by the worker and is excused from the legal effect of the absence of a contractor's license. The hirer knows what those mitigating factors are.” (Emphasis added)

Chin v. Namvar (2008) 166 Cal. App. 4th 994, 1004-1007.1

“In Meier, our Supreme Court “ placed the burden of determining the worker's license status squarely on the [hirer] and in the absence of a misrepresentation by the contractor as to license status, the unlicensed contractor cannot be estopped from denying independent contractor status and claiming benefits as an employee.” (Rosas v. Dishong (1998) 67 Cal.App.4th 815, 820 [79 Cal. Rptr. 2d 339].)”

Chin v. Namvar , supra, 166 Cal. App. 4th at 1009.

(Interestingly) Chin v. Namvar neither discussed nor cited Fillmore v. Irvine.

One year later, the Fourth District Court of Appeal also opined on this same provision of the Labor Code, where laborers who worked for an unlicensed drywall subcontractor (Humberto) on a construction project filed wage claims - along with Humberto - with the California Labor Commissioner, per Labor Code § 98.1.

The Commissioner decided that Humberto’s workers were the employees of the General Contractor (Sanders), but denied Humberto’s claims. Sanders appealed to the Superior Court per Laboc Code ྷ 98.2, but Humberto did not. Sanders lost.

The Court of Appeal discussed the section 2750.5 and Bus. & Prof. Code §§ 7053 & 7031, and affirmed that the employees of the unlicensed subcontractor were employees of the General Contractor that hired the unlicensed subcontractor, and that they could sue the general contractor to collect their wages.

“[“P]ursuant to the plain language of Labor Code section 2750.5, an unlicensed subcontractor may not be an independent contractor but is instead deemed a statutory employee of the general contractor. (State Compensation Ins. Fund v. Workers' Comp. Appeals Bd. (1985) 40 Cal.3d 5, 15 [219 Cal. Rptr. 13, 706 P.2d 1146].)

Labor Code section 2750.5 operates to conclusively determine that a general contractor is the employer of not only its unlicensed subcontractors but also those employed by the unlicensed subcontractors . . . Thus, where a ‘subcontractor is unlicensed, workers' compensation liability for the subcontractor's employees will be imposed on the general contractor as a matter of law .’ . . .” (Emphasis added)

Sanders Construction Co., Inc. v. Cerda (2009) 175 Cal. App. 4th 430, 434-435.

The Court then discussed and distinguished Filmore v. Irvine:

“Respondents in the present case were employees who did not act like unlicensed independent contractors. Business and Professions Code section 7053 explains that the prohibition of Business and Professions Code section 7031 does not apply to a person who receives wages as his sole compensation, who does not engage in an independent business, and who cannot control how the work is performed. The record offers no evidence that the six claimants were not employees as described under Business and Professions Code section 7053 and Sanders makes no such argument . Respondents were not required to be licensed as set forth in Business and Professions Code section 7031. Therefore, pursuant to Business and Professions Code section 7053, Business and Professions Code section 7031 does not prohibit the six claimants from suing for their wages.” (Emphasis added)

Sanders Construction Co., Inc. v. Cerda , supra, 175 Cal. App. 4th at 436.

The reference in the opinion above as to Humberto’s rights to wages appears to be dicta, as that issue was not before the Court, because Humberto did not appeal.

And its discussion of Humberto’s rights in this context also seems to be in conflict with its earlier statement, based on prior authorities cited therein, that “a general contractor is the employer of not only its unlicensed subcontractors but also those employed by the unlicensed subcontractors”.

Sanders also failed to address how any estoppel to apply Labor Code § 2750.5 - as discussed by the Supreme Court in Meier and the Second District in Chin v. Namvar, and others - might have applied to Humberto, had he actually never appealed.

However, the Court’s observation that the claimants “were employees who did not act like unlicensed independent contractors” does seem to be consistent with prior holdings that the elements of estoppel could not apply at least to the six laborers who worked for/with Humberto.

