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Old 10-02-2007, 07:18 PM
 
Location: Bike to Surf!
3,080 posts, read 11,041,055 times
Reputation: 3022

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Quote:
Originally Posted by sunsprit View Post
Let's see ... you've got someone working 40 hrs/wk steadily for your company as a not-quite independent contractor; most likely, the worker would fail the "means tests" of the FEDS and CA to qualify as an independent contractor for you. A significant aspect of the relationship was that there was no contractual arrangement, just casual employment which apparently lasted for some time for weekly work peformed on your premises using your office and equipment. That's almost a closed case substantiating an employer/employee relationship by itself.
Probably, it sounds like they'd fall under the definition of a Common Law Employee.

Quote:
Further, there was no "non-compete" clause (which are hard to enforce in CA), no value exchange for the non-compete activity specified up front (an essential aspect of a non-compete, you cannot dictate that someone voluntarily give up their means to a livlihood without compensation in exchange), no "trade secret" or inside information taken from your company, and ... from your statement, no apparent loss sustained by your company.
Well, there are some questionable shipping charges made by the employee on company accounts. Unfortunately, I don't have complete records, but I might possibly get them from the shipping company. But without manifests, it's hard to prove much. Additionally, I found some of their products from their were similiar to mine, unfortunately, they can prove that they produced their verson first (chronologically). I have lots of suspicions, though.

Hm, so their paycheck wasn't compensation enough to require them not to compete with my company?

Quote:
Not only do you not have any foundation for a claim against this person or their business, but as an employer (especially in CA), you ought to feel damn lucky that this person hasn't taken you to task for damages with bounced paychecks for their work on your behalf.
I did see the section of CA law about NSF checks. I suppose they could send me their bounced paychecks (there's still one out there that I'm not going to pay the $10 fee for) with a notice. Then I'd have 30 days to pay, or face paying treble the amount. Fortunately, the check is for more than $1500, which is the cap on the trebel damages, so that should work out fine for me, right? Let them send it back. The longer and more hassel it takes them to get paid, the more chance they'll just give up, right?

Quote:
Additionally, as an (most likely) employee, this person is in an position to cause your business serious expenses in unpaid/undeclared UI, WC, and SS witholding taxes, among other FED, CA, and local taxes which your company owes to those authorities. At this point, you'd not only owe the taxes in full, but the penalties and interest for not having declared and paid them.
Isn't it on the employee to pay those taxes and witholdings if they're paid by check? Why would the FED, CA, and city (LA) come after me for those taxes? The employee is the one who didn't pay.

I'll have to check with my tax guy. I think I claimed those checks to her as a business expense, but maybe I didn't. Is there any way to pay those taxes at the end of the year? But I shouldn't be responsible for them, anyway, right?


Quote:
Generally speaking, if this person raises any question about your business operations relative to their employment and your witholding contributions, you can be sure that the taxing entities will be on your doorstep with inquires ranging far beyond this one employee. If there's any defects found, you can also bet that the IRS will be on your doorstep for an audit ... since you've already demonstrated an aversion to paying your employee taxes. The IRS typically will not put just the one year under a microscope, but several ... looking for any pattern of your business and personal expenses which have the remotest possibility of being out of order.
How would they go about siccing the IRS on me? Do you think if they hire someone to do their taxes, they might report me then? I still don't see that I have any obligation here. The employee was paid in full. They should be liable for any taxes not properly paid.

Quote:
I hope that you've got a very inexpensive accountant because they'll be spending a lot of billable time trying to prove the business and personal income/expenses you've had over several years time.
No, he costs a lot, and I'm not so good about keeping track of my tax records.

Quote:
IMO, you'd be best advised to let this matter drop and do everything you reasonably can to keep your new competitor very happy. They have a number of years to initiate a claim against your company and may ... in time, have an accountant who questions what happened during this time period and may advise that person to file with the appropriate tax entities, especially for SS.
I don't like that advice at all.

Quote:
Depending upon the amount of money involved and the length of time of the person's work, you may be at risk of serious charges .... which could leave your business in a very shaky condition. Those tax entities have the force of law behind them and can come after your business and personal assets to satisfy their claims against your business.
Well, it was only for less than 2 years, and their income is only 40K or something like that, so the penalties probably aren't that big of a deal, anyway, I bet. I think I still might be able to go after them. What do you think?
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Old 10-02-2007, 07:33 PM
 
Location: Colorado, Denver Metro Area
1,048 posts, read 4,338,334 times
Reputation: 404
No. Have a good day.
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Old 10-03-2007, 01:50 AM
 
Location: Bike to Surf!
3,080 posts, read 11,041,055 times
Reputation: 3022
Well, I found a lawyer to send them a Notice of Claim/Threat Letter. He assured me that it is illegal for them to work for their own company while still under my employment. The fact that they didn't explicitly tell me about it apparently makes it "secret."

I also found some similiar products that their company is producing that I am going to claim are my proprietary designs. Finally, I am going to cite the shipping stuff. I only have some receipts that show a few hundred in questionable shipping fees, but I'm going to claim several thousand to cover the stuff I don't have documentation for.

