Can an Independent Contractor Be Fired?

Who is an independent contractor?

An independent contractor is a self-employed person providing services on a contract-based model to other individuals and businesses. An independent contract controls who they work with and who they work with. They are responsible for handling their own self-employment taxes.

Your employers are not liable to pay their taxes and arrange for their training. You are  responsible for arranging your own tools and manage your working hours.

An independent contractor is an additional help you can hire as a business when you do not have the budget to afford a full-time employee. This is an excellent way to get the job done while saving money because you will be liable to withhold or pay their income tax, social security as well as Medicare taxes. Misclassification of freelancers by employers is a common trend because companies don't want to pay those taxes. Disclaimer, the contractor status all depends on the employer-employee or independent contractor relationship.

Independent contractors and IRS compliance

While an independent contractor is self-employed, the Internal Revenue Service obligates the businesses to classify their workers carefully and pay the taxes accordingly. Therefore, in order to say in the good books of IRS, you as a business must ensure to classify your independent contractor agreement as per IRS’s definition.

The IRS has compiled a 20-point text for the auditors to determine the proper classification of the workers. However, here are some of the points to address the regulations for the independent contract.

• An independent contract is a worker who has complete control of their own work. If the person has no control over the right to control and direct their work plus where and when they can work, you must classify them as an employee. For example, you are a restaurant owner, and an oven breaks down. Now, the repair guy who comes in to fix the oven is an independent contract, whereas your chef cooking food for you is your employee. You cannot classify your chef as an independent contract, neither can you call the repair guy your employee - know the difference.
• While a business has every right to fire an employee, you cannot fire an independent contract as long as he/she is producing the results required as per their agreement.
• You can train an employee to perform their duties; however, independent contracts are responsible for training themselves. That said, there is no restriction on if you wish to train a long-term independent contract to increase your own productivity.
• If you are an employer, you have full control over determining the working hours for your employees. However, you cannot dictate the operating hours of the independent contractor. The only way is to reach a mutual agreement to determine the hours you would like them to work.

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What is wrongful termination of an independent contractor?

Whenever an employer ends a working contract in violation of the legal rights (breach of contract) of independent agreements or public policy, this is known as wrongful termination. The current employment laws require the business owners to prove that the firing was just.

Therefore, if you are an independent contractor, always ensure that you understand the terms and conditions before signing the written agreement or contract to work with a business. This is even more important if you resident of a state with employment-at-will provisions such as California. This provision allows the employer to fire an independent contract or an employee without any reason.

That said, there are laws that can prevent businesses from taking advantage of employment-at-will provisions. These laws include public policy, employment rights, and contractual rights of the 1099 workers.

If you are an independent contract, your employer must respect your rights and follow them. In case they violate your rights via committing illegal acts, including violation of public policy, retaliation, or discrimination, you can take them to court for doing so.

On the other hand, as a business working with independent contracts, you must note that a 1099 worker cannot sue you in court, except in exceptional circumstances. One of the typical scenarios is when you have misclassified an employee as an independent contractor to evade taxes, overtime pay, and pay any tax benefits.

In this case, the employee you misclassified with the employment status as an “independent contractor” can file a lawsuit against you in court. Whether you are a business hiring an independent contractor or a person working as an independent contractor must know the characteristics or classification rules and employment relationship.

• The hiring and payment of independent contractors are project-based.
• An independent contractor is free to offer their services to other businesses as well.
• The independent contract does not control the working environment, the tools, and processes of the business. They only have control over achieving the desired result, as mentioned in their contract.
• If you are an independent contractor, you are responsible for arranging your own tools and covering all costs pertaining to the services you offer. This means you are also responsible for your profit or loss.
• An independent contract works with a business for a short period of time, i.e., for the tenure of a project. However, you can continue to work on a long-term basis by renewing the agreement.

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3 wrongful reasons to fire and independent contractor

A business can always let go of an independent contract at the end of its assigned project. However, here are three scenarios where a company cannot fire an independent contract. If they do so, then a 1099 worker can file a lawsuit against the business.

1. In violation of contractual terms

Independent contracts offer services under a contract with stipulations of the project, their responsibilities, and expectations. The agreement also mentions information on conditions when the business or independent contract can terminate the contract at any time.

That said, if an employer violates the stated contractual terms causing financial damage to the independent contractor, who then may sue the employer for wrongful termination.

On the other hand, if you are a business entering a working relationship with an independent contractor, you can sign an agreement with a legal termination clause. In this case, you can fire an independent contractor if they fail to deliver the desired results.

In these scenarios, you (as an employer) must follow the protocols for firing the independent contract as mentioned in the agreement. The procedure might include arbitration measures to allow the independent contract to correct their mistakes or prior notice of termination.

If you do end up firing the independent contract, you must pay them for all the work they have done for you.

