Can I Sue a 1099 Contractor?
Yes, in certain instances you may be able to sue a 1099 contractor. For example, you might get injured by an independent contractor doing work for an employer. You might have paid someone to do a job that they end up not doing. Your business could have hired an expert who then, using your confidential business information, does similar work for one of your competitors.
If you find yourself in any of these positions, you may have a claim against either the worker or even, in some instances, the worker's employer. An employment attorney could help you better understand the labor laws
What is a 1099 contractor?
The term "1099" comes from federal tax rules. The Internal Revenue Service classifies workers into two categories: W2 workers and 1099 workers. W2 workers are called employees; 1099 workers are often referred to as independent contractors or 1099 contractors.
In general, people hire 1099 contractors to perform a certain task or tasks. They might work on a specific project or perform a specific service. They can be hired on a short-term or a long-term basis. They get to choose when they work, how they work, and often where they can work. They choose what tools and methods to use. They can work for more than one person or business at a time. Most employees can't do these things and don't have these options.
Why do employers hire 1099 contractors?
There are several reasons why an employer might hire an independent contractor. Independent contractors are often cheaper and involve less paperwork in their working relationship. For example, if classified as an employee, an employer must withhold and pay Social Security and Medicare taxes.
Employers also pay unemployment tax on wages paid to an employee. They also often provide benefits, such as health and life insurance and 401(k) contribution matching. Not so for independent contractors. No withholdings and no benefits.
Another reason why employers hire 1099 contractors is based on their experience. 1099 contractors often become experts. They focus on doing one or two things very well. As experts, they become attractive to people who have a specific job to be done.
A third reason is the term of the contract. Employees are often employed for an indefinite term. In contrast, a 1099 contractor may be hired for a specific project on a short-term basis.
A fourth reason is workers' compensation insurance. Employees can receive workers' compensation if they are fired. However, a 1099 contractor does not receive workers' compensation if their contract is terminated. This can reduce unemployment insurance rates the employer would have to pay.
A fifth reason is the federal Fair Labor Standards Act (FLSA), which requires an employer to pay the federal minimum wage and, in some cases, overtime pay at time and one-half for all hours worked in excess of 40 per week. Employees are also entitled to meal breaks and rest breaks. 1099 contractors are not covered by the statute and lack these protections.
Keep in mind, however, that the U.S. Department of Labor might conclude that a 1099 contractor is a misclassified employee and not a freelancer. if so, they can hold the employer responsible for unpaid wages.
Can you sue if a 1099 contractor hurts you or damages your property?
Suppose you are hungry. You order a pizza and wait in your living room. The sun is shining, birds are singing — nothing can go wrong. You see the driver pull up, so you go to get your money. Suddenly, you hear a crash. You rush out your front door, only to find that the delivery driver accidentally drove through your garage door.
You can't afford to buy a new one and the driver can't afford to pay you to get it fixed, but all is not lost. Even if the driver is a 1099 contractor, you may be able to sue their boss.
Although the general rule in most states is that an employer is not liable for the negligence of an independent contractor, there are at least two pretty big exceptions.
The purposes of the exceptions are the same:
- To provide greater assurance of compensation to the harmed party
- To ensure that the business that benefits from the work bears its costs
Exception One: Respondeat Superior
The first exception is what lawyers call respondeat superior, which is Latin for “let the master answer." This theory focuses on the working relationship between the employer and the 1099 contractor.
An employer is financially responsible for harm caused by a worker if that harm is committed within the course and scope of employment. That means that so long as there isn't a break in the chain of control between an employer and a worker, an employer can be liable for the worker's negligence, even if that worker is considered by the employer to be a 1099 contractor.
A court would reject the characterization of the 1099 contractor for IRS purposes as an independent contractor misclassification and treat the employment status as employer-employee. This theory can sometimes be hard to prove because it is so fact-specific.
In this example, if the driver chased while delivering a pizza order during their work shift, it's likely the restaurant could be liable. If, on the other hand, the driver is going home after their shift, the employer is no longer responsible for the driver's behavior.
Exception Two: Apparent Authority
The second exception is what lawyers call apparent authority. This theory focuses on the relationship between the employer and the person harmed.
An employer is liable for harm caused when they hold a negligent worker out as having authority, either express or implied, and someone relies on the employer's representations. This theory can be easier to prove because it depends on the injured party's beliefs.
