General Contractor Liable For Unpaid Wages of Workers Hired by Unlicensed Sub

Sanders Construction Company, Inc. v. Cerda
Case No. E047501 (C.A. 4th, June 29, 2009)

The Fourth Appellate District of California held that a general contractor may be held liable for the unpaid wages of workers hired by his unlicensed subcontractor.

In this case, the general contractor, Sanders Construction Company, Inc., hired a subcontractor, Humberto Figueroa Drywall Company, to perform hotel construction work.  The general discovered that the subcontractor’s license was expired, but continued to work with him to complete the project.  Employees of the subcontractor filed wage claims against the general with the labor commissioner, who determined that the general contractor was the statutory employer of the workers and awarded them wages and interest, but no waiting-time penalties. 

The trial court affirmed the holding, reasoning that the general contractor was the employer not only of its unlicensed subcontractor, but also of those employed by the unlicensed sub.  The Court of Appeal affirmed the judgment holding that a general contractor may be held liable for the unpaid wages of workers hired by his unlicensed subcontractor.  The Court cited the reasoning of prior cases to explain that pursuant to the language of California Labor Code §2750.5, an unlicensed subcontractor may not be an independent contractor but is, instead, deemed a statutory employee of the general contractor. 

Prior to the holding in this case, California courts had held that Labor Code §2750.5 applied to cases involving workers’ compensation and unemployment benefits.  (See Rinaldi v. Workers’ Comp. Appeals Bd. (1987) 196 Cal.App.3d 571, 574; Neighbours v. Buzz Oates Enterprises (1990) 217 Cal.App.3d 325, 328; and Hunt Building Corp. v. Bernick (2000) 79 Cal.App.4th 213.)  Citing the same public policy considerations present in those cases of helping to “end the ‘subterranean economy’ where contractors hire unlicensed subcontractors and pay them in cash, resulting in the loss of large sums in taxes, employee social insurance contributions, and employee pension funds,” the appellate court extended these holdings to allow the wage claims of subcontracted employees to proceed against general contractor.

Return Archive 2011

Legal Developments