Judge Chin of the Northern U.S. District Court of California also recently addressed entitlement to employee status and wage claims under Labor Code § 2750.5 on Cross-Motions for Partial Summary Judgment.

There, Hurst found out on CraigsList that Burczek was looking for landscape services. Hurst had an unlicensed company he established with a business partner.

Hurst disclosed to Burczek that he was not licensed , and they signed an independent contractor’s agreement. The contract was renewed in 2008 under a different fictitious name after Hurst’s partner left.

Hurst worked fulltime doing work for various customers of Burczek, and had no other work. Some of the work required a contractor’s license, and some did not.

At times Hurst hired workers to help him when there were too many orders or work assignments. The quality of the work was disputed, and Burczek claimed losses due to quality issues.

Hurst sued for unpaid wages, Labor Code violations, and related claims.

The Court denied Hurst’s Motion for Partial Summary Judgment as to his employee status, which was based on the Labor Code § 2750.5, and reasoned as follows:

[T]he only relevant exception to section 7031's bar against actions by unlicensed contractors is that those who are employees under section 7053, as opposed to independent contractors, are exempted from section 7031 . Cal. Bus. & Prof. Code § 7053 provides, "this chapter does not apply to any person who engages in the activities herein regulated as an employee who receives wages as his or her sole compensation, does not customarily engage in an independently established business, and does not have the right to control or discretion as to the manner of performance so as to determine the final results of the work performed. "

. . . .

Fillmore v. Irvine, 146 Cal. App. 3d 649, 657, 194 Cal. Rptr. 319 (1983).

“To avoid such a result, Fillmore held that 2750.5 does not apply in the context of suits for unpaid "compensation for the performance of any act or contract." § 7031. Instead, it applies to, e.g., classification for worker's compensation purposes, pension plans, torts, etc. See id. ("We hold that Labor Code section 2750.5 is not applicable to determinations of whether one is an employee or unlicensed contractor under Business and Professions Code sections 7031 and 7053."). Thus, under Fillmore, Plaintiff's status as an employee with a right to sue for wages turns on the application of Section 7053, not the ipso facto rule of Section 2750.5 .

. . . .

“Accordingly, under California law, Plaintiff may not rely on the presumption of employee status set forth in § 2750.5 in order to escape the prohibition against suit set forth in § 7031. However, contrary to Defendant's contention, that does not necessarily doom his claims. Instead, Plaintiff can still bring his claims if he satisfies the factors set forth in § 7053 to demonstrate that he is an employee, and thus that § 7031 does not bar his action. Plaintiff explicitly declined to raise any arguments as to those factors in his motion; rather, he focused solely on the question of whether he was a statutory employee under § 2750.5. Thus, the Court cannot determine on this motion whether Plaintiff is an employee as a matter of law under § 7053 . Fn. 1 Accordingly, Plaintiff's motion for summary judgment as to his employee status is DENIED. Fn. 2"

Hurst v. Buczek Enters., LLC (N.D. Cal. 2012) 870 F. Supp. 2d 810, 816-818.

Hurst is based largely on the dicta in Sanders as to Humberto’s eligibility for employee status, and on the holding in Fillmore v. Irvine, and holds Section 2750.5 does not apply to wage claims.

The Defendant’s Cross-Motion also asserted estoppel to claim employee status, but the Court also denied that on the grounds that that issue was moot, due to its ruling re the applicability of the Labor Code section. Ibid at 827, and 818, fn. 2.

However, Hurst did note that at trial Hurst might be able to prove employee status under Bus. & Prof. Code § 7053 based on these same facts, and denied Bucsek’s Motion for Summary Judgment under Bus. & Prof. Code § 7053 & 7031. 870 F.Supp.2d at 825-827.

Because it held Section 2750.5 was not applicable to wage claims, Hurst v. Buczek Enters. also failed to address how any estoppel might affect the applicability of Labor Code § 2750.5 - as discussed by the Supreme Court in Meier and the Second District in Chin v. Namvar, and others - and failed to even mention those decisions on that point.