I'll keep you updated. In the mean time, while I wait for a response, I'd appreciate your thoughts and responses to my post above. Thanks!
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Old 10-03-2007, 05:50 AM
 
11,550 posts, read 53,004,833 times
Reputation: 16329
Wow, sponger42 ... you'd best get together with your accountant and lawyer very quickly and get educated. Two years worth of not declaring and paying employee costs will be very costly for you; the quicker you can get caught up the less the penalties and interest will be.

Your apparent resistance to accepting these costs of having employees will yet prove to be very devastating.

You are apparently operating from a position of absolute ignorance about the responsibilities of an employer witholding taxes and depositing the employer matching contributions for things like Social Security and Medicare. It is not incumbent upon the employee to make those declarations and deposits with the appropriate authorities, it is strictly your responsibility.

Did you 1099 this person? If you don't know what this term is, you're really in deep trouble. They should have received a W-2 from your company. At $40k earnings per year, your company owes a lot of money to the tax authorities.

The tax man will not go after the former employee for not declaring and making those deposits. They will go after your company and you personally, and I can assure you that those tax authorities will aggressively seek to collect them as the money ... once determined to be owed by you as an employer ... is considered to be theirs, not yours to be paid at your leisure. That's why they can assess fines and penalties against you without even having to go to court; it's strictly procedural.

If you don't believe that you're facing some serious trouble at this time, just make some simple inquiries to the CA Tax Equalization Board (I think that's what they call it) about CA income taxes and witholding responsibilites of the employer.

You can do the same inquiries with the Workman's Compensation Authority, the Unemployment Insurance Board, and ... most importantly, the Feds at the IRS.

By your own admission, you have failed to not only report wages paid for two years to an employee, but you have not witheld their deductible contributions to SS and Medicare, nor have you paid the employer matching contributions which are your sole responsibility. At this point, when the Feds determine how much should have been witheld and paid, you'll owe the entire amount (without the opportunity to withold from the employee their portion of the contribution) plus penalities and interest.

Don't think for an instant that you're fooling around with amateurs who will accept anything less than all that you owe to them. These folks are serious and have the power to shut your business down if you don't pay up. They don't look upon your ignorance with kindness. You have clearly violated the law repeatedly, and the monies owed to them are the agency's monies from the moment it was due. It's not your money, it's their money .... and they have the power to investigate you and collect the money.

The oldest business tax scam in the books is for an employer to call an employee an "independent contractor" and to attempt to shift the responsibility for UI, WC, and witholding income tax liabilities to the employee. None of these taxing authorities will tolerate such a scam; the "means test" for qualifying someone as an independent contractor are pretty clear cut and tend to favor qualifying someone as an employee rather than an independent business.

The biggest liabilities you face right now will be from the IRS, CA income tax board, and the UI and Workman's Comp authorities who you have defrauded. They'll all be pretty angry with you for two years worth of your fraud to them.

At one point or another, you're going to have to get it into your thinking that this is not a situation between you and the former employee; this is a serious situation between you and the tax authorities.

And that's where your potential liability exposure to all of these authorities stems from your prior employee. All that person has to do is ask the SS administration how come I didn't get a W-2 for my two years of work, and how much did my former employer withold and contribute to may SS account? Similarly, when they ask the IRS (or the IRS generates the inquiry when the person files their income tax return) how much was witheld and deposited for my income taxes in those two years ... an inquiry will be upon your doorstep. It will start with a simple letter requesting your clarification, but when it becomes apparent that you've tried to scam the tax authorities out of their due, you'll have to meet them face to face and start hearing about what you owe.

I can assure you that a simple question from your former employee will be adequate to trigger all of these tax fraud inquiries upon you and your business ... and I repeat, the problem will be between you and the tax authorities alone. This is not a dispute between you and the former employee. The UI and WC folks in CA will be especially tough to deal with since these are strictly employer responsibilities to be declared and paid, and you've owed this money for a long time; your former employee did not owe this money, you did.

Again, I strongly urge you to seek out professional counsel and get this whole matter squared away as quickly as possible. If you're going to be in business, you'd best learn about your responsibilities, tax declarations, tax deposits, and how to legally employee your help. Absent that knowledge and professional assistance, you'll be out of business and found to be criminally responsible for the tax burdens you've avoided.

You're really looking at some serious repercusions in your personal finances, personal and business credit history, and civil/criminal charges. These won't be simple and inexpensive to overcome in the future if you attempt to go into business again. You'll see punitive business insurance rates, as well as punitive WC and UI rates. You may find yourself being repeatedly audited by the IRS in the future, too, as they will identify you as someone who apparently doesn't play by their rules ... if you didn't comply in this business sector, you raise a lot of red flags for them in your personal sector. And your former employee is in a perfect position to instigate their curiosity and inquiries with a simple phone call to an IRS hotline.
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Old 10-03-2007, 07:41 AM
 
Location: Dallas, Texas
3,589 posts, read 4,129,341 times
Reputation: 533
Quote:
Originally Posted by sponger42 View Post
Can anyone help me with general information regarding California Labor Codes?

