Providers of Labor Beware: Failure to Be Licensed with the CCB Can Cost You

Oregon law requires that all contractors be licensed with the CCB from the time that they bid for the work, through completion of the work. To penalize those entities that should have been licensed with the CCB, but were not, Oregon law prevents the non-licensed entity from perfecting a lien, making a claim against a bond, or otherwise suing for payment on account of unlawfully performed work. Other penalties include denying building permits and business licenses, and imposing fines. Recently, a Washington County Circuit Court ruled against a worker-leasing company (BFS) that had made a claim against a bond, because it was not licensed with the CCB. Better Financial Solutions, Inc. v. Safeco, Washington County Circuit Court Case No. C00725CV.

In the BFS case, the electrical subcontractor had encountered financial difficulties and entered into a sub-subcontract with BFS whereby BFS provided labor to the electrical subcontractor. Because the electrical subcontractor could not meet its payroll, BFS hired its employees. BFS carried the employees on its payroll and paid their taxes and contributions. The electrical subcontractor became insolvent, stopped work on the project, and filed bankruptcy protection. The general contractor then incurred a substantial loss in replacing the electrical subcontractor on the project.

The court ultimately denied BFS's claim against the general contractor's bond for a variety of reasons. One of the reasons the Court ruled as it did is a CCB promulgated administrative rule that specifically defines "work as a contractor" to include "labor only, regardless of whether compensated by the hour or by the job." OAR 812-002-0760(8).

Although the administrative rule alone may have been enough to convince the judge BFS should have been licensed with the CCB, the Department of Justice had issued a memorandum specifically addressing registration requirements for worker-leasing companies. The Department of Justice concluded that "The worker?leasing company, through its employees, is acting as a contractor and must be licensed as such." The Department of Justice seemed to be concerned with insuring that the work performed by the worker-leasing company will be subject to the bond and liability insurance requirements, and that employees of the worker-leasing companies be provided workers' compensation coverage.

The court also considered, but rejected BFS's argument that the discretionary exception to the licensing requirement be invoked. Under the discretionary exception, the contractor is allowed to make a claim against the bond if the court determines that the contractor did not know of the requirements to be licensed. But in addition to proving that it did not know of the requirement to be licensed, the contractor must also prove that it was licensed before asserting the claim against the bond and that a "substantial injustice" to the contractor would result by not applying the exception. The court declined invoking this exception, and was persuaded by the fact that BFS was licensed with Washington's counterpart to the CCB. It should be noted that one of the only reported court decisions interpreting this exception implies that it should only be invoked when some sort of fraud has been perpetrated on the subcontractor.

It is better to be safe than sorry. If a situation is encountered in which an entity, after careful examination of the statute and administrative rules, is unsure whether it should obtain a license with the CCB, the prudent decision may be to obtain the license.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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