The Effects Of Tennessee Licensing Laws On Contractors And Subcontractors

In Tennessee, if you are doing construction work for $25,000.00 or more, and you fall under the definition of “contractor,” you must have a contractor’s license. If you don’t, you could “lose your shirt.” Generally speaking, if you are a subcontractor, even if your contract is for more than $25,000.00 worth of work, you do not have to be licensed by the State of Tennessee. In a breach of contract case between a project owner and a contractor, the fact that the contractor was not licensed may result in a substantial windfall to the project owner.

Who must be licensed by Tennessee as a contractor? What construction trades that are typically considered “subcontractors” have to be licensed? What are the consequences of someone without a license engaging in contracting work which requires a license? The first place to look to answer these questions is Tennessee Code Annotated (“T.C.A.”) ยง62-6-102 which defines a “contractor.”

To say the least, the definition of “contractor” in Tennessee is expansive. Even if someone engages in work that would make them a “contractor” under Tennessee law, so long as the total cost of the work does not equal or exceed $25,000.00, they do not need to have a license (for “masonry contractors” that threshold jumps to $100,000.00). Most subcontractors are not bound by the licensing requirements that apply to general contractors, but there are exceptions.

Generally speaking, the licensing laws that apply to “contractors” do apply to electrical subcontractors, licensed masonry subcontractors, mechanical subcontractors and plumbing subcontractors. Under Tennessee law, a “limited licensed electrician” is not considered a “contractor.” A “limited licensed electrician” means someone who performs electrical work with a total cost of less than $25,000.00.

In a breach of contract case or breach of warranty case involving a construction contract, Tennessee contractor licensing laws may have a major impact. Why? Under Tennessee law, an unlicensed contractor may only recover actual expenses, but no profit. To recover even expenses, the contractor must show documentation of the expenses, and otherwise prove, by clear and convincing evidence, that the expenses were incurred.

Notably, there is no Tennessee law that requires an unlicensed contractor to refund or to disgorge money which has been received for the project in question. An unlicensed contractor may face penalties for acting as a contractor without a contractor’s license. However, the fact that the unlicensed contractor did work without a license, standing alone, will not require the unlicensed contractor to refund money already paid. (Of course, the unlicensed contractor could still be held liable in a breach of contract or breach of warranty case brought by the party for whom the work was performed based on problems or defects with the work performed).

When there is no general contractor on the project, and an entity contracts for construction work directly with the owner of the project, the effects of licensing laws can become more complex. Under the traditional construction relationship, an entity contracting directly with the owner is not a subcontractor. The common meaning of the word “subcontractor” is an entity that contracts to do work which another entity already has a construction contract to do.

It is somewhat common for entities which contracted directly with the project owner or homeowner to defend a claim that they were unlicensed on the grounds that they were acting as subcontractors. To understand how Tennessee courts sort out breach of construction contract cases where an entity has contracted with the owner instead of with some entity which would commonly be considered a general contractor, take a look at the cases of Cruzen v. Awad and Winter v. Smith.

In both of those cases, the parties that performed the construction work at issue claimed that they were owed money. In both cases, the other party claimed that there was only liability for actual expenses because the parties that performed the work engaged in work making them “contractors” under Tennessee law, but that they did not have licenses. In both of these cases, the courts held that the parties that performed the work were contractors which were required to be licensed.

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