Losing your source of income is traumatizing for most people. Your job finances the rest of your life, and an immediate loss can be a source of uncertainty and fear. For independent contractors, your income depends on your ability to complete jobs successfully as well as taking up new contracts. You also have less legal protection than employees, which makes a job loss or a contract that terminates prematurely highly disruptive to your finances.
Although independent contractors seem to have less legal protection from unfair employers, there are avenues that we can use to obtain justice on your behalf. Filing a lawsuit against the employer will require an attorney with extensive experience in wrongful termination for 1099 independent contractors. At Workers Compensation Attorney Law Firm, we understand the fine details in contracts between employers and independent contractors. We dedicate our time and resources to ensuring that independent contractors in and around Los Angeles, CA, enjoy fair treatment from their employers.
Definition of a California 1099 Independent Contractor
The term 1099 independent contractor refers to a person who provides goods or services to another but not as an employee. The recipient of the services or products does not deduct your social security payments or tax withholdings from your payments. For purposes of filing taxes, the employer provides the worker with IRS form 1099 instead of a W-2 that employees use. However, using from 1099 is not the sole determinant of your independent contractor status.
Section 3353 of California’s Labor Code defines you as an independent contractor if you perform services on behalf of another person, where the following statements are true:
- You deliver services on the promise of specific payments for specific results
- You retain control over how you complete the task
If the recipient of your services primarily controls how you perform the task, as opposed to just specifying the expected result, then your relationship is that of an employer and employee. You are an independent contractor only if you perform a specific ask, at a particular fee, and you fully control how you execute your task. Your employer is only in charge of the outcomes but has no control over how you accomplish the results. As an independent contractor, you provide a business with specific services or products, but that business has no control or right over how you achieve the results.
- Determine the benefits and burdens of self-employment
- Are in charge of their work safety
- Are the ones who can best determine safety costs versus profit
In April 2018, California adopted what is popularly known as the ABC test, as the standard for determining whether you are an employee or an independent contractor. The test presumes that you are an employee, but your employer can categorize you as an independent contractor if they establish that:
- You are free from the employer’s direction and control as pertains to how you perform your work both for work performance and under your contract
- You perform work that is outside of the regular operations of your employer’s business
- You ordinarily engage in an independent trade or occupation similar to the work that you are performing.
The California Fair Employment and Housing Act (FEHA) considers you as an independent contractor if you meet these three criteria:
- You have total control of your contract’s performance, and the means of production is at your discretion
- You customarily engage in your independent business
- You have control over the place and time where you perform your work, and you supply the necessary equipment and tools for the job. Also, the work you do requires particular skills that your employer does not ordinarily use in their work.
Rights of 1099 Independent Contractors
While company employees may seem to have more legal protection than you do, you are not obligated to do everything your employer asks. You, therefore, must understand your rights under the law.
- Right to exercise control of your work
The most likely reason you chose to work in your own enterprise is to be in control of your work. You have no obligation to follow your clients’ requests or advice on how to do your job unless your contract states otherwise. An employer controls how you achieve your work results, but a client has no such right. If they get too involved, they risk becoming your employer and shouldering all the obligations relating to employer-employee relationships.
- Multiple clients
As a 1099 independent contractor, you have a right to work with multiple clients at the same time. Additionally, you can freely market your services to other potential clients, even when you are already working on a project for one client. Your clients have no right to demand that you exclusively work for them.
When you sign up for a job contract, you will either charge a flat fee or an hourly fee. If you opt for an hourly fee, ensure that you accurately estimate the number of hours that you require to complete the project. Your price should be sufficient to leave a fair hourly wage for yourself because the law cannot protect you if you undercharge your clients.
Also, be vigilant when negotiating because labor laws and rights of contract employees require you to pay your workers the minimum wage. If it is difficult to estimate the number of hours, you can choose to write a two-part contract, one for work and another for your workers’ hourly wages.
- Working hours
Your legal rights exclude the hours you work unless your contract spells it out. It is your responsibility to complete the project and deliver the results as per the schedule. Whether you work extra time to meet deadlines is your choice. However, any employees working for you may qualify for overtime under labor laws.
- Payment rights
You have a right to receive your payment in full and at the right time. However, you must specify the payment details in writing and sign the contract. Also, bear in mind that your clients will not pay for your sick days, vacation, any form of contractor insurance, or social security.
