On January 24, 2013, the Florida Supreme Court issued its opinion, in Earth Trades, Inc. v. T&G Corporation, which will substantially affect Florida’s construction industry, and an unlicensed contractor’s ability to defend against an action for damages arising out of work performed under a construction contract.
As background, Chapter 489, Florida Statutes, regulates the “construction industry,” and requires that a contractor be licensed to perform the scope of work set forth in the construction contract. Section 489.105(3), Florida Statutes, defines the different types of contractors which include, among others, “Residential Pool/Spa Contractors” and “Plumbing Contractors.” Section 489.128, Florida Statutes, addresses the enforceability of a construction contract with an unlicensed contractor, and provides in part that: “(1) [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 equity by the unlicensed contractor.” Although extremely harsh, the Legislature has enacted such restrictions on unlicensed contractors to prod the contractors into obtaining the required licensing.
In Earth Trades, Inc., Earth Trades contracted with T&G for site work on a parking garage construction project. During the course of construction Earth Trades defectively performed its work and T&G terminated the contract. At all times during the construction and before entering into the contract, Earth Trades was not licensed to perform the work under the contract. After termination, Earth Trades filed a breach of contract action against T&G who in turn filed its own breach of contract action against Earth Trades. In response to the breach of contract action, Earth Trades raised the defense of in pari delicto, or simply, that both party’s were equal wrongdoers because T&G knew that Earth Trades was unlicensed and therefore, T&G should be barred from enforcing the contract. After reviewing the statute and Legislative history, the Florida Supreme Court held that the Legislature intended harsh consequences for unlicensed contracting, and that the fault of a person or entity engaging in unlicensed contracting is not equal to that of a party that merely hires a contractor knowing of the contractor’s unlicensed status. As a result, an unlicensed contractor cannot rely upon the defense that the owner/other contractor knew unlicensed work was being performed to stop the breach of contract action against it.
The opinion in Earth Trades, Inc. is just another addition to the long list of legal consequences that can result from unlicensed contracting which include: loss of construction lien rights, triple damages for injuries sustained resulting from the contractor’s negligence, and possible disgorgement of all funds paid by the owner/other contractor. The Earth Trades, Inc. case gives even more incentive, if there wasn’t enough already, to contractors to obtain the proper licensing, and maintain such licensing.