California’s new civil penalty minimums took effect July 1, 2026.
The contractor licensing calls I get usually come too late. Someone reaches out after payment has stopped, and within about ten minutes we are no longer talking about the change order dispute. We are talking about whether the entity that signed the contract and performed the work is the entity that holds the license, and whether the license classification actually covered the scope being performed.
California has never treated that as a paperwork question. Business and Professions Code section 7031 generally bars a contractor from suing to collect compensation for work requiring a license unless it was duly licensed at all times during performance. The same statute allows the person who used an unlicensed contractor to seek recovery of the compensation paid. When licensure or proper licensure is disputed, the contractor bears the burden of proof. A substantial compliance exception exists, but it is narrow and does not help someone who was never duly licensed in California.
As of July 1, 2026, the enforcement side became more expensive too.
What SB 779 actually changed
SB 779 raised the minimum civil penalty for unlicensed contracting under section 7028.7 from $200 to $1,500. The $15,000 ceiling did not move. The statute also continues to make those sanctions separate from, and in addition to, other civil and criminal remedies.
The change on the licensed side deserves at least as much attention. Section 7099.2 previously supplied statutory ceilings, while the regulatory schedule of the Contractors State License Board (CSLB) supplied much lower minimums. It now puts the floor in statute. Most disciplinable violations carry a civil penalty of $500 to $8,000. Violations of sections 7110, 7114, and 7118 carry a penalty of $1,500 to $30,000. The CSLB may adjust those minimums for inflation every five years, and it has updated 16 CCR section 884 to conform to the new law.
Those three code sections are not obscure. Section 7110 reaches willful or deliberate disregard and violation of state or local building laws, along with specified safety, labor, and workers’ compensation laws. Section 7114 reaches aiding or abetting unlicensed activity, allowing an unlicensed person to use a license, or otherwise combining with an unlicensed person to evade the license law. Section 7118 makes entering into a contract with an unlicensed contractor a basis for discipline.
Read section 7118 twice if you are a general contractor in California. A subcontractor’s licensing problem does not necessarily stay with the subcontractor. The licensed contractor that hired the unlicensed contractor can face a statutory minimum penalty of $1,500, with exposure up to $30,000.
The Legislature was blunt about why
The CSLB sponsored the bill. The Senate Judiciary Committee reported no timely opposition, and the bill cleared Senate Business, Professions and Economic Development on a 10-0 vote.
The numbers cited in the Senate Judiciary analysis came from the CSLB’s 2024 Sunset Report. From fiscal year 2019-20 through 2022-23, the CSLB issued $18,091,356 in fines on 5,597 citations, an average of $3,232 before appeal. Administrative law judges reduced 2,014 appealed fines to an average of $1,840, with many reduced to the regulatory minimum of $100. The aggregate reduction was $3,706,540, nearly $1 million per year.
The Legislature had spent several sessions raising maximum penalties while leaving minimums far behind, which is why a judge could take a $3,000 citation down to $100 and still be within the rules. SB 779 does not eliminate that discretion. Section 7099.2 still directs the CSLB to consider the gravity of the violation, the licensee’s good faith, and the history of prior violations. What changed is how low the penalty can go.
Section 7031 is still where the real money is
A $1,500 minimum fine is meaningful. But where a licensing defect actually exists, the citation is rarely going to be the largest number in the dispute.
Subject to narrow subtantial compliance excepions, a contractor that was not duly licensed at all times during performance cannot maintain an action to collect compensation for the work, and that bar is not discretionary. Section 7031(b) also allows the person who used an unlicensed contractor to seek disgorgement of compensation already paid. What began as an administrative problem becomes a payment case and then a disgorgement case, with the CSLB citation a relatively small part of the exposure.
The risk runs in both directions on the same facts. The unlicensed subcontractor loses its claim to compensation, while the licensed contractor that hired it faces discipline and a civil penalty under section 7118. One licensing failure, two parties paying for it.