2. Employer retaliation

In some instances, an independent contractor may question the working relationship with their employers. This mostly happens when employers start to treat them as their own employees and control their wages, working hours and break times.

If you are an independent contractor and the employer retaliates because you do not let them control how you work. Then you can file a complaint against them as far as you deliver the desired results as per your contract.

3. Constructive termination

If you are an independent contract and your employer knowingly or intentionally creates unacceptable working conditions for you to quit, this is known as a constructive termination. Remember, an employer cannot fire an independent contract legally if they refuse to work under intolerable working conditions.

For example, you are an independent contractor working in the construction industry. Now the employer allows a harmful working environment to persist and fires you for not falling in line or resign because you fear for your own safety; this will be a wrongful termination.

In this case, an independent contractor can take the employer to court. \

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What if you are troublesome as an independent contractor?

So let us say you are hired as a freelancer, but you are a nuisance because you are not getting the job done. Your employer must first you must do is going through their contract and find out what termination provisions are (if any). These provisions will allow them to find suitable reasons for your business to fire an independent contract with or without any further notice.

There may be other guidelines on how exactly you can end the working relationship between your company and the independent contract. Therefore, to stay compliant with what the law says, simply follow the stipulations in your agreement scrupulously.

In case your independent contract is compliant with all the stipulations they must follow to offer their services, you will have to find a more diplomatic solution. They may be delivering the results, but you are not happy with their work ethics or their effect on your full-time employees.

In that case, you can have a one-on-one conversation with them to find a solution or agree to a mutual termination of the working relationship. This may work for you because independent contracts rely heavily on their reputation in the market and will make an adjustment to their work ethics or terminate the agreement on good terms.

What if your contract does not have a termination clause?

If there are no clauses pertaining to fire an independent contract, it is wise to have a frank but professional discussion with them. This will allow you as an employer to reach a compromise or mutual terms to fire an independent contractor.

In some cases, there are contracts which even state the provisions to settle the disputes, such as mutual termination or no-further notice terminations. You just have to follow the guidelines mentioned in the contract in those circumstances, and you will be safe.

If you are a business accustomed to working with an independent contractor, you must ensure behavioral controls as part of conditions for termination.

For example, what tools the independent workers can use, the sequence of projects, and who should perform the job. In this case, if an independent contractor fails to follow the protocols, you can fire them without any issues.

Consequences of wrongfully firing an independent contractor

If you are an employer who wrongfully fires an independent contract, then the consequences may be hard on you. It can cause your business substantial financial damage, which can result in the following.

Paying back lost wages

If you wrongfully fire an independent contract, your company may be liable to pay a hefty amount in a lawsuit. In most cases, you will have to make for all the wage losses from the date of wrongful termination. You might even have to pay for future lost wages of the independent contractor.

The court may consider the value of the wages lost and adjust them for inflation.

Paying lost benefits

You are not liable to pay an independent contract any benefits. However, suppose you willfully or unknowingly misclassified an employee as an independent contract. In that case, you will have to pay for all their benefits from the day their employment started to the termination date.

These benefits include but are not limited to rest breaks, meal breaks, workers compensation, health insurance, and other employment-related benefits.

Legal fees

If an independent contract decides to file a lawsuit against you in court, you will have to cover the legal costs for wrongfully terminating an independent contract. However, it was a misjudgment on your part; you can request the 1099 worker to settle this matter outside the court.

Apart from paying for the legal damages and hefty fines under federal acts such as Sarbanes-Oxley Act, and FEHA, you also risk your reputation in the market and with the authorities. Therefore, it is always wise to abide by the contract and mention any or all termination possibilities in the operating agreement when hiring an independent contractor.

Were you wrongfully terminated as an independent contractor?

If you are an independent contractor and believe that the employer wrongfully terminated you, you must gather all the evidence to support your claim. As a 1099 independent contract, you will have to provide a copy of the written work agreement with the employer.

The contract must have details about the nature of your working relationship with the employer, job duties, desired outcomes, and terms of terminations. If the work agreement was oral, then you will have to present a witness.

Compile a detailed record of what the employer said to you before firing you and regarding your contract. You must also observe and document any changes in the employer’s behavior in case you reported any violations or illegal working conditions.

You can also show your previous track record of performance reviews to show that you were compliant with all the protocols expected from you. Therefore, sudden negative reviews since you reported intolerable work conditions or employer actions would definitely raise red flags pointing to wrongful termination.

Tips for independent contractors

Here are some tips that will help independent contractors to secure their stance in case of termination.

• Keep all correspondences and documentation between you and the other party. This includes documentation pertaining to reasons for the firing.
• Examine the situations to make sure there was no foul play.
• In case of being an independent contract, seek legal advice with a lawyer or law firm as soon as you sense any foul play leading to or resulting in your termination.

While this taking the legal route may take a longer time, it will ensure both employer and 1099 independent contracts that they did everything by the law.