Like other states, Florida regulates parties in the construction industry and requires that contractors performing certain work be properly licensed. See Flor. Stat. Ch. 489. If an unlicensed contractor enters into a construction contract it cannot enforce that contract. See Flor. Stat. Ch. 489.128. In the recent decision in Earth Trades, Inc. v. T&G Corp., the Florida Supreme Court considered the impact of this law in a contract dispute between an unlicensed subcontractor and a general contractor, where the subcontractor claimed that the general contractor knew that it was unlicensed.
Earth Trades involved a dispute between T&G, the general contractor, and its site work subcontractor, Earth Trades. When Earth Trades sued T&G for non-payment, T&G asserted a counterclaim and an third-party claim against Earth Trade’s surety. T&G argued that because Earth Trades was not licensed to perform site work, Earth Trades could not enforce the subcontract. Earth Trades acknowledged that it was unlicensed, but asserted that T&G should not be entitled to enforce the subcontract either because the parties were in pari delecto (a defense based upon a principle that a party who participates in a wrongdoing should not be entitled to recover damages from that wrongdoing). Specifically, Earth Trades argued that T&G was fully aware that Earth Trades was not properly licensed at the time the subcontract was signed or became aware of it during the performance of the subcontract, and, as such, should not be entitled to enforce the subcontract. The trial court rejected this argument and found in favor of T&G, and this decision was affirmed on appeal.
The Florida Supreme Court also agreed with T&G. Essentially, the Court found that awareness of a contractor being unlicensed is not as wrong as the contractor being unlicensed. As the Court stated “the fault of the person or entity engaging in unlicensed contracting is not substantially equal to that of the party who merely hires a contractor with knowledge of the contractor’s unlicensed status.” As a result, because in pari delecto requires that both parties be equally at fault, it did not apply. Thus, while Flor. Stat. Ch. 489.128 barred Earth Trades claims against T&G, T&G was entitled to recover on its claim against Earth Trades and its surety.
While the Earth Trades decision does appear to potentially reward bad behavior on the part of a general contractor, the Florida Supreme Court’s decision does not provide carte blanche for contractors to knowingly contract with unlicensed parties to work on construction projects or do nothing upon learning that a subcontractor is not properly licensed. Rather, the Court ruled only that the unlicensed subcontractor is more at fault in a dispute with the general contractor and, as such, cannot enforce its subcontract or argue that the contractor is not entitled to enforce the subcontract. However, the proverbial shoe might be on the other foot in a dispute between an injured owner or third-party and the general contractor. In such situations, a general contractor who knowingly hires an unlicensed contractor or does nothing upon learning that the subcontractor it hired is not properly licensed would likely be viewed as the culpable party. As such, notwithstanding the favorable outcome the general contractor obtained in Earth Trades, prudent general contractors should take steps to ensure that they contract only with subcontractors that are properly licensed.