Under Business & Professions Code 7031, an unlicensed contractor can be forced to return every dollar a client paid — even for good work.

Of all the statutes a contractor can run afoul of, none is more brutal than Business and Professions Code 7031. It can force a contractor who did good work to refund every dollar they were paid - and bar them from collecting a cent still owed - simply because they were not properly licensed.

The two halves of 7031

Section 7031 has two devastating provisions. Subsection (a) bars an unlicensed contractor from bringing any lawsuit to collect compensation for work requiring a license - no matter how good the work or how clearly the money is owed. You finished the job, the customer refuses to pay, and you cannot even sue.

Subsection (b) is worse. It lets the person who hired an unlicensed contractor recover all compensation paid for the work - disgorgement of everything, even if the work was flawless and the customer is fully satisfied. A contractor can be ordered to hand back the entire contract price for a project that has no defects at all.

"Properly licensed" means at all times

The trap is that you must be duly licensed at all times during performance of the contract. A lapse - an expired license, a license that was suspended for a period, a worker classification problem - during the job can expose the whole project to 7031, even if you were licensed when you started and when you finished. California courts have applied this strictly, and "substantial compliance" is a narrow, hard-to-meet exception.

Why this matters so much

7031 turns a licensing technicality into a financial catastrophe. It is wielded by customers (and their lawyers) to avoid paying for completed work, and it can wipe out a contractor's profit on a job entirely. The defense is almost always preventive: maintain continuous, proper licensing, document it, and address any lapse immediately.

The bottom line

Business and Professions Code 7031 bars an unlicensed contractor from suing to collect (subsection a) and lets the customer claw back everything already paid (subsection b) - even for perfect work. You must be properly licensed at all times during the job, and the substantial-compliance exception is narrow. The protection is prevention: never let your license lapse mid-project.

Law Office of Michael Benavides, Esq. — California administrative & licensing defense | CA State Bar No. 270714 | 707-362-4166 | attorneymichaelbenavides.comATTORNEY ADVERTISING. General information about California law, not legal advice; no attorney-client relationship is formed by reading this. Administrative and licensing deadlines are strict and fact-specific — consult counsel promptly. Prior results do not guarantee a similar outcome.