Similarly, you pay your freelancer taxes with assistance from an accountant. The only exception is your 1099 contractor rights. Internal Revenue Service (IRS) requires your client to fill out Form 1099-MISC for all the people they pay during the year except employees. The advantage is that apart from the pre-agreed payments, you are entitled to some tax deductions, including deductions on materials you use on your job site.
- Termination rights of independent contractors
Your termination rights are what you write in your contract. If your agreement does not have the details, your client can terminate your services at will, without notice. You must include a termination clause in your contract that specifies grounds for termination, the notification period, and the appropriate compensation for premature termination.
When an Independent Contractor Can Sue for Wrongful Termination
When you are an independent contractor, you are different from an employee. Therefore, California law does not protect you in the same way it protects employees. Sections §12940 – 12952 of California’s Government Code safeguard employees from any form of discrimination, but the protection does not extend to independent contractors.
Unless your contract has a fixed term, your employer can terminate your services without notice and for any reason. You have no legal basis for claiming wrongful termination, even when your client’s behavior is discriminatory. The code only protects you from unlawful harassment under Section §12940(j)(1). However, since your work relationship is contractual, you can sue your employer for breach of contract.
Statute of Limitations
A statute of limitations is the time frame that courts prescribe, within which you can file a lawsuit. Restrictions on time are necessary because evidence becomes less reliable as time passes. If you sue the other party after the time limit has elapsed, the defendant can invoke the statute of limitations, and the judge will dismiss your case.
Under California’s Code of Civil Procedure, Section 339, oral contracts have a two-year statute of limitations. Under the same Code, Section 337 prescribes a four-year limitation for most written agreements. However, a two-year statute applies to particular types of written contracts involving titles and title insurance.
The statute of limitations takes effect on the date when your client breaches your contract. However, some factors may necessitate the suspension of the statute of limitations. Such factors include:
- If one party to your lawsuit is in prison or jail, the Code of Civil Procedure, Section 352.1 allows for a suspension of the statute of limitations
- If one of the parties in the suit is a minor
- If one party in your case leaves California
- When the court, in exceptional circumstances, determines that your lawsuit requires a fair trial
California courts allow you to include a provision in your contract to reduce the state-prescribed statute of limitations. The arrangement is only valid if it provides enough time for either of you to take legal action.
What to do When Your Employer Terminates You Wrongfully
Wrongful termination of your contract can destabilize your income and interrupt your business operations. It can also cause you losses that may take a long time to recoup. So, what do you do when your client terminates your contract before the project is complete? Here are some things you need to do.
Keep a record and documents of what your client said and how they terminated your contract. If you do not have formal documents to use as evidence, write down all the details relating to the termination. These details will be instrumental in determining whether the dismissal was wrongful. Also, if you file a case in court, the written notes will help you provide reliable evidence.
Review your Contract
Review the contract to determine whether your termination was within limits set in the agreement. Your client may be violating the terms of your contract even when they claim to have a valid reason for ending the agreement.
No matter how angry you may feel or how unjustifiable your client’s actions are, you must remain civil. Acting out or using uncivil language may complicate the processing of recovering damages.
Put your Safety First
If you were performing your duties at the client's job site, leave the site before the environment becomes hostile. Additionally, you do not need to attend final meetings or participate in exit interviews after termination unless your contract states so.
Badmouthing the client, damaging property, or public humiliation, the client may seem like a good revenge plan. However, even if the client violates the terms of your contract, committing a crime will make it difficult to claim your damages.
Contact an Attorney
You need to consult a lawyer immediately when your client ends the contract. A premature contract termination can have adverse effects on your business, and you might have a chance to recover your losses. A qualified attorney will help you understand how strong your case is, the appropriate procedures, and the statute of limitations in your case.
The Procedure of Filing a Lawsuit
If you have compelling evidence, you may be able to recover damages. The exact procedure of filing a case depends on the type of contract, how complex the contract is, and the compensation you are seeking. However, civil action follows particular necessary procedures.
- Filing your Complaint
Your case will begin by filing a complaint. The complaint must include a breach of contract as one of the causes of your action.
- Service of Complaint
Once you file the complaint and summons, you must serve the defendant properly. They will sign a document titled Acknowledgement of Service if they accept service. If the person declines service, serving the documents formally is the alternative.
- Response to the Complaint
After you serve the summons and complaint, the defendant has 30 days to present you with a response. The defendant may either answer to your accusation or enter a pleading to challenge the sufficiency of your complaint. If they challenge the adequacy of your complaint, they will include a "Motion to Strike" and a "Demurrer."
