Under California law, before a person can perform construction work where the cost of labor and materials total $500 or more, he or she must be licensed to do so. This strict law was enacted to ensure that a contractor has the minimum required skill, character and knowledge to perform the work for which he is hired and further ensures that a worker has adequate insurance to protect the homeowner from damage for injury to property. It also ensures that a bond has been posted which will be available to the homeowner if the contractor fails to complete the job.
A homeowner that hires an unlicensed contractor is acting as an "employer" of the contractor and accepts all associated risks: The homeowner is liable for worker's compensation should the worker be injured, damage done by the worker to any person's property, and mechanic's liens filed by unpaid subcontractors or suppliers.
Similarly, the worker who chooses to perform work without a contractor's license places himself at considerable risk. The criminal penalties for contracting without a license can be severe, including fines and jail time. On the civil end, a person who acts as an unlicensed contractor, and who does not get paid by a homeowner for work he performs, has absolutely no legal recourse, i.e., he cannot sue the homeowner to collect the money. This is true even if the unlicensed worker has completed the job and the homeowner knew the worker was unlicensed and took full advantage of that fact. If the homeowner did make payments to the unlicensed contractor, the law expressly allows the homeowner to sue to recover such payments.