The decision on Chin v. Namvar would have applied Labor Code § 2750.5 according to the direct meaning of the words of that section, but then would have then allowed Buczek to raise estoppel as a defense.

In this had been done, case Buczek would have had a difficult time raising estoppel as a defense, since Hurst told them he was not licensed.

The First District Court of Appeal does not appear to have addressed Section 2750.5 in the context of a claim for agreed or statutory wages, but has consistently applied it as written in other contexts. See e.g, Mendoza v. Brodeur (2006)142 Cal.App.4th 72.

Harmonizing the Existing Case Law on Compensation for Wages

The broader rebuttable presumption in section 2750.5 utilizes similar factors to prove one is not an employee (so as to rebut the presumption), as the words of Bus. & Prof. Code 7053 and cases under it do in deciding whether one is an employee. 5

Labor Code § 2750 was adopted subsequent to Bus. & Prof Code 70536, so it appears to reflect a subsequent adjustment in the public policies of the State to further address the practice of some unscrupulous contractors of treating or using unlicensed workers as "independent subcontractors", thereby violating wage, taxation, unemployment and workers compensation laws of the State, as well as violating existing provisions and policies of the Contractors State License Law requiring such "subcontractors" to be licensed when performing such functions and activities.

The more recent enactment should prevail, when there is an apparent conflict. Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494, 1504.

And, as to the arguable conflict between Section 2750.5 and Bus. & Prof. Code § 7053, if there really is one, then the more specific statute should prevail. Lazar v. Hertz Corp.;Elliott v. Workers Comp. Appeals Board (2010) 182 Cal. App. 4th 355, 365-366. 7

Other rules of statutory construction apply as to labor laws:

“”State wage and hour laws ‘reflect the strong public policy favoring protection of workers’ general welfare and “society's interest in a stable job market.” [Citations.]' [Citations.]” (Cash v. Winn (2012) 205 Cal.App.4th 1285, 1297 [140 Cal. Rptr. 3d 867] (Cash).) They are therefore liberally construed in favor of protecting workers. As our Supreme Court has stated, “‘[I]n light of the remedial nature of the legislative enactments authorizing the regulation of wages, hours and working conditions for the protection and benefit of employees, the statutory provisions are to be liberally construed with an eye to promoting such protection.’ [Citations.]” (Brinker, supra, 53 Cal.4th at pp. 1026–1027; see Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1103 [56 Cal. Rptr. 3d 880, 155 P.3d 284] [ given the Legislature's remedial purpose, “statutes governing conditions of employment are to be construed broadly in favor of protecting employees”] .)” (Emphasis added)

Gonzalez v. Downtown LA Motors, LP (2013) 215 Cal. App. 4th 36, 44, review denied.

Fillmore and the dicta in Sanders on which Hurst is based allow contractors to continue doing the very thing that Section 2750.5 and other laws - including provisions, other provisions of the Labor Code, and of the Contractor’s License Law - prohibit or attempt to stop them from doing, allo workers to be treated as “(independent contractors”) and grants such scofflaws a financial incentive to continue to violating those laws, and go on cheating their workers.

Fillmore ’s unnecessary and wrong holding on the law and under its own facts reward contractors who hire such unlicensed “independent contractors” in violation of the law, and leaves such employee victims without any remedy whatsoever, even minimum wage laws.

That holding financially rewards the real scofflaws in those hiring transactions, dishonest contractors who cheat workers, and puts honest contractors who do not utilize such illegal hiring practices at a competitive disadvantage!

Applying the “estoppel” defense as defined in Meier and Chin v. Namvar and other cases would prevent a “worker [who] affirmatively lies when asked if he is licensed”, or who fails to tell the hirer that his once valid license has expired, as in Chin, from being able to recover his wages.

And, where the hirer is itself a licensed contractor, presumably such persons would have a much more difficult burden of proving estoppel, as they are already prohibited by law from contracting with or aiding and abetting such unlicensed persons or entities, and thus would presumably be under a higher duty in any case to investigate the license status of any “independent contractors” or subcontractors they hire. See, Bus. & Prof Code §§ 125, 7110.5, 7114, 7118; Labor Code § 1021.5.

