Sued for Breach of Contract

[MS1370]

State: IL

I answered a help wanted advertisement in the local paper for a software engineer. I replied and met with the business owner to discuss the position. He outlined what he wanted, and over the course of a couple of days I created a high-level conceptual document that included all of the elements of the project and what I thought the timeline of the project would entail. The intent of this document was to demonstrate my understanding of the tasks at hand.

After discussing my rate he offered me the job and asked if I had any objection to being paid as a 1099 contractor. I've done contract work before, but only as a W2 hourly worker. My understanding was that the 1099 was simply a matter of me being responsible for all taxes since there was no withholding.

A couple of weeks into the project, he introduced me to a partner (another business owner), and asked that I invoice both of them for half of the amount each. The understanding was that I was only to bill them for work completed, and that they retain the source code of the project I was working on. On a weekly basis, I would visit the clients and demonstrate changes and have design discussions. Monthly, I would meet with both business owners and demonstrate all changes as well as present their invoices. I placed a progress report of items worked on and completion status on each invoice presented.

No contract had been signed, no contractor agreement had even been discussed. My understanding was that I was only to bill for work completed and if, for any reason, the business owners were dissatisfied with the work or the progress of the project that I would be dismissed.

The project was extremely difficult because all design work was being done by the business owners or their employees. The scope of the work continued to grow well beyond what was initially presented to me. I didn't mind this because I was being paid for work performed.

Some points:

- I never billed beyond 40 hours a week.
- This project was my only source of income, and took up my entire attention.
- Design was done by the business. They dictated what work was being done, and in what order it was being done.
- I worked for them for 8 months before leaving.
- The status of the project was left with most functionality in place, but there were some bugs left and some additional functionality left uncompleted.
- There was NO written contract. I can show, via the invoices, that I only billed for hours already worked and show specific progress on the project.
- They are suing for the entire amount they paid me over those eight months.


About eight months into the project, the second business owner started to express dissatisfaction with the time is was taking for completion. I explained that the scope of the work had expanded. The first business owner wanted "things done right" and wasn't concerned about how long it took. There were frequent re-designs done at the behest of the first business owner, which cause great delay.

My final conversation with the first business owner, I let them know I was going to take another position and would no longer be working on the project. I ensured they had all of the source code.

Some six months later I was served papers and was being sued for "breach of oral contract" for failure to deliver a final product.

The project wasn't finished, but most functionality was there. They appear to have made no attempt to hire another developer to finish the project.



My questions:

1) What are my chances of success in my defense? Should I be jumping at an opportunity to settle? (they are continuously asking us if we're open to settling, and I've been reticent to do so).

2) Their failure to even apparently attempt to find another developer... does this factor into the case?


Thank you in advance.

[Mr. Knowitall]

You were paid on an hourly basis? With no performance measure? Did you perform the work on their premises? Using their equipment? Did you use your own time sheets or invoicing system, or use a time sheet they provided? Do you still have a copy of the "help wanted" ad, or can you get one? If so, what did it say? Did you enter into a written contract with them detailing the services you would provide and their cost?

[MS1370]

Thank you for your reply.

You were paid on an hourly basis?

Yes

With no performance measure?

No... as stated we had weekly reviews of what was completed (in person). We also met in-person monthly for a full demo and submission of invoices and reviewed what was completed. I only billed for hours worked.

Did you perform the work on their premises?

One day out of the week was done on-premises. The rest was at my home.

Using their equipment?

No.

Did you use your own time sheets or invoicing system, or use a time sheet they provided?

No, I created a format for the invoice that broke down what was worked on and percentage completed. Hours worked, and total billed.

Do you still have a copy of the "help wanted" ad, or can you get one? If so, what did it say?


I can't retrieve a copy. The Help Wanted ad was small and simply stated that they were looking for a programmer. No information beyond that.

Did you enter into a written contract with them detailing the services you would provide and their cost?

No. No written contract, nor any document that outlines cost (other than invoices presented). As stated, the only document was a proposal document outlining what I believed the project entailed.

[MS1370]

Oh, it's also worth mentioning: I'm being sued for breach of oral contract. I think this thread was moved and the title was changed.

I was paid as a 1099.

[Bubba Jimmy]

What Mr. Knowitall is trying to get at is whether the 1099-MISC route was proper. From what you've said so far, it doesn't seem that it was. The circumstances of this work sound more like you were an employee. You could file form SS-8 with the IRS to get a formal determination. If the IRS determines that the circumstances support a determination that you were their employee, that would go far in helping you in your case. It would also be costly for the company because they would then be responsible for their portion of the employment taxes. I doubt they understand the can of worms they might be opening for themselves.