It can also be easily overcome by an employer making it clear that their workers are independent contractors and are solely responsible for the harm they cause.
1099 Contractors and Injuries
The example above involves property damage, with neither you nor the driver hurt. It would have been different if you had been standing in the driveway when the driver pulled up.
Sometimes 1099 contractors hurt someone when doing their jobs. These personal injury cases can get particularly complicated, and the stakes may be high.
Proving an employer is financially responsible for the harm caused by 1099 contractors can become particularly complicated, so consider speaking with a lawyer about whether you have a claim. Do so sooner rather than later, as most states limit the time in which you can bring a lawsuit.
When can you sue a 1099 contractor that doesn't do what you've paid them for?
Suppose your furnace dies in the middle of winter. You hire a heating company to fix it. They are very busy, so they tell you that they are sending over a subcontractor to do the work now because it's an emergency.
The heating company requires half of the payment upfront, and the rest when the job is done. When the subcontractor doesn't show up, you demand your money back from the heating company. They refuse a refund, saying that they paid the subcontractor so you should sue the subcontractor instead. You may have a claim against the heating company even though you were told a 1099 contractor would do the work.
This scenario involves a breach of contract. A contract is an oral or written agreement that is intended to be enforceable by law. The four elements of a legally enforceable contract are:
- Offer: one party makes a promise to sell a product or provide a service
- Acceptance: the party to whom an offer was made agrees to the terms of the promise
- Consideration: the parties exchange something of value (e.g., money, a service, etc.)
- Capacity: each party must be legally able to enter into a contract.
Some contract cases, like the one above, are straightforward. Others can get complex and, because they are governed by state law, the rules vary from state to state.
Although you may be able to handle a simple case like this one by yourself, consider consulting an experienced lawyer who knows the law that applies to your situation. Do so before running afoul of state law limiting the amount of time in which you can bring a claim.
When can you sue a 1099 contractor who does work for one of your competitors?
Suppose you own a company that makes computer software. You hire an outside IT person as a 1099 contractor to come in and customize a particular program. You know that they have other clients.
While working on your program, they have access to and learn secret information about your business systems. Once the contractor finishes your project, they work on a similar computer program developed by one of your competitors. In doing so, they use the secret information learned while working for you.
You may be able to sue the 1099 contractor for stealing and using your secret business information. Lawyers call this misappropriation of trade secrets.
What is a trade secret?
A trade secret is commercial or technical information used in a business that offers an advantage over competitors who do not know such information.
This can include all sorts of information, such as chemical compounds, manufacturing processes, computer software, customer lists, and, in some instances, marketing information.
What is misappropriation of trade secrets?
Both state and federal law apply to misappropriation of trade secret cases. Many, but not all, states have adopted the Uniform Trade Secrets Act (UTSA). Under the UTSA, you can recover from an independent contractor if you can establish the following:
- The information at issue was a trade secret
- You took reasonable steps to preserve the secrecy of the information
- The 1099 contractor wrongfully took the information
If you win your misappropriation case under the UTSA, you can recover attorneys' fees if the misappropriation is deemed willful and malicious. You have three years to bring a claim under the UTSA.
Are laws on trade secrets different between states?
State laws do differ on misappropriation claims. Some states allow claims of misappropriation of confidential information not rising to the level of a trade secret, while others let you sue to stop someone from using your trade secrets before they can use them. It's crucial to know the law of the state that applies.
There is also a federal statute that may apply. The Defend Trade Secrets Act of 2016 (DTSA) gives you the right to sue a 1099 contractor in federal court if you have a misappropriation of trade secrets claim as defined by the statute.
If you succeed, you may recover double damages and, if the 1099 contractor acted in bad faith, attorneys' fees. You have three years in which to bring a claim under the DTSA.
As you can see, misappropriation claims can get complicated. An experienced lawyer will be able to help guide you.
Consult a Lawyer To See if You Have a Claim Against a 1099 Contractor
If you are wronged by a 1099 contractor, don't panic. You may be able to seek relief in court whether you were injured, they failed to do work you paid them to do, or they stole your valuable confidential business information and used it for a competitor.
In situations where the independent contractor may not have the money to pay you, or if they disappear without a trace, you may be able to sue the employer who hired them.
Consider consulting an employment lawyer for legal advice about what your rights are and whether you should consider taking legal action. Keep in mind that employment law limits the time in which you can bring a claim, so act soon to protect your legal rights.