Recovering Contract Pay Might Not Be Worth the Costs

Question: I worked for a company as an independent contractor. The job was terminated by the company in June. I have two contracts signed by these people, both of which have 30-day termination clauses. One also indicates that litigation can take place only in Indiana. I was terminated without the 30-day notice. When should I start legal action?

--J.M., Newport Beach

Answer: You can start legal action immediately, but you should first think carefully about whether litigation is really worth the trouble. It appears that the most you could recover in a lawsuit is 30 days’ pay.

Independent contractor agreements may be terminated for any reason whatsoever after giving the prescribed amount of notice. But if such notice is not given, all you can sue for is the pay you would have earned during the notice period. You cannot collect emotional distress damages, punitive damages or attorneys’ fees in this type of lawsuit.

You should weigh the costs of suing against the amount of money you are likely to recover if you win. Costs include hiring an attorney, paying court costs and perhaps even traveling to Indiana to sue (although a California court might allow you to sue here and apply Indiana law).

--James J. McDonald Jr., attorney, Fisher & Phillips, law instructor, UC Irvine

*

Question: Is it legal for an employer to hire you and indicate throughout the year that he is going to give you a W-2 and then around April 15 decide to give you a 1099? Is it fair for an employer to do that, and is he subject to any penalties?

--T.M., Corona

Answer: It is probably not legal for the employer to do what he did. Unless it is clearly understood when an employee is hired that he or she is to be an independent contractor and the employee truly is an independent contractor--in terms of the nature of the work and how much control the employer exercises over the work--an employer must treat employees as employees. That is, the employer must make the appropriate deductions from their paychecks for income and Social Security taxes and must provide W-2 forms in a timely fashion. Considerable penalties may be imposed on an employer who fails to make and report the appropriate deductions for employees.

--Michael A. Hood, employment law attorney, Paul, Hastings, Janofsky & Walker

*

Question: My wife is pregnant and works for a bank that is supposed to be sold at the end of October. They’re telling her that when the bank is sold, she will have no rights to insurance or COBRA. In that true?

--V.N., Rossmoor

Answer: COBRA benefits are available to eligible employees to allow them to continue health coverage under an employer’s group health plan after termination of employment. There are no COBRA benefits without a group health plan. According to the Office of Pension & Welfare Benefit Administration, if an employer discontinues its group health plan, the employees do not have a right to continue coverage under the COBRA provisions. If the new owners do provide a group health plan, your wife would be eligible for COBRA benefits.

A union contract might prevent an employer from eliminating or changing a group health plan. The new owner may also be obligated to continue the benefits if it simply is buying the stock of the existing bank, as opposed to just the assets.

You may be able to acquire insurance for your wife under your group health plan at your employer. Contact your benefits administrator about adding your wife to the policy. Some plans allow you to add dependents to your coverage, even if it is not time for open enrollment, if there has been a substantial life change. The loss of a spouse’s job and insurance benefits sometimes qualifies. Also, if your wife finds a new job elsewhere, some insurance plans may provide coverage without a pre-existing condition exclusion.

--Don D. Sessions, employee rights attorney, Mission Viejo

*

Question: I run a small business. What is a good, one-stop source for advice about personnel issues? Is there a book or a guide available?

--L.K.

Answer: My organization, The Employers Group, can assist you in the day-to-day management of your human resources activities. The Employers Group, formerly the Merchants and Manufacturers Assn., is a nonprofit, member-supported organization dedicated to helping employers manage their human resources.

We offer late-breaking information, education and consultation on the many facets of personnel management. For additional information, please contact our Orange County regional office at (714) 558-1550.

--Elizabeth Winfree-Lydon, senior staff consultant, The Employers Group

*

Question: I’m a licensed real estate agent who works on a commission basis as a loan officer. The last two mortgage companies that I’ve worked for owe me thousands of dollars that I cannot collect. Each has found some reason to terminate our contract after I have established a pipeline of loans.

They retain the loan files as company property and promise to pay me the commissions I earned once the loans are completed, which never happens. Sometimes a company goes out of business and the broker says he’s not responsible, or the company just refuses to pay me unless taken to small claims court. Other loan officers in the industry have similar stories.

So far, the Department of Real Estate and the Labor Commissioner’s office have been unable to help inasmuch as we are regarded as independent contractors. Are there any laws to protect us?

--E.S., Newport Beach

Answer: There are no special statutes applicable to your situation. However, the courts will enforce promises such as those the mortgage companies made to you. Although you might not be able to call on any government agency for assistance, you can collect the money owed to you by suing in small claims court.

To prove your case, you will need evidence that you were responsible for the loans on which you are seeking commissions. You and others in the same situation should keep careful records so that you will be able to prove what you are owed.

--Calvin House, attorney, Fulbright & Jaworski L.L.P., adjunct professor, Western State University College of Law