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Workers Compensation Disgorgement Theory

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Any Person In a Dispute With Their Constructor Needs to Be Mindful of the “Workers Compensation Disgorgement Theory”

California Business & Professions Code Section 7125.2 states that a contractor’s license is suspended by operation of law back to the date of the commencement of the workers compensation insurance coverage violation if it had an employee or employees and failed to obtain workers compensation insurance.  California Business & Professions Code Section 7031 provides for a complete refund of the entire cost of the job if the contractor’s license is suspended during the job.  Any attorney involved in a construction dispute should quickly assess the contractor’s workers compensation status.  It may determine the outcome of the case.   How does this work?  Here is a real world scenario:  Your contractor is suing you for failing to pay in full.  You didn’t pay in full because the contractor didn’t do the job properly.  During the course of the lawsuit, you discover that the contractor had at least one employee and no workers compensation insurance.  You counter sue to assert the workers compensation violation and request disgorgement of all fees paid to the contractor.  You just likely won your case and the contractor lost his.  It sounds so simple, and it is.  Unfortunately, this law and the prevalence of workers compensation violations in the construction industry are often overlooked by attorneys.  Robert A. von Esch IV of the Law Office of Michael A. Hearn just won a trial against a contractor in August 2015 based upon this theory (more on this below).  The judgment included a full refund of the cost of the job, attorney fees, interest, and court costs.  If you have any questions about this law or any construction claims, please do not hesitate to contact us.

Success Story

Robert A. von Esch IV just finished a three day trial against a contractor for overcharging and disgorgement on a commercial construction project.  The initial demand was $120,000. The contractor refused to make a settlement offer.  We proceeded to trial and obtained a statement of decision in the amount of $326,000.  Further, the court found that the sole shareholder and a non-shareholder executive officer were personally liable for the judgment.  A motion for attorney fees and costs is pending.  The judgment is anticipated to exceed $500,000 after attorney fees, costs, and prejudgment interest are imposed.