UPDATED August 2025: What a difference eight years make. This article was originally published in 2014 and was updated in 2017. We have again updated the links to the relevant agency resources.
The question frequently arises for participants in a nationwide construction contracting industry. Simply stated, is a licensed contractor in good standing in State A permitted to offer to contract for or to perform work requiring a contractor’s license in State B?
Roughly half the states have statutes or regulations on point. 6 Bruner & O’Connor Construction Law § 16:17. Some states have easy requirements, like Nebraska (contractors only need register), while others have no exceptions or onerous requirements, like Alaska (residential contractors must take a 16-hour cold climate course and pass an exam).
Some states have partial relief that eases the process for out-of-state licensed parties. They have “reciprocity agreements” with certain other states, pursuant to which an applicant holding a license in good standing in a comparable classification in State A (a “reciprocity state”) may have the trade portion of the written licensing exam waived in State B.
Even with reciprocity, the license applicant generally must comply with all of State B’s other licensing requirements, including submitting a license application and passing the law portion of the written licensing exam (as well as State B’s general requirements for transacting intrastate business).
Contractors should always review websites of the applicable agencies. Different bodies may issue licenses to contractors, electrical contractors, plumbing contractors and other categories. Reading the relevant authorities is essential in determining whether a license is required for the trade or trades the contractor would like to contract for and to perform in that state, and what full or partial process is needed to comply with those requirements.
Note that not all states license contractors generally; some require licenses for only certain trades, and as noted above, some simply require the contractor to register with the agency. If it is unclear whether a license is required, contractors should consider whether to seek confirmation from the agencies (on a blind basis if the contractor is concerned that the agency’s answer may pose a problem for its current operations). If it is unclear whether the contractor might qualify for reciprocity, communicating with the agency may save the contractor time, money and risk.
Reciprocity is sometimes required even before a contract is signed or dirt is turned over. Some laws prohibit even the act of offering or bidding to contract to perform a trade, if a license would be required to perform that trade. For example, California defines “contractor” very broadly to include “any person who undertakes to or offers to undertake to, or purports to have the capacity to undertake to, or submits a bid to, or does himself or herself or by or through others, construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building, highway, road, parking facility, railroad, excavation or other structure, project, development or improvement … or fabrication into, any structure, project, development or improvement herein described of any material or article of merchandise” (emphasis added). This statute expressly declares a contractor to include a “subcontractor” and a “specialty contractor.”
The consequences of unlicensed activity can be severe, starting with the risk of not being able to receive or sue for compensation for the work itself. That can happen even if the owner is aware of the lack of licensure. The Florida Supreme Court, in Earth Trades, Inc. v. T&G Corp., Case No. SC10-1892 (Jan. 24, 2013), applied a law providing that “[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 in equity by the unlicensed contractor.” Fla. Stat. § 489.128(1) (2005). The Court found that “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.” Accordingly, “the defense that parties to a contract are in pari delicto was not available to the unlicensed contractor.”
The California Contractors State License Board is authorized to investigate and to issue citations, including civil penalties, to unlicensed individuals acting in the capacity of a contractor who are not otherwise exempted from the licensing requirements, California Contractors’ State License Law, Bus. & Prof. Code § 7000 et seq. Cal. Bus. & Prof. Code § 7031 prevents a contractor from suing to collect payment for work requiring a license without alleging that it was licensed throughout the project. In addition, unlicensed activity could qualify as a misdemeanor, and even felony charges may be filed against anyone who illegally uses another person’s contractor license or who tries to mislead consumers into believing that he or she is a licensed contractor.
There are cases in some jurisdictions that afford some relief in the case of “substantial compliance” with the licensing law. See RAM-Ellsworth Subdivision Partners, LLC v. Construction Services, LLC et al., Case No. 5:2022cv00779 (N.D. Ala. 2024) (contractor “substantially complied” with Alabama’s general contractor’s licensing statute by obtaining license on reciprocal basis during performance of the work). That is a less desirable position to be in than fully complying ahead of time.
All of this is to say that licensure matters and state boundaries matter. The following chart provides helpful information for taking the first step on the journey of verifying compliance in conducting an interstate construction business.
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