Unlicensed Contractor Disputes in California: Section 7031 Disgorgement and Defenses

Last updated: October 2026

California treats contractor licensing as a condition of getting paid. A person acting as a contractor may not sue to collect compensation for work that requires a license unless it was duly licensed at all times during the work, regardless of the merits. (Bus. & Prof. Code, § 7031, subd. (a).) The other side of that rule is harsher: a person who used an unlicensed contractor may sue to recover all compensation paid for the work. (Bus. & Prof. Code, § 7031, subd. (b).) Kolmogorov Law, P.C. handles these disputes for owners, general contractors, and subcontractors in Orange County, Los Angeles, and across California.

Call (909) 235-6116 or contact us online if a licensing problem has surfaced in a construction dispute.

How the issue comes up

A property owner is sued by a contractor for a $180,000 balance, and the owner's lawyer discovers the contractor's license was suspended for four months during the project. A general contractor learns that the framing sub it paid $300,000 was operating under a license held by a different entity. A tenant improvement job goes badly, the owner wants its money back, and the contractor turns out to have been licensed for a different classification than the work it performed.

In each case the licensing question can decide the whole dispute before anyone argues about the quality of the work.

The bar on unlicensed contractors' claims

A contractor cannot bring or maintain an action, or recover in law or equity, for compensation for work requiring a license without alleging that it was duly licensed at all times during performance, regardless of the merits of the claim. (Bus. & Prof. Code, § 7031, subd. (a).) "Regardless of the merits" means what it says. A contractor that did excellent work, on time, under a signed contract, cannot recover a dollar if its license lapsed during the job. Courts apply the rule as written because the Legislature wrote it to be harsh.

The rule covers quantum meruit and unjust enrichment as well as contract claims. It also reaches the mechanics lien; an unlicensed contractor's lien claim falls with its right to payment.

Disgorgement: getting back what was paid

A person who used the services of an unlicensed contractor may bring an action to recover all compensation paid to the unlicensed contractor for the work. (Bus. & Prof. Code, § 7031, subd. (b).) Not the damages from defective work. All of it. An owner who paid $400,000 to a contractor that was unlicensed for the job can sue for the $400,000 even if the building is perfect.

The disgorgement claim has its own limitations period, which the courts have treated as short, and it accrues when the work is done, not when the owner discovers the license problem. Owners who learn of a license defect late need advice quickly.

Substantial compliance

The one exception is narrow. The doctrine of substantial compliance does not apply at all where the contractor has never been duly licensed in California. (Bus. & Prof. Code, § 7031, subd. (e).) The court may find substantial compliance after an evidentiary hearing if the contractor had been licensed before the work. The contractor must also show that it acted reasonably and in good faith to maintain the license and moved promptly and in good faith to cure the lapse. (Bus. & Prof. Code, § 7031, subd. (e).) The contractor must show that it acted reasonably and in good faith to maintain the license, and promptly and in good faith to fix the lapse on learning of it.

The typical winning fact pattern is a renewal that was mailed late, a bond that lapsed without notice, or a qualifier who left the company and was replaced within the statutory window. The typical losing pattern is a contractor who knew the license had lapsed and kept working.

What counts as "acting in the capacity of a contractor"

The rule applies to anyone performing work that requires a license, whether or not they call themselves a contractor. Handymen on projects above the statutory dollar threshold, "project managers" who hire and direct the trades, and out-of-state companies performing California work without a California license have all been caught by it. The license classification matters too; a contractor licensed for one trade performing another trade's work faces the same bar as to that work.

How we use the statute

For owners and general contractors, we check the license history of every claimant at the Contractors State License Board before responding to a demand. Then we plead section 7031 as an affirmative defense and, where the facts support it, a disgorgement cross-complaint. The defense often ends the collection claim and turns the case around.

For contractors, we confirm the license history before filing suit, because a complaint that alleges licensure that cannot be proven invites a disgorgement counterclaim. Where there was a lapse, we build the substantial compliance record early: the renewal paperwork, the bond correspondence, the dates. Our construction disputes page and our guide to collecting unpaid invoices cover the payment claims that survive the licensing analysis.

Where these cases are heard

Construction payment and disgorgement disputes are heard in the Superior Court: the Central Justice Center in Santa Ana for Orange County projects, the Stanley Mosk Courthouse for Los Angeles. Many construction contracts require arbitration, which does not change the licensing rule; arbitrators apply section 7031 as well.

What to bring to the first meeting

Bring the contract, the payment history, the license number the contractor used and the entity name on the contract, every change order, and the correspondence about the dispute. If you are the contractor, bring your license history from the Board, including any suspension, bond lapse, or qualifier change, with dates.

Frequently asked questions

Can an unlicensed contractor sue for payment in California?

No. A contractor must allege licensure at all times during the work to maintain an action for compensation, regardless of the merits. (Bus. & Prof. Code, § 7031, subd. (a).) The bar applies to contract, quantum meruit, and lien claims alike.

Can I get my money back from an unlicensed contractor?

Yes. A person who used an unlicensed contractor may sue to recover all compensation paid for the work. (Bus. & Prof. Code, § 7031, subd. (b).) The claim does not require proof of defective work.

What if the contractor's license lapsed for only a short time?

If the contractor had been licensed before the work and acted reasonably and in good faith to maintain the license and to cure the lapse promptly, the court may find substantial compliance after an evidentiary hearing. (Bus. & Prof. Code, § 7031, subd. (e).) A contractor that was never licensed cannot use the exception.

Does section 7031 apply to subcontractors?

Yes. A general contractor that paid an unlicensed subcontractor can seek disgorgement, and an unlicensed subcontractor cannot sue the general for its balance.

How do I check a contractor's license history?

Through the Contractors State License Board's public license lookup, which shows the license status by date, the classifications, the bond and workers' compensation history, and the personnel of record. We pull it for every construction case.

Talk to a California construction litigation attorney

If licensing has become the issue in your construction dispute, on either side, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is at 327 Magnet, Irvine, CA 92618, and handles construction and payment disputes in Orange County, Los Angeles, and throughout California. See also our breach of contract page.

This page provides general information about California law and is not legal advice. Outcomes depend on the license history, the dates of the work, the contract, and the court.