Defending Against Independent Contractors’ Claims for Non-Payment
For companies that rely on the services of independent contractors, payment disputes can be a drain on resources. Our lawyers defend companies nationwide against claims involving non-payment, misclassification, and other issues.
Many companies rely on the services of independent contractors; and, increasingly, statistics are suggesting that workers (and younger workers in particular) favor the freedom and flexibility of the “gig economy” to the stability and structure of the employment relationship. Companies that hire independent contractors are not liable for employment taxes and are not required to provide workers’ compensation coverage (in most cases); so, in many circumstances, the independent contractor relationship can be preferable for all parties involved.
However, for companies, the independent contractor relationship is not entirely without concerns. In particular, disputes arising out of contractors’ allegations of non-payment are fairly common. When these disputes arise, companies must defend themselves carefully and strategically, and they must assess the available documentation in deciding what defenses they have available.
Civil Litigation Defense Lawyers for Companies Facing Non-Payment Claims from Independent Contractors
At Oberheiden P.C., we are committed to helping companies defend themselves and avoid unnecessary liability. We represent companies in legitimate payment disputes as well as in the defense of unfounded claims. If an independent contractor is alleging that your company has failed to pay the full compensation he or she is owed, our lawyers will examine all of the pertinent facts and develop a strategic defense that is tailored to the specific circumstances at hand.
Our firm is led by founding attorney Nick Oberheiden, PhD. Dr. Oberheiden has extensive experience representing companies in all types of civil litigation and administrative enforcement proceedings. He works with the firm’s in-house lawyers and network of affiliated local counsel to provide defense representation to companies nationwide, and companies across the country trust Dr. Oberheiden and the Oberheiden P.C. team to protect them against unwarranted liability.
Meet the civil litigation defense lawyers who will handle your company’s independent contractor non-payment claim.
Potential Issues and Defenses in Payment Disputes with Independent Contractors
While payment disputes with independent contractors may seem akin to employee non-payment claims, the reality is that these disputes are much more-closely related to commercial disputes between contracting businesses. As a result, when defending against an independent contractor’s claim for non-payment, it is necessary to look not to state and federal wage, hour, and anti-discrimination laws, but instead to the laws that govern disputes between parties to arm’s length business transactions.
When the parties have a written contract, disputes regarding independent contractor compensation will generally be resolved by looking to the contract’s terms. To the extent that the contract’s terms are unclear (or arguably unclear), then the relevant provisions will need to be interpreted in accordance with relevant law. When parties do not have a written contract, then the terms of their relationship will need to be discerned from any informal written communications as well as their prior course of dealing.
Regardless of the existence or terms of any contract, compensation disputes involving independent contractors can raise various legal issues. For example, claims for non-payment will often involve issues such as:
- Whether the independent contractor’s performance was adequate
- Whether the independent contractor’s performance was timely
- Whether the company terminated or modified the order in question before the independent contractor started or completed work
- Whether any service level agreements (SLAs) or other quality standards apply
- Whether a particular rate applies (or doesn’t) apply based on the specific services that were performed
While these are some of the most-common issues in independent contractor payment disputes, this list just scratches the surface of the potential issues and defenses that may be implicated in any particular dispute. From independent contractor fraud (i.e. demanding payment for work not actually performed) to issues regarding contractual set-off (i.e. if payment was withheld because the independent contractor owes money to the company), there are numerous other grounds on which companies can potentially defend against independent contractors’ non-payment claims as well.
Does the “Independent Contractor” Qualify as an Employee?
If an employee who has been treated as an independent contractor qualifies as an employee, this changes the analysis entirely. Whereas the protections afforded to independent contractors are relatively limited, employees enjoy substantial protections under state and federal law. In many cases, workers who have accepted payment as independent contractors will suddenly claim the protections of an employee and seek additional compensation and benefits under the laws that govern the employment relationship.
When dealing with payment disputes involving independent contractors who claim the protections afforded to employees, it is first necessary to determine which classification is appropriate. While the standards for distinguishing between independent contractors and employees vary from state to state (and the Internal Revenue Service (IRS) has adopted its own multi-factor test as well), what is clear is that the parties’ determination is not decisive.
Instead, when determining whether a worker who has been compensated as an independent contractor is properly classified as an employee, it is necessary to address questions such as:
- “Does the company control or have the right to control what the worker does and how the worker does his or her job?”
- “Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)”
- “Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?”
If an independent contractor is successful in claiming the protections afforded to employees, then defending against his or her non-payment claim will require a critical assessment of the relevant state and federal statutes. Among others, these may include:
- Fair Labor Standards Act
- State and federal minimum wage laws
- Title VII of the Civil Rights Act of 1964 and other anti-discrimination laws
FAQs: What Should a Company Do When an Independent Contractor Claims He or She was Not Paid?
Due to the complexities involved in independent contractor compensation claims, companies facing allegations of non-payment must rely on the advice of experienced defense counsel in deciding how to move forward. After reading these answers to some frequently-asked questions (FAQs), we encourage you to schedule a complimentary case assessment at Oberheiden P.C.
Q: How do independent contractor non-payment claims differ from employee claims for unpaid wages or overtime?
Due to the fundamental differences between the independent contractor and employment relationships, payment disputes involving these two types of workers are almost entirely unrelated. While there are some similarities to be drawn between claims involving independent contractors and contract-based employees, determining a worker’s proper classification is a critical first step toward implementing a targeted and effective defense strategy.
Q: If an independent contractor failed to perform under the terms of his or her contract, can my company deny payment?
Whether a company can deny payment to an independent contractor on the basis of non-performance depends on the terms of the parties’ agreement as well as the specific services for which payment is being sought. Generally speaking, companies must pay independent contractors for the work they perform, and they can withhold payment when a contractor fails to render contracted services. However, payment disputes are often far more nuanced, and assessing the company’s legal rights will require a detailed assessment of the specific circumstances involved.
Q: How can I prove that a worker is properly classified as an independent contractor as opposed to an employee?
Proving that a worker is properly classified as an independent contractor as opposed to an employee requires an assessment of the relevant factors under the governing state or federal law. Any available documentation will be critical, including (but not limited to) the parties’ agreement, tax forms, paystubs or remittance advice, and documentation of the work performed (or not performed).
Q: What are the potential consequences when a company fails to pay an independent contractor for services rendered?
If a company is found liable for underpaying an independent contractor, the remedies available generally include damages in the form of payment with interest. Unless the parties’ agreement states otherwise, attorneys’ fees and costs generally will not be awarded to the independent contractor.
Q: What should I do if an independent contractor has sued by company for non-payment of compensation?
If your company is being sued by an independent contractor who is alleging nonpayment for services rendered, it will be important for your company to promptly engage defense counsel to respond to the independent contractor’s complaint. Your company will need to timely file a formal response in court in order to avoid the risk of a default judgment, and you will need to work closely with your company’s defense counsel to identify and assert all available defenses.
Schedule a Complimentary Case Assessment with a Civil Litigation Defense Lawyer at Oberheiden P.C.
Is an independent contractor suing your company for non-payment or claiming that he or she should be classified as an employee? If so, we encourage you to contact us promptly. To speak with a civil litigation defense lawyer at Oberheiden P.C. in confidence, call 888-680-1745 or request a complimentary case assessment online today.