- Hearing of the Challenge to the Sufficiency of your Complaint (where suitable)
If the defendant files a motion to strike or a demurrer, a judge must hear and rule on the submissions before your case proceeds. The process may continue for up to two months. If the court sustains the motion, the court will grant you leave to amend your complaint. You must draft a new claim, serve the defendant, and the process will start over. If the defendant files a demurrer for the second time, your case will be delayed further.
After you file your complaint, and the defendant files their answer, the discovery process will commence. Discovery involves gathering the evidence that both sides will use in the case. Your attorneys will use different discovery devices depending on the complexity and nature of your case. Such methods include:
- Interrogatories: A set of written questions that you must answer under oath
- Request for admission: This is a request to you and the defendant to state the allegations you affirm and the ones you deny
- Application for document production: Both you and the defendant must produce the relevant documents
- Deposition: You will appear in the office of the opposing attorney to respond to questions under oath before a court reporter and under oath. Lawyers can also get depositions from a third-party
- Subpoena documents from a third party: The court can order a third party such as a bank to produce reports for use in your case
- Discovery Motions (where applicable)
If the defendant does not comply with the discovery requests, your attorney may make a motion to the judge to compel a response. If the judge grants you the application, the defendant will make a response. If the answer is inadequate, you can make another request, and the court may sanction the defendant for resisting. In extreme circumstances, the court may terminate the case in your favor.
- Setting the Trial
While your case continues, the court sets multiple Case Management Conferences, which both attorneys must attend. These consultations are to determine whether your case is ready to proceed to trial. When the judge finds that your case can go to trial, it sets the trial date and orders both attorneys to complete discovery and make final preparations for the hearing.
- Negotiating a Settlement
Negotiations for a settlement can continue throughout the trial. The court often requires that you try mediation or it schedules a Mandatory Settlement Conference. As the date of the hearing approaches, negotiations for a settlement becomes more intense.
In a majority of lawsuits, the parties resolve their disagreements before the trial. However, if you cannot settle your dispute, your case must go to trial. During the hearing, the judge listens to arguments by both sides, examines the evidence, and makes a ruling.
If a client breaches your contract and terminates you wrongfully, the court may order that you receive any of the following damages:
These are financial damages that the court may award you for any losses you may suffer due to the breach of contract. Compensatory damages are not a form of punishment for the breaching party. Instead, the costs are a way of restoring any money you spend on the project. Compensatory damages are of two subtypes.
- Expectation damages: This is compensation for what you expected to gain from the contract. Computing these damages is easy because the value depends on the market values and your contractual terms.
- Consequential damages: These damages reimburse you for indirect losses outside the scope of your contract. For the court to award you consequential damages, your financial loss must result directly from the breach of your contract. The court can also award consequential damages if you and your client had reasonably foreseen the loss when drawing up the agreement.
These are the damages that your contract states specifically. They are often included in the contract when you need an estimate, but it is challenging to foresee a loss. The forecast cushions you from a breach of your contract. You agree on the costs with your client at the time of negotiating the contract.
However, the court may hesitate to award you liquidated damages that it deems excessive. Some state laws set a limit to help in determining an appropriate amount. To avoid this, you can set a reasonable amount of damages in your contract.
These damages punish your client and deter others from similar behavior. Courts rarely award punitive damages for breach of contract, but you may receive such compensation from fraud or tort cases that overlap your contract case.
The judge will use nominal damages when you are in the right, but you do not have any monetary losses. The costs are often symbolic and in minimal amounts.
General or Ordinary Damages
Theses are damages that arise from the probable, ordinary, and natural course of events that cause a breach of your contract. For instance, you can sue your client for failing to pay a higher price for goods or services after the price changes due to prevailing market conditions.
A judge will award you equitable remedies if the monetary damages are insufficient to compensate you. The court will order your client to do or not do certain things. Examples of equitable remedies include:
- Rescission of your contract: The court orders that you cancel the old agreement and draw up a new one.
- Reformation of your contract: You rewrite the old pact to reflect your real intent and that of your clients.
- Specific performance: The court may force your client to fulfill their contractual responsibility.
Consult a Los Angeles Workers Compensation Attorney Near Me
If your client in or around Los Angeles, CA terminates your contract wrongfully, you can file a lawsuit to enable you to get some form of compensation. You will need the services of an experienced workers’ compensation attorney to examine the terms of your contract. Call us at 310-956-4277, and we will handle your wrongful termination case. We will defend your rights before a judge and possibly get a ruling in your favor.