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Old 10-03-2007, 12:08 PM
 
Location: SE Florida
9,367 posts, read 25,131,120 times
Reputation: 9449

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Sounds as though she used to be on your payroll, then you changed her conditions of employment, so you have been issuing 1099s, right? Because she met the legal definitions of an independent contractor, right? Because the work requirements differed from the paid employee and the contract employee, right? (LOL)

Can you say TAX AUDIT? You need to leave her alone and pray that she doesn't go after you.
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Old 10-03-2007, 12:13 PM
 
23,921 posts, read 10,269,303 times
Reputation: 45702
Go ahead. LITIGATE! Your former employee will forever be grateful.
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Old 10-03-2007, 12:52 PM
 
Location: Bike to Surf!
3,080 posts, read 11,030,592 times
Reputation: 3022
Exclamation Coming Clean...

I need to apologize to the community that has taken the time to respond to my post. In actuality, I have somewhat misrepresented myself, because my wife is the employee in question. I have been pumping the board for ideas on how to deal with her unscrupulous former employer, by taking the employers point of view.

I have to say, every post, and especially sunsrprit's, has been a great help. While you may have gotten a slightly biased (as I am on the side of the potential "defendant") view, we have evidence that all the actions I stated to you have occurred. The facts of the case are as follows.

The employee:
- Hired on as a payrolled employee.
- Was never given/signed any documentation regarding office policy or employment terms, trade secrets, etc. of any kind.
- Was verbally told she was an independant contractor (I am aquiring a sworn affadavit from a former office manager of the business in question) and taken off the payroll after 6 months.
- Recieved a partial (6 month) W-2, but was never issued a 1099 for the remaining 2 years.
- Was paid by irregular paycheck (full hourly rate, sometimes NSF) with no evidence of witholdings or SS contributions.
- Started her own company in good faith, believing she was an independant contractor because of the company's deception.
- Was "fired" for starting her own company. They are still witholding some of her personal property. They initially refused to pay for the last month of work she had done for them.
- Recieved an email from the current office manager stating that they were refusing to pay her travel expenses because she was "employed under 1099 conditions".
- Recieved a threat letter from the company's attourney demanding that she turn over all assets relating to her independant company, claiming she copied proprietary designs (that she produced for them), and reserving the right to sue for punitive damages.

Obviously, her former employer is trying to double-dip. Claiming that they don't need to pay travel, taxes, vacation, or other responsibilities/benefits because she's a contractor, and at the same time threatening to sue her because she purportedly acted improperly as an employee. Needless to say, this has not made us happy with her former employer.

I'm afraid that we might be deficient on last year's taxes (and this year's) due to the employer's deception and our own misunderstanding of what was going on. My next action is going to be to contact a CPA, or tax attorney to help us get our accounts in order and to pay the government any fees/taxes we owe, doing our best to act in good faith. I will, of course, be making inquiries to the proper authorities about the employer's responsibilities. Advice on this would be appreciated.

I'm not really sure how to deal with the threat letter and any forthcoming litigation. I don't want to incur the expenses of a lawsuit, even if I am likely to win and possibly even have a judgement in my favor. The icing on this cake is that the company in question's owner (the one pursuing the legal action) is in the United States illegally on a fradulent work visa. I'm afraid that this might all end in a deportation, leaving me with an uncollectable judgement and large attorney fees not quite worth the sense of satisfaction I could have from a ruling in my favor. And there's always the chance of a loss. Basically, I would rather not litigate, because only the lawyers stand to gain anything from that course of action.

Anyway, I want to thank you all for your help. You alerted me to the seriousness of the tax situation and have encouraged me to aggressively pursue that path. I hope you'll forgive me for my little deception. Any additonal advice or opinions are welcome and I'll keep you posted about this messy situation.
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Old 10-03-2007, 01:06 PM
 
Location: SE Florida
9,367 posts, read 25,131,120 times
Reputation: 9449
That explains a lot. when I first posted, I add that I thought your post was trolling. Then I looked back at your previous posts and decided that it wasn't a troll, and removed my comment. It just didn't fit with the "you" of previous posts.

I wouldn't worry about litigation coming from the employer. It costs a LOT of money and if he was bouncing payroll checks, it's doubtful that he has the funds to initiate a lawsuit. I would just ignore it. So he has an attorney friend who wrote a letter for him. Big deal. And if he is cheating the IRS and has dubious legal standing in this country, no way will he play that card. I say ignore it. It takes a lot to get a matter to court and I just don't see how he would take that risk. Especially since there is nothing in writing. Except that great e-mail from the officie manager referencing the 1099.....

Just ignore it. And do some Googling to find out how to begin to address your wife's tax liabilities. then, when you contact the IRS to take care of things, it will trigger an audit of the former employer's books....

