The Florida Supreme Court ruling in Earth Trades v. T&G Corp, Case No. SC10-1892 (Fla. January 24, 2013) has a significant impact upon unlicensed contractors. The ruling reinforces state law (Section 489.128, Florida Statutes ) that removes contract rights and defenses of unlicensed contractors. Jared Smith, an attorney in the Tampa office of Rumberger, Kirk & Caldwell, talks about the effects the recent court ruling will have on contractors.
It's rather sweeping - essentially, the ruling means that unlicensed contractors in the Florida have no rights in the court, even if they have been wronged. For instance, if a general contractor neglects to pay an unlicensed sub-contractor for completed work, the sub has no legal recourse. But at the same time, an unlicensed contractor remains liable for shoddy or incomplete work and can be sued by an owner or general contractor.
Florida legislation requires a number of professions, most notably within the construction industry, to be licensed. The purpose is to protect consumers from being victimized by contractors who have not fulfilled a set of stringent requirements in order to obtain state licensing as well as to ensure the safety of citizens of the state. Unlicensed contracting is a crime and carries significant penalties. The Florida Legislature modified Section 489.128 in 2003. The previous version of the statute stated contracts with unlicensed contractors were unenforceable by either party. The current version of the law now stipulates that it is only the unlicensed contractors who cannot seek enforcement of their contracts or liens. The court's decision simply reinforces the legislative intent, labeling the unlicensed contractor as "the wrongdoer" with regard to a construction contract.
- Do general contractors bear any responsibility for knowingly contracting with an unlicensed subcontractor?
Yes and no. At trial, Earth Trades, the unlicensed contractor, asserted that T&G Corp. knew all along that they were contracting with an unlicensed firm. In their defense, Earth Trades raised a legal doctrine known as in pari delicto, a term that refers to in equal fault.' This principle, derived from English common law, means that a party cannot recover damages if that same party participated in equal wrongdoing. The Florida Supreme Court rejected that argument, noting that 1) it was the clear intent of the statute to only invalidate contracts and liens from the perspective of the unlicensed contractor, and, 2) the nature of the wrongdoing was not in fact equal. The Court found while the general contractor's conduct could be subject to fines, the unlicensed contractor's conduct was subject to a larger fine and was criminal in nature. Therefore, the general contractor was essentially given a free pass in regard to its knowledge of the sub's unlicensed status for purposes of enforcing its contract.
However, a general contractor can face licensure issues, a cease and desist notice from the Department of Business and Professional Regulation (DBPR), and fines up to $5,000 for knowingly hiring an unlicensed contractor. Section 455.228(1)-(2), Florida Statutes (2013). It is important to point out that general contractors may also be contractually obliged to ensure that only licensed subs work on a project. For this reason, general contractors should take all precautions necessary to protect themselves from employing the services of unlicensed contractors.
Know the state regulations - if required, get licensed as soon as possible. Know that in addition to all the contractual and lien enforcement issues discussed above, engaging in unlicensed contracting (which is broadly defined and includes doing work without a required license) is a first-degree misdemeanor for the first offense and a third-degree felony for the second offense. Section 489.127(1)-(2), Florida Statutes (2013). Also know that while getting your license after a contract is entered is certainly a step in the right direction, the test for whether your liens and contract are enforceable is based on your license status as of the original contract date. See Section 489.128(1)(c), Florida Statutes (2013).
This should be taken very seriously as the moment an entity loses its sole qualifying agent, it immediately loses its ability to continue to engage in contract work requiring a license. Any continued work by the contractor is considered a criminal act as discussed above. The statutes do provide that a company may seek a temporary non-renewable certificate to continue work on existing contracts, but even when a certificate is obtained, a qualifying agent must be employed within 60 days under section 489.119(3)(a), Florida Statutes (2013). That said, in relation to contract and lien enforcement, Section 489.128(1)(c) provides, "a contractor shall be considered unlicensed only if the contractor was unlicensed on the effective date of the original contract for the work, if stated therein, or, if not stated, the date the last party to the contract executed it, if stated therein."
These areas are highly complex, and stakes are often very high. In addition, statutes regulating these areas are under constant scrutiny by the courts and revision by the legislature. When navigating matters of lien enforcement, contract enforcement, and licensing, we would always recommend seeking advise of counsel to ensure you get it right the first time as in many cases there may not be a second shot.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.