Treat licensing as a project control
None of the fixes are complicated. Confirm that the exact legal entity on the contract is the entity holding the license, and that the classification covers the scope as performed rather than just the scope as originally bid. Verify subcontractor licensing against each subcontractor’s actual scope instead of capturing a license number at onboarding and never looking again. Watch the things that can move during a project: scope changes, license suspensions or expirations, workers’ compensation status, and qualifier departures.
Document each check. A dated record of what was verified and what the CSLB’s records showed on that date makes a far better exhibit than a reconstruction two years later.
The CSLB is pressing the same point from its side. Its summer newsletter warns licensees against “rent a qualifier” arrangements, and section 7068.1 requires a qualifier to exercise supervision and control over the construction operations of the license being qualified. A qualifier who lends a name but does not actually perform that function creates another licensing problem, not a solution to one.
Public agencies carry their own verification duty. Section 7028.15(e) makes an unlicensed bid nonresponsive and requires a local public agency to verify that the contractor was properly licensed when the bid was submitted before awarding a contract or issuing a purchase order. A contract or purchase order issued to an unlicensed contractor is void. The statute also allows the registrar to cite a public officer or employee who knowingly makes such an award, with the penalty governed by section 7028.7. That means the new $1,500 minimum can reach the public side too, subject to the statute’s conditions and exceptions.
Owners and developers should not read section 7031 as a safety net they can rely on indefinitely. In Eisenberg Village of the Los Angeles Jewish Home for the Aging v. Suffolk Construction Co. (2020) 53 Cal.App5th 1201, the Court of Appeal held that a section 7031(b) disgorgement claim is subject to a one-year limitations period, that the discovery rule does not apply, and that the claim accrues when the unlicensed contractor completes or ceases performance. A licensing issue discovered years later may therefore be economically significant but too late for a disgorgement claim.
There can also be employment and workers’ compensation consequences. Labor Code section 2750.5 makes a valid contractor’s license a condition of independent contractor status for work requiring a license. Depending on the facts, unlicensed work can create unexpected employee-status and workers’ compensation exposure for the hiring party. The safer point is the same: verify the license before the project starts, not after a loss occurs.
This has been building for a while
SB 779 did not arrive out of nowhere. AB 569 (2021) raised the general maximum civil penalty from $5,000 to $8,000 and the enhanced maximum from $15,000 to $30,000. AB 1747 (2022) extended the $30,000 exposure to willful or deliberate disregard of specified state building, labor, and safety laws. SB 601 (2023) required the maximum $5,000 fine for certain home improvement contract violations committed in declared disaster areas.
SB 779 also made a quieter change that received far less attention. It raised the statutory cap on the CSLB’s reserve fund from roughly six months of annual authorized expenditures to roughly twelve months. That is a reserve-cap change (not a direct appropriation), but it fits the broader theme of giving the CSLB more room to sustain its regulatory and enforcement work.
SB 291, effective January 1, 2026, put workers’ compensation violations on a separate scale. Under section 7125.4, a sole owner licensee found to have employed workers without required coverage faces a minimum civil penalty of $10,000 per violation. A partnership, corporation, LLC, or tribal business licensee faces a minimum of $20,000 per violation, with additional penalties for subsequent violations up to a total of $30,000 per occurrence. Those numbers deserve a separate compliance conversation with management and the company’s insurance broker.
Enforcement activity is not theoretical. A joint CSLB and Los Angeles County District Attorney sting in Pacific Palisades in April 2026 led to felony charges announced in July against six allegedly unlicensed contractors whose bids totaled up to $1.27 million. Those are criminal charges under a separate provision, not the civil citations SB 779 repriced, and they remain allegations. But the operation is a useful reminder that licensing rules are being enforced in the field as well as on paper.
The advice has not changed. Check the license before the work starts. Make sure it is the right license for the work being done. Keep checking while the work is underway. SB 779 raised the price of skipping those steps.
The worst time to find a licensing problem is after payment is disputed and everyone in the room starts reading section 7031.
For more information contact:
310-374-3367
Christopher Ng is the managing partner of Gibbs Giden. Chris primarily represents companies in a wide range of business, commercial and construction transactions and disputes.
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