Would be interested to hear from others on the downside of this, as it is my gut reaction.
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Old 10-03-2007, 01:11 PM
 
Location: US, California - federalist
2,794 posts, read 3,668,900 times
Reputation: 484
How was the employer able to determine that the employee was both a W2 and 1099 employee, without any formal notification, in writing, of either status; except for a W2 form?
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Old 10-03-2007, 01:49 PM
 
11,549 posts, read 52,918,471 times
Reputation: 16319
OK, sponger42 ... no apologies needed for your trolling. The situation still remains as we've all been discussing.

Your wife was clearly an employee, and ... while not necessarily entitled to all of the fringe benefits of the company, that's a separate issue ... was legally entitled to have all of the appropriate witholding from her paychecks (FICA employee contribution, Income Taxes, etc.) reported and deposited to her credit with the tax authorities. She was also entitled to all the government mandated benefits to protect employees, such as Workman's Comp and Unemployment Insurance ... which are paid for by assigned rates on the gross earnings of each employee.

Your wife should have no regrets about using the company assets or time for her own gain. Absent an employee manual listing the job responsibilities or any other supporting guidance about performance and behavior, the employer hasn't got a leg to stand on ... even if she had taken what might be proprietary information.

You're now left with contacting your accountant and determining the amount of employee contributions (FICA) and income taxes that need to be paid, and contacting the appropriate agencies and paying what you owe.

In that process, you'll alert the IRS that the employer has been defrauding that agency of the monies due, and likewise ... CA income tax, WC, and UI agencies. All of them will come down on this employer like a ton of bricks.

If the business has any physical assets, all of these agencies are pro's at attaching them in a very rapid fashion ... and are empowered to (literally) padlock the doors until the situation is resolved. Rest assured that all of the CA state agencies talk to each other, so alerting the income tax people will alert the UI people will alert the WC people, and so forth. Typically, the tax folks can readily go behind any business entity front and go after personal assets obtained/tainted by the fraud (which is criminal behavior). So, this employer may have cars, housing, investments, or other assets ... literally down to household furnishings, jewelry, recreational vehicles ... anything of value which may seized and be auctioned off to satisfy the amounts owed to the tax agencies.

Your best hope at this point is that the owner has assets which can be used to pay up the taxes that your wife is personally liable for ... income Taxes and FICA employer's contribution, and does pay the tax agencies in due course.

As for the rest of that employer's problems, they're serious but they're not your problems ... although I might question why your wife would continue to work for two years for a company with such shaky business operations and questionable ownership, as you've raised a concern re flight risk or possibly no traceable assets.

Good luck getting out of this .... don't worry about being sued. There's no basis for the suit, it would be frivolous and exposes the owner to more problems than he'd like to undertake.
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Old 10-03-2007, 04:02 PM
 
23,921 posts, read 10,269,303 times
Reputation: 45702
Document, document and document. Cover everything over and over. Do not rely on memory it can be deceptive. Be prepared for an audit then it may not come.
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Old 10-03-2007, 04:20 PM
 
69,368 posts, read 63,839,164 times
Reputation: 9383
I had two former posts that I deleted after reading this.. Now that the full story is out, the previous posts didnt matter.. so here it goes..

Everyone here is missing one VERY important line which I have put in red, then take these one line at a time.

The employee:
- Hired on as a payrolled employee. <--- Did she fill out tax return papers? If not, she was never truly hired as an "employee"..
- Was never given/signed any documentation regarding office policy or employment terms, trade secrets, etc. of any kind. <------ Independent contractors do not have employment terms or office policies, they are not employees and do not follow the same guidelines..
- Was verbally told she was an independant contractor (I am aquiring a sworn affadavit from a former office manager of the business in question) and taken off the payroll after 6 months. <---- Not the same as above.. Employees are not independant contracts.. She was hired on a contract basis, not as an employee. Sworn affadavits will do nothing but help the company in question.. More you get, the easier it will be to lose. You are now ADMITTING she was told she was an independant contractor.. not an employee..
- Recieved a partial (6 month) W-2, but was never issued a 1099 for the remaining 2 years. <--- not important to discussion, however another discussion could be stared about thsi alone.
- Was paid by irregular paycheck (full hourly rate, sometimes NSF) with no evidence of witholdings or SS contributions. <----- independent contractors do not have taxes or SS contributions taken out. Its your wifes job to pay these quarterly.
- Started her own company in good faith, believing she was an independant contractor because of the company's deception. <----- its never in good faith to start a competitor to the company that pays you without their WRITTEN consent.
- Was "fired" for starting her own company. They are still witholding some of her personal property. They initially refused to pay for the last month of work she had done for them. <--------I'd fire her also, and I'd surely think about holding back payment. Let me get this straight, your wife worked for a company, and then started her own, and the company that employed your wife is supposed to know when she's on/off the clock and that they arent paying her, to essentially move their clients to your "wifes" company?
- Recieved an email from the current office manager stating that they were refusing to pay her travel expenses because she was "employed under 1099 conditions". <--- see following note right below.
- Recieved a threat letter from the company's attourney demanding that she turn over all assets relating to her independant company, claiming she copied proprietary designs (that she produced for them), and reserving the right to sue for punitive damages. <---- company 100% correct here..and this forum, if the lawyer for her company can actually possibly be use it as evidence against you.. Let me quote the damaging part.. "SHE PRODUCED FOR THEM".. That makes it THEIRS.. She was paid for them, they arent hers to use for ANYTHING.

