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BEWARE OR REJOICE (depending on who you are): Unlicensed Contractors May Have a Remedy After All

In a startling new decision by the Florida Third District Court of Appeal on March 2, 1011, the Court in MGM Construction Services Corp. v. Travelers Casualty & Surety Co. of America, et. Al., held that in certain situations, even unlicensed contractors have the right to enforce a construction contract. In this case, the University of Miami hired a contractor who in turn hired a subcontractor for a portion of the contracted work. The subcontractor was performing work that does not require a state contractor's license but does require a local Miami-Dade County specialty contractor's license. A dispute arose between the contractor and the subcontractor and the subcontractor sued for money owed by the contractor and owner. The parties defended claiming that because the subcontractor did not possess a required local specialty contractor's license, the contract with it was unenforceable.

At first, the contractor and owner focused on section 489.128(1), Florida Statutes (2008), which provides that "[a]s a matter of public policy, contracts entered into on or after October 1, 1990, by an unlicensed contractor shall be unenforceable in law or in equity by the unlicensed contractor." Furthermore, subparagraph (1)(a) provides in part that "[f]or purposes of this section, if no state or local license is required for the scope of work to be performed under the contract, the individual performing that work shall not be considered unlicensed." (Emphasis added). Accordingly, the original arguments made by the moving parties may be fairly summarized as follows: (1) the Miami Dade County Ordinance (MDCO) requires a local license; (2) the Subcontractor never possessed such a license; (3) section 489.128 provides that such a contractor is unlicensed; and therefore (4) under the express language of section 489.128(1), the subcontract was unenforceable by the Subcontractor.

However, during the case, in 2009, the Florida Legislature amended the last sentence of section 489.128(1)(a) to read: "For purposes of this section,if a state license is not required for the scope of the work to be performed under the contract, the individual performing that work is not considered unlicensed." § 489.128(1)(a), Fla. Stat. (2009) (emphasis added); see Ch. 2009-195, § 33, at 1955, Laws of Fla. (detailing amendments to section 489.128(1)(a)). The Legislature removed the "or local license" language, and that change applied retroactively not only to contracts entered into on or after October 1, 2000, but also to "all actions pending when this act becomes a law," or on October 1, 2009. Ch. 2009-195, §§ 66, 68, at 1972, Laws of Fla. The bottom-line result of these changes was that the Subcontractor's lack of a local license no longer triggered the unenforceability provision of section 489.128(1).

This notwithstanding, the contractor and owner maintained their argument that the contract was unenforceable because of a common law rule in Florida that 'where a statute pronounces a penalty for an act, a contract founded upon such act is void, although the statute does not pronounce it void or expressly prohibit it.' " Town of Boca Raton v. Raulerson, 146 So. 576, 577 (Fla. 1933) (quoting Berka v. Woodward, 57 P. 777, 779 (Cal. 1899)). The trial court agreed and ruled that the subcontractor's contract was unenforceable as a matter of law due to its lack of specialty contractor's license required by local code.

On appeal, the Third District Court of Appeal reversed this ruling. The Court stated that there cannot be an inflexible black and white rule which invalidates all contracts with unlicensed contractors. Instead, despite precedent in Florida to the contrary, the court held that a trier of fact must engage in a multi-party analysis to determine whether, in the absence of a provision in the law or local code which specifically states that contracts by unlicensed contractors are invalid, to invalidate the contract. The court stated that the following framework must be followed:

If a party is prohibited from doing an act because of his failure to comply with a licensing, registration, or similar requirement, a promise in consideration of his doing that act or his promise to do it is unenforceable on grounds of public policy if

(a) the requirement has a regulatory purpose, and

(b) the interest in the enforcement of the promise is clearly outweighed by the public policy behind the requirement.

If the requirement has a regualtory purpose, the next step for the trial court is to determine whether the public policy behind the licensing requirement clearly outweighs the interest in allowing the Subcontractor to enforce the Contractor's promise. To that end, the court held that there are a number of factors that should be taken into account:

In weighing the interest in the enforcement of a term, account is taken of

(a) the parties' justified expectations,

(b) any forfeiture that would result if enforcement were denied, and

(c) any special public interest in the enforcement of the particular term.

In weighing a public policy against enforcement of a term, account is taken of

(a) the strength of that policy as manifested by legislation or judicial decisions,

(b) the likelihood that a refusal to enforce the term will further that policy,

(c) the seriousness of any misconduct involved and the extent to which it was deliberate, and

(d) the directness of the connection between that misconduct and the term.

The Court pointed out examples where it would be unfair to invalidate the contract such as where the contractor's license expired due to a mistake in paying the license fee or an illness that prevented the filing of the paperwork for licensure.

The Court noted further that, under the specific facts of the case, because the unlicensed contractor was a subcontractor hired by the general contractor, the purposes of the licensing statute -to protect owners from shoddy work-are not advanced by invalidating the contract since the owner hired the general contract to whom it looks for quality work product.

This case demonstrates that property owners should always ensure that they hire licensed contractors. But now, even if an unlicensed contractor is hired, an owner may still have responsibility to abide by the contract with that unlicensed contractor unless certain factors are present. This, of course, can only be determined after years of expensive litigation over the enforceability of the underlying contract.