There are fine lines drawn by courts regarding what constitutes “contracting” and what does not, although parties may not give the issue the attention it deserves. In a recent Alabama case, a general contractor and a framer executed a subcontract. The subcontractor hired forces provided by a third party. The third party was not licensed as a contractor in the state. A dispute between the contractor and subcontractor ultimately resulted in an unpaid balance owed to the subcontractor, and consequently, the third-party sub-subcontractor. The subcontractor filed a complaint against the contractor and surety on behalf of the sub-subcontractor.
The surety and contractor argued that because the subcontractor was essentially bringing a claim on behalf of the sub-subcontractor, which was unlicensed, the subcontractor could not prevail on its claims because the sub-subcontract was illegal. The subcontractor argued that the sub-subcontractor merely acted as a labor broker and did not perform any contracting that would necessitate having a contractor's license. However, the sub-subcontractor's employees were used to frame buildings and supervise other employees, activities expressly recognized to constitute contracting for the purposes of state statute. Because the sub-subcontractor failed to secure a contractor’s license, the contract between it and the subcontractor was illegal. The court did not allow parties to maintain a cause of action if it required reliance in whole or in part on an illegal act or transaction. The subcontractor's cause of action hinged on its contract with the sub-subcontractor, and consequently, could not be maintained. As a result, summary judgment was reversed.
It is crucial for a contractor to ensure that it is properly licensed. Further, it is also important to know what work requires a license and to check the license status of all lower-tiered contractors to ensure that all of the work is properly licensed. As described above, most states do not allow recovery for work performed by unlicensed contractors. Further, some states’ license laws go even further, requiring disgorgement of all compensation paid for the unlicensed work.
White-Spunner Constr. v. Constr. Completion Co., 2012 Ala. LEXIS 80 (Ala., June 22, 2012).