Sorry for the delay, but I think your characterization of the issue as a "public works question" may have scared a lot of contributors away. I've just read your question, and I do not believe that the public works aspect of the question is actually relevant here. Rather, the regular employment laws (unemployment, workers comp, etc.) controls the answer.
A general building contractor who hires an unlicensed subcontractor is responsible for wages owed to the subcontractor's employees. Because Labor Code § 2750.5 makes an unlicensed subcontractor the general contractor's “employee," the general contractor is also the employer of persons the unlicensed subcontractor employs. See Sanders Const. Co., Inc. v. Cerda (2009) 175 CA4th 430, 434–435.
So, if you have subcontractors that were actually unlicensed, then they are presumed by law to be your employees, and so are their employees/workers. In such circumstances, you would be liable to DIR for the unpaid prevailing wages, benefits and overtime required under the public works laws, and your only recourse would be to sue the subcontractors who created the problem for you to try to recover some of your losses (which may be a waste of time, because the unlicensed subs are likely to not have "two nickels to rub together").
If the subcontractors are licensed, then you could prove that they are not your employees by proving to the DIR that they satisfy the elements of "independent contractor" status. EDD provides a guide to determining whether or not an individual or entity is an independent contractor (DE 38
). If you can prove that the subs really are independent contractors, then they would be responsible for their employees/workers, and you would be entirely off the hook.
Hope this helps.
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