Obviously, her former employer is trying to double-dip. Claiming that they don't need to pay travel, taxes, vacation, or other responsibilities/benefits because she's a contractor, and at the same time threatening to sue her because she purportedly acted improperly as an employee. Needless to say, this has not made us happy with her former employer. <------- The employer is trying to get what they paid for. They dont need to pay for travel, unless it was in writing, taxes, your responsibility as an independent contractor, Vacation time doesnt apply to people who dont actually "work" for their company, and surely you dont get benefits. They have full rights to sue, if your violating their companies ability to do business, using THEIR own information, and the "proprietary designs" that THEY PAID FOR.

I'm afraid that we might be deficient on last year's taxes (and this year's) due to the employer's deception and our own misunderstanding of what was going on. My next action is going to be to contact a CPA, or tax attorney to help us get our accounts in order and to pay the government any fees/taxes we owe, doing our best to act in good faith. I will, of course, be making inquiries to the proper authorities about the employer's responsibilities. Advice on this would be appreciated. <--- Paycheck ONE should have told you something was admiss when you didnt have taxes withdrawn. As a contracted employee WHICH YOU ADMITTED ABOVE that she was, they have no liability what so ever, to pay YOUR taxes..

I'm not really sure how to deal with the threat letter and any forthcoming litigation. I don't want to incur the expenses of a lawsuit, even if I am likely to win and possibly even have a judgement in my favor. The icing on this cake is that the company in question's owner (the one pursuing the legal action) is in the United States illegally on a fradulent work visa. I'm afraid that this might all end in a deportation, leaving me with an uncollectable judgement and large attorney fees not quite worth the sense of satisfaction I could have from a ruling in my favor. And there's always the chance of a loss. Basically, I would rather not litigate, because only the lawyers stand to gain anything from that course of action. <---------Simply stop using stuff that the EMPLOYER paid for.. Its not yours or your wifes.. Send it all back to the LAWYER, with NO letter other then.. Here is the requested information.. Use a delivery confirmation, and REQUIRE a signature to verify that they receive them back. To much information, and they will be using that letter against you in the event you dont cease using "proprietary" information... None of this would result in a deportation, this is a civil court and they do not deport people for civil courts, just criminal. Furthermore, no chance in hell you'd win a judgment against the company because your using STOLEN Properietary information that you were PAID for. Even if by chance you found a sympathetic jury, that did award you judgments.. good luck collecting, if you can, I'll turn over the $450K judgments I have against people...

Anyway, I want to thank you all for your help. You alerted me to the seriousness of the tax situation and have encouraged me to aggressively pursue that path. I hope you'll forgive me for my little deception. Any additonal advice or opinions are welcome and I'll keep you posted about this messy situation.

I'll be waiting to hear about the judgment they win against your wife..

You seem to want it both ways, you want to be classified as an employee, so they can take out taxes, pay the expenses, and then you want to be classified as an independent contractor so she can start an "indpendent" competative company. Even your own statements are to the fact that she was told, up front, (now sworn testimony) that she wasn an independent contractor. You want them to PAY her for the "proprietary" items, including travel etc that it costs to produce them, and then you want to get the rights to use them afterwards.. You've been paid for them.. THEY ARENT YOURS!!

A totally different discussion might be, if your wife SHOULD have been an independent contractor or an employee, without knowing the type of work she was doing, number of hours, job function etc, thats tough to say. However, it sounds like the company is correct here.. She WAS an independent contractor which you, and now former employees all admit to. Even if she was an "employee" she still cant use stuff that the COMPANY has paid for.. Its not hers, its theft..

Since I believe you stated you were in California, here is a posting clearing up the difference between a contracted employee and an employee..per California Government laws. Independent contractors

Signed, an independent contract

Last edited by pghquest; 10-03-2007 at 04:47 PM..
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Old 10-03-2007, 05:56 PM
 
Location: Old Town Alexandria
14,496 posts, read 26,510,816 times
Reputation: 8965
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 are the Plaintiff, you have the burden of proof....and expense....what damages does she owe you??? You must prove all this in a court of law......the law is on her side.
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Old 10-03-2007, 06:03 PM
 
69,368 posts, read 63,839,164 times
Reputation: 9383
Quote:
Originally Posted by sunnyhelena View Post


You are the Plaintiff, you have the burden of proof....and expense....what damages does she owe you??? You must prove all this in a court of law......the law is on her side.
haha, you did the same thing I did.. read the post, then replied to the post... I had to delete two of them when I found out the original post was wrong.. Read through them, they get better..
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