The application of Section 2750.5 according to its plain meaning to licensed contractors and subcontractors, subject to the defense of estoppel, also furthers the purposes and policies of Bus. & Prof. Code § 7000 et seq. by further discouraging licensed builders from hiring unlicensed subcontractors.

It also further public policies of the Labor Code and other statutes by requiring that workers be paid their wages, be insured against injuries and loss of employment, and that taxes on labor be collected for all workers.

Thus, the reasoning that :

“if section 2750.5 were applied to determinations under sections 7031 and 7053, every unlicensed person performing work on a job would be characterized as an employee and not an independent contractor. This result would repeal by implication section 7031's ban on recovery by an unlicensed contractor. . . . ”

in Fillmore v. Irvine , supra, 146 Cal. App. 3d at 657 seems to be a bit of hyperbole, unnecessary, and wrong, as the effect of Section 2750.5 is overstated, and the policies behind and words within the two statutes are in fact not necessarily irreconcilable or in conflict.

If Section 2750.5's presumptions of employee status were used to determine - or used as a factor in determining - who is an “employee” under the meaning of Bus. & Prof. Code § 7053 (and thus exempt from license requirements), only an individual or several individuals could sue for their agreed or statutory wages. Unlicensed corporations and LLCs couldn’t sue. The floodgates would not be opened for all unlicensed builders.

Section 7053 also effectively provides for an estoppel workers defence, as it prevents persons who “customarily engage in an independently established business” from being an exempt “employee”.

Complicit subcontractors would be estopped from suing, based on their fraudulent representations of license status in violation of the License Law (inter alia, Bus. & Prof. Code §§ 7027-7027.3) , or other inequitable conduct.

Under the estoppel doctrine, as established in Meier and as expounded upon at length in Chin v. Namvar, one would need to conclude that Fillmore v. Irvine was wrongly decided and unnecessary, both on the law and as to its facts, and that the judicially created exception to the plain meaning of the language of Section 2750.5 in wage cases was unwarranted and overly alarmist.

Fillmore had immediately disclosed to Sutton - apparently a licensed subcontractor, hired by a licensed contractor/architect - that he “was not a licensed contractor and that he would have to become an employee of Sutton’s in order to accept the job”. There was no written contract, and Fillmore charged on a piecework basis. Sutton failed to pay, even though he had been paid by the general contractor. 146 Cal.App.3d at 652-653.

Sutton’s conduct violated the public policies and provisions both of the Contractors State License Law and of various sections of the Labor Code and other employment laws.

Under the estoppel doctrine as applied to construction work and Section 2750.5 as set forth in Chin v. Namvar, Sutton could not prove the defense of estoppel, and Fillmore should have been held to be Sutton’s employee and to be able to enforce his mechanics lien rights as an employee, as allowed in what is now Civil Code §§ 8024 & 8400(e).

On those facts, and based both Labor Code § 2750.5 and Bus. § Prof. Code § 7053, Fillmore and his friends should have been allowed to recover the agreed compensation.

As noted earlier, it is easier for a worker to prove that he or she is an “employee” under Bus. & Prof. Code § 7053 than it is for an employer to overcome the Rebuttable Presumption that the worker is an employee under Section 2750.5, because of the higher hurdle the provisions of Section 2750.5(a)-( c) place on employers, based on the public policies embodied in that statute.

Thus, even if an employer were able to overcome the Rebuttable Presumption of employee status in Section 2750.5, that doesn’t mean that the worker could not still establish that he does come within the definition of “employee” under Section 7053. 8

In fact, the same evidence used to try to overcome the Rebuttable Presumption, could actually end up being sufficient to also establish or prove “employee” status under Section 7053. See discussion in, Hurst v. Buczek Enterprises, supra, 870 F.Supp.2d at 825-827.

