Arbitration and Licensure

ARTICLE -- Arbitration and Licensure

By Kenneth S. Grossbart
Abdulaziz, Grossbart & Rudman

This firm has written numerous articles regarding the importance of being properly licensed in order to protect the right to receive payment for work done on any project. The case of Ahdout v. Hekmatjah, covers this topic again, with another slight angle - arbitration.


Keep in mind that in California, an arbitrator's decision is normally not reviewable or appealable. The exception lies in if the award violated statutory rights or a public policy.


This case is not an easy owner / contractor issue; however, the parties completed arbitration. The arbitrator's award allowed Hekmatjah to keep all funds it had collected for the construction work performed even though it was not a licensed contractor. This caused Ahdout to petition the trial court to vacate the award on the grounds that the arbitrator exceeded his powers. The trial court denied the petition holding that the arbitrator's ruling is not reviewable since arbitration is binding. Ahdout appealed.


Business and Professions Code §7031(a) provides that any person or entity doing construction work needs to have a license or they are not entitled to payment.


Business and Professions Code

§ 7031 (a) "... no person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract, regardless of the merits of the cause of action brought by the person, except that this prohibition shall not apply to contractors who are each individually licensed under this chapter but who fail to comply with Section 7029."


Business and Professions Code §7031(b) goes on to say that if the contractor that does the work is not licensed, there is a right to reimbursement or disgorgement.


Business and Professions Code

§7031 (b) "... a person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract."


The Court of Appeal concluded that Business and Professions Code §7031 constituted an explicit legislative expression of public policy that would constitute grounds for judicial review if the arbitration did not enforce that public policy and the award is thereby reviewable. The Superior Court's judgment not to review the arbitration decision was reversed and the Court of Appeal sent the matter back to be heard again.


As we have said many times before, make sure that you are properly licensed for the entire duration of any project that you work on.


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Kenneth Grossbart is recognized as one of the foremost authorities in California construction law. Over the past 30 years, Ken has become a respected speaker on Mechanic's Liens and other construction related issues. Abdulaziz, Grossbart & Rudman provides this information as a service to its friends & clients and it does not establish an attorney-client relationship with the reader. This document is of a general nature and is not a substitute for legal advice. Since laws change frequently, contact an attorney before using this information. Ken Grossbart can be reached at Abdulaziz, Grossbart & Rudman: (818) 760-2000 or by E-Mail at, or at

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