I had an at-will employee, paid by check, working ~40 hours/week in my office.

My company has a payroll, but she was not on it. My company offers health care, but we did not extend the offer to her. I had no formal signed agreement of employment with her. I had no official office policy regarding use of company property, computers, etc. Her bi-weekly checks often bounced because of my company's cash flow problems, but eventually they were paid.

I found out that she had formed her own company--without explicitly informing me, though my office manager knew about it--that produces a product similiar to that of my company. She was working for this company on her own time and without using anything that could be considered a "trade secret" from my company.

Do you think I can successfully litigate for damages against her and her company, or to seize her company? Does California law prohibit an employee or contractor or whatever she was from starting their own business in competition to my own?
You didn't give her any benefits, her paychecks bounced, she wasn't actually an employee...and you want to sue HER?!?!?!? ROFL.
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Old 10-03-2007, 08:06 AM
 
Location: Vero Beach, Fl
2,976 posts, read 13,348,933 times
Reputation: 2265
I am a business owner and I am sitting here stunned. No agreement? Bounced checks? etc. ? And so she saw an opportunity to produce a similar product. Sorry to say this, but serves you right. You have scant to no recourse.
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Old 10-03-2007, 08:27 AM
 
Location: US, California - federalist
2,794 posts, read 3,672,069 times
Reputation: 484
Quote:
Originally Posted by sponger42 View Post
Can anyone help me with general information regarding California Labor Codes?

I had an at-will employee, paid by check, working ~40 hours/week in my office.

My company has a payroll, but she was not on it. My company offers health care, but we did not extend the offer to her. I had no formal signed agreement of employment with her. I had no official office policy regarding use of company property, computers, etc. Her bi-weekly checks often bounced because of my company's cash flow problems, but eventually they were paid.

I found out that she had formed her own company--without explicitly informing me, though my office manager knew about it--that produces a product similiar to that of my company. She was working for this company on her own time and without using anything that could be considered a "trade secret" from my company.

Do you think I can successfully litigate for damages against her and her company, or to seize her company? Does California law prohibit an employee or contractor or whatever she was from starting their own business in competition to my own?
I would question why you want to pursue that course of action, if you admit, the employee didn't do anything wrong.

Perhaps, if are willing to provide complementary services to her company, you can both reduce costs and still make a profit for both companies.
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Old 10-03-2007, 10:09 AM
 
5,760 posts, read 11,511,844 times
Reputation: 4949
Quote:
Originally Posted by jhlcomp View Post
I am a business owner and I am sitting here stunned. No agreement? Bounced checks? etc. ? And so she saw an opportunity to produce a similar product. Sorry to say this, but serves you right. You have scant to no recourse.
Put me down for double stunned.

Even funnier part is now he has found a lawyer (to bill him some hundred(s) per hour) to tell him what he wants to hear.

--------------------------

Sponger, it just goes down hilll deep and fast from here.

In case you have not figured it out, she seems to be a little smarter than you. Not saying that bad about you, but is that not what the situation is indicating?

So now, if maybe she is even just a little smarter, what is to stop her from counter-suing you and locking you into (many) thousands of dollars of legal bills from your own lawyer, for all the causes of action against you, that everyone listed above? (and more).

In many states once you are counter-sued, you cannot even stop the case if you dropped all claims. You will basically be paying for your own hanging. I did that once to Harriet Miers and her crew and it cost her client around a half-million.

Just stop the dumb, learn from it, and drive on.

--------------------------------------

ps. I thought this had to be a troll, as well.
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Old 10-03-2007, 10:50 AM
 
Location: North Adams, MA
746 posts, read 3,493,370 times
Reputation: 815
Quote:
Originally Posted by sponger42 View Post
I don't like that advice at all.
In my opinion, most of the advice you have been receiving has been quite good.

I think you should be glad people are telling it like it is rather than leading you on.

Could it be that your desire for revenge is blinding your judgement a bit?
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Old 10-03-2007, 10:51 AM
 
Location: Grand Rapids Metro
8,882 posts, read 19,795,749 times
Reputation: 3920
Quote:
Originally Posted by sponger42 View Post
Well, I found a lawyer to send them a Notice of Claim/Threat Letter. He assured me that it is illegal for them to work for their own company while still under my employment. The fact that they didn't explicitly tell me about it apparently makes it "secret."

I also found some similiar products that their company is producing that I am going to claim are my proprietary designs. Finally, I am going to cite the shipping stuff. I only have some receipts that show a few hundred in questionable shipping fees, but I'm going to claim several thousand to cover the stuff I don't have documentation for.

I'll keep you updated. In the mean time, while I wait for a response, I'd appreciate your thoughts and responses to my post above. Thanks!
Hell, why not throw fraud onto the pile while you're at it ROFL!!

Sounds like you should be nice to her, as you are probably going to be out on the street looking for a job soon.

This whole situation is ludicrous.
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