That section states:

“[T]his chapter does not apply to any person who engages in the activities herein regulated as an employeewho receives wages as his or her sole compensation, does not customarily engage in an independently established business, and does not have the right to control or discretion . . . to determine the final results of the work performed.” (Emphasis added)

Bus & Prof Code § 7053.

Thus, because of the currently unsettled body of case law under Section 2750.5, construction workers filing wage claims might find it more advantageous to prove they are a “laborer” or employee under Bus. Prof. Code ྷ 7053, than to try to rely on the presumptions in Section 2750.5.

Under Section 7053, where a worker worked for an hourly wage, did not hold himself out to the parties as a contractor, and the other party did his own subcontracting, and purchased materials for the work, the worker could be found to be an employee. Denton v. Weise (1956) 144 Cal.App.2d 175, 180; (wages as sole compensation); Dwight v. Leonard (1959) 174 Cal.App.2d 199, 202; Borello v. Eichler Homes, Inc. (1963) 221 Cal.App.2d 487. 498-499 (employed and paid by hour, work controlled as to slope and depth, etc); Pickens v. American Mortgage Exchange (1969) 269 Cal.App.2d 299, 305 (one with wages as sole compensation is an employee).



1 It is not clear whether Sutton was licensed.
2 Exceptions to the license requirements of the License Law are found in Bus. & Prof. Code §§ 7040 - 7054.5, including under § 7053 for “ any person who engages in the activities herein regulated as an employee who receives wages as his or her sole compensation, does not customarily engage in an independently established business, and does not have the right to control or discretion as to the manner of performance so as to determine the final results of the work performed.”
3 The Supreme Court in Meier cited the above page of Filmore v. Irvine only for “dicta” that Labor Code § 2750.5 applied in workers compensation cases. 50 Cal.3d at 11.
4 Travelers Ins. Co. v. Workers' Comp. Appeals Bd. (Taylor) (1983)147 Cal. App. 3d 1033, 1038, decided less than two months after Fillmore v. Irvine, by a different panel of the same District, was apparently the first case to address estoppel as a possible defense to the application of Labor Code § 2750.5.
5 Interestingly, while similar factors are use in determined that one is an employee under Bus. & Prof. Code § 7053, as in rebutting the proving one is not an employee under the initial paragraph of Section 2750.5, it is much easier for a worker to prove he is an employee under § 7053, than it is for a employer to rebut employee status under Section 2750.5, due added burdens in Section 2750.5. (see discussion in Part E, below)
6 Section 2750.5 was adopted in 1978 in 1978 Stat. Ch, 1247, § 1, and amended in 1979. Section 7053 was adopted in 1949 and amended last in 1982, also adding Un. Empl. Code § 621.5, which reinforces Section 2750.5. 1982 Stat., Ch, 1428.
7 Filmore v. Irvine , supra, 146 Cal.App.3d at 658-659, applied this same principle of statutory construction, but for some reason concluded Labor Code § 2700 was a general provision and Bus. & Prof. Code § 7031 & 7053 were specific provisions.
Rather, the correct analysis would have treated Bus. & Prof. Code § 7053 as a general provision, stating that workers who met certain conditions were employees exempt from the License requirement, but does not address burdens of proof.
Section 2750.5 is the more specific, and deals with presumptions and burdens of proof needed to disprove or overcome presumptions of employee status where the worker performs “functions or activities” on a project for which a license is required under the License Law.
8 But if the employer did not overcome the presumption, then worker would be an employee as a matter of law and policy.

N.B. The contents of this Article do not constitute legal advice or create an attorney-client relationship, and you may NOT rely on it without seeking legal advice regarding your particular, unique situation from a competent California Construction lawyer or Employment Law attorney.
Please also note that factual situations vary, and statutes, regulations and case law are frequently changing and evolving, and these materials thus also may be or become outdated or incorrect.
For further information on this topic and how the current law may apply to your particular contract, job and issues, Contact Us via email, phone (415)788-1881 or visit our website at www.wolfflaw.com for other contract information. © 2013, George W. Wolff , all rights reserved.