Originally Published: November 1, 2018 5:50 p.m.
Contracting without a license can have a variety of negative consequences for the person or persons who engage in it.
As unlicensed contractors are a problem in almost all states, local governments have provisions in place to effectively counter and penalize individuals who provide services without the necessary business license.
From penalties and jail charges up to a court-ordered restitution, a variety of legal mechanisms have been put in place to counter the material and financial damages that unlicensed contractors cause. Here are some of the consequences that unlicensed contractors experience if caught and convicted.
Potential Criminal Penalties for Contracting without a License in Arizona: Arizona’s statutory penalties for performing unlicensed work are substantial, as are the collateral consequences. Arizona law requires contractors to be licensed through the Arizona Registrar of Contractors.
If a construction project goes bad, it can have a huge and detrimental effect on public and personal safety. Imagine an improperly built bridge, or a high-rise built on an unstable foundation. Even the construction of a home or the renovation of a kitchen, if not performed properly, can result in a significant costs and risks to health and safety.
To help protect the public from poor workmanship and shady business practices, A.R.S. § 32-1151 sets forth Arizona’s contractor licensing requirement:
It is unlawful for any person, firm, partnership, corporation association or other organization, or a combination of any of them, to engage in the business of, submit a bid or respond to a request for qualification or a request for proposals for construction services as, act or offer to act in the capacity of or purport to have the capacity of a contractor without having a contractor’s license in good standing in the name of the person, firm, partnership, corporation, association or other organization as provided in this chapter, unless the person, firm, partnership, corporation, association or other organization is exempt as provided in this chapter. Evidence of securing a permit from a governmental agency or the employment of a person on a construction project shall be accepted in any court as prima facie evidence of existence of a contract.
The plain language of the statute forbids someone without a contractor’s license from engaging in any portion of a construction job, beginning with the bidding process and continuing through the completion of the actual work. The licensing requirement is designed to protect the public against unscrupulous and unqualified persons purporting to have the capacity, knowledge and qualifications of a contractor and to regulate the conduct of those engaged in the business of contracting so as to discourage certain bad practices, which might be indulged in to the detriment of the public.
Exceptions to the Requirement: Although A.R.S. § 32-1151 appears to provide a blanket prohibition against doing any work without first obtaining a contractor’s license, another statute (A.R.S. § 32-1121) contains several exceptions.
The most commonly invoked exception is contained in § 32-1121(A)(14), which is generally known as the “Handyman Exemption.” Under that exemption, a person who does not hold a contractor’s license may bid for and accept work when the aggregate contract price, including labor and materials, amounts to less than $1,000. The words “aggregate contract price” are key, because they make clear that one cannot take advantage of the exception by breaking a job up into parts so that each part has a contract price of less than $1,000. People have tried, and those who have been caught have been convicted of contracting without a license.
Penalties: Contracting without a license in violation of A.R.S. § 32-1151 is a class 1 misdemeanor (A.R.S. § 32-1164). All class 1 misdemeanors carry a maximum term of six months in the county jail and a maximum fine of $2,500 plus an 83 percent surcharge. The minimum penalty for contracting without a license as a first offense is a fine of $1,000 plus an 83 percent surcharge. A.R.S. § 32-1164(B). In most cases, an unlicensed contractor will simply face a fine, but jail time is not out of the question if the perpetrator is a repeat offender or the facts are egregious.
Contracting without a license can give rise to more serious charges. For example, if an unlicensed contractor falsely claimed to be licensed in order to obtain a job, he might be charged with Fraudulent Schemes and Artifices, a class 2 felony. Or, assume that, in a kitchen remodel, an unlicensed contractor improperly installed gas lines that caused a fire and led to the death of the home’s occupant. In that situation the unlicensed contractor might face felony charges for negligent homicide or even manslaughter, both of which could result in a lengthy prison term.
In addition to any criminal penalties imposed by the court, an unlicensed contractor will also be required to pay restitution to the extent anyone suffered economic loss as a direct result of the offense. Restitution in contracting without a license cases is typically the contract price minus the economic benefit received by the victim as a result of the work performed.
However, restitution could be much more than that, particularly if the cost of damages caused by the unlicensed contractor’s work exceeds the contract price.
In addition to the criminal penalties and restitution described above, a conviction for contracting without a license will also come with collateral consequences. Collateral consequences stem from the conviction but are not imposed directly by the court. Perhaps the most significant collateral consequence associated with a conviction for contracting without a license arises as a result of A.R.S. § 32-1122(D), which prohibits the Registrar of Contractors (ROC) from issuing a contractor’s license to anyone who has been convicted of contracting without a license during the preceding 12 months.
This article is offered as general guidance only and is not to be relied upon as specific legal advice. For legal advice on a specific matter, please consult with an attorney. Please note that, while this article accurately describes applicable law on the subject, the law continues to develop with the passage of time. Accordingly, before relying upon this article, care should be taken to verify that the law described herein has not changed since the article’s publication.
A few important items to remember: It is important to remember that unlicensed contractors put their own clients at risk if someone is injured on the job. Contractors must demonstrate proof of insurance as part of obtaining a trade license in Arizona. The first thing a homeowner should do before hiring is ask for proof of a license and insurance. Liability insurance covers property damage and bodily injury caused by that contractor’s work. Homeowners should also make certain the contractor’s insurance policy includes workers’ compensation, which covers injuries the contractor’s employees may suffer while on the job.