This Little-Known Law Turns Peace Deals Between Contractors and Customers Into Penalties
An obscure law in California that also affects out-of-state contractors creates an absurd regulatory trap by making it illegal to include complaint-withdrawal clauses in settlement agreements — even when the customer wants it.
Today's column highlights something that most lawyers have never heard of — I certainly hadn't. It is especially relevant to consumers and licensed contractors located in California, as well as contractors who do business in the state.
What is the one thing that homeowners and contractors who find themselves in a dispute want most of all? A final resolution of the issue. No one wants to go near a courthouse, and they certainly do not relish the idea of dealing with a governmental agency that tells them, "No matter what you agree between yourselves, we aren't going away."
But in California, a little-known statute — known as Business and Professions Code Section 143.5 — can turn an attempted resolution into a minefield, making the reality of a final settlement impossible. And that's even when both sides want to put the matter behind them and the customer wants to drop the complaint they filed with a state agency.
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This is unique in the United States. No other state has anything like the Alice in Wonderland, up-is-down-and-down-is-up, blatant lack of common sense as BPC Section 143.5, which was enacted in 2012 despite opposition from the Chamber of Commerce and other business organizations that predicted its inevitable consequences.
Tried to rip off the contractor
It is a sad reality that, following property damage, on occasion a homeowner — who has received payment for repairs from their insurance company — tries to stiff the contractor. "Janet," who lives in Kentucky, was that homeowner.
My clients, husband and wife "Jose" and "Maria," have been licensed contractors in California for over 20 years. They have a 4.5-star rating (out of five) on Google Reviews and a clean record with the Contractors State License Board (CSLB) in California.
Janet hired them to repair damage to a rental home she owned in Bakersfield and planned to sell. Work commenced on November 12, 2025, but delays in completion were due to her real estate agent's failure to make timely selections of materials. The job was completed on January 30, 2026.
Janet refused to pay Jose and Maria the balance of what was owed and blocked their phone calls. When they discovered the house was listed for sale, in order to protect themselves, they requested a lien be filed against the home.
Janet immediately began a campaign of posting false and disparaging remarks online and filed a baseless complaint with the CSLB.
Unless it was resolved or dismissed, her complaint could do significant damage to the couple's otherwise solid reputation.
A serial defamer
Jose, Maria and my office dug into Janet's online presence, finding a litany of libelous, malicious posts about several well-known and highly rated companies in town.
There was every indication her disparagement would continue — and it is cost-prohibitive to go after someone in a different state (such as Kentucky, where Janet lives) who is holding your reputation hostage. So we called her, asking, "What do you want?"
She dictated the terms: "$2,000 to stop, and I will sign a release which states that I will withdraw my complaint with the Contractors State License Board." (Janet had by then paid the couple what she'd owed them.)
That settlement language was on my client's check, which was sent to Janet and immediately cashed. A copy sent to the CSLB proved that we had resolved the matter.
And then the real nightmare began.
Violating a law that stops settlements cold
The CSLB was not satisfied that a bad-faith, meritless complaint had been resolved. Instead of calling my clients to discuss the matter, the CSLB filed an accusation against their license for violating BPC Section 143.5. (Sounds like "shoot first and ask questions later" to me.)
The CSLB's position: "Even at the customer's request, including that dismissal language, exposes contractors to disciplinary action against their license."
BPC Section 143.5 states that any settlement agreement is void if it contains language — even at the customer's request — that requires a consumer to withdraw a complaint.
The statute goes further than any law in the country. It does not merely void the clause — it makes including the clause itself grounds for disciplinary action against the contractor.
Let's think about that. If a contractor signs a settlement agreement that says, "Homeowner agrees to withdraw her CSLB complaint," the contractor has just committed an act that can lead to:
- Citation
- Fine
- License suspension
- License revocation
Even if the homeowner wrote it herself and insists she wants to withdraw the complaint, the contractor cannot agree to it or allow it to appear in the settlement.
So, here, Janet holds our clients hostage, dictates the terms she wants in a release, but she cannot withdraw the complaint. Any licensee regulated by a program within the California Department of Consumer Affairs cannot settle on the condition that the complaint be withdrawn, even when that is what the customer wants.
The CSLB is already overloaded. Investigators handle thousands of complaints each year, many of which could be resolved informally if the parties were allowed to settle on mutually agreeable terms.
But BPC Section 143.5 removes one of the most common settlement tools, and the CSLB must continue processing complaints that should have ended, creating a trap for contractors who are trying to resolve a dispute.
It is a law that defeats resolutions, and few people even know about it. I had never heard of such a thing. And it needs to be repealed!
The takeaway for contractors
Do not attempt to settle disputes once a CSLB complaint has been filed. Instead, get the CSLB involved.
BPC Section 143.5 is not consumer protection. It is an anti-settlement policy geared to generating revenue for the CSLB. That's right — they can charge investigative costs to the contractor!
Other states allow consumers to withdraw complaints when:
- The contractor fixes the problem
- The homeowner is satisfied
- Both parties agree the matter is resolved
The outcome
A conference call with Maria, Jose, Anne (my paralegal) and me was held on Friday, September 11, with CSLB investigator Caleb Cameron.
We went over all the facts. He was the only bright spot in this entire unnecessary exercise in bureaucratic blindness to reality. He isn't a lawyer, but I hope he attends law school, as he revealed himself to be fair, seeking the truth and possessing common sense.
I took responsibility, but Anne told Caleb, "I typed that language on the check and feel so bad," and those feelings were obvious in her tone of voice.
Monday, we received his decision: "Letter of Admonishment withdrawn."
Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.
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