A little background (sorry it's a bit long but needed):
I'm "Ed" in this scenario.
Dan and Ed (fictional names) are two IT friends that have known each other for well over the past 10-15 years. Back around 2015, Dan quit his job & decided that he wanted to start his own software and mobile app based business using programmers from overseas. His business started to grow from word of mouth and he networked heavily to gain a lot of new contacts and business. Afterwards, around 2016, he asked Ed to work with him to see if they can grow an IT side of Dan's business so that he could bring in extra income. During this time, Ed was having some medical issues with his son, who constantly was in and out of the hospital and knew his employer wasn't going to always be willing to let him take so many days off and/or unexcused. So, he decided to take the plunge and quit his job as well to "join forces" with Dan and see what IT business that Dan can help him get so that he could be home with his son as needed and work at the same time from home (most of the time). Slowly but steadily, Dan had gotten Ed 3 monthly recurring small business based clients (one in NJ and 2 in PA), where Ed's job was to provide IT support to the clients (primarily remotely), on a monthly ongoing basis. Ed was looking to add more clients since he seemed to be able to handle the load but there were "no bites" at the time but he did pick up a lot of hourly based clients (who were being invoiced separately under Ed's business only - he registered a new business name and took out professional and general liability insurance as well). Dan's business is NJ based and Ed's is PA based. There were NO written contract between the two for these 3 monthly recurring clients (just working under a verbal & mutual understanding) but Dan had established pricing with the clients whereby they were being charged a specific amount per month and he would just easily get a cut from it on a recurring basis, thus bringing in Dan additional easy income. For example, from a $3500 monthly client's check - $3000 would go to Ed and $500 would go to Dan. All 3 clients monthly payments would get sent to Dan's business and then he would cut a check back to Ed and Ed was getting paid on a 1099 basis, invoicing Dan on a monthly basis as well. Things were going well for quite sometime (payments were being cut on time and paid out via checks/ACH, extra one time setup fees charged were split between the 2, Dan was issuing 1099-MISC forms for the yearly income, etc) and Ed was making quarterly 1099 payments to the IRS as needed until Dan started a side business with one of the IT clients (NJ based one) on a software project and things started to take a big turn. It was a huge project and the client decided to add on additional staff in the office to handle certain tasks so that the could get the project done on time. Long story short, Dan told Ed that the client has "given notice" that he wants to hire an in house IT person since he required immediate assistance for his IT issues. Ed believes that this was an internal decision between Dan and the client though. It was completely unexpected since Ed just bought a new house at this time, thinking that he had sufficient income to cover mortgage and other expenses required for a new house. Regardless, Ed had to let go of that client and was down to 2 monthly recurring clients now. He took a big hit on his income but still managed to move forward. During this time, Dan's business has done so well that he has offices setup internationally now and is booming. His app business was really doing well and he was making good money from the business. In the past, Dan asked Ed to join him as an employee under his company but due to personal experience with the way that Dan is along with a few other things (such as daily commute to NJ office, timing, etc), Ed decided to stay independent and just continue to provide IT support for the other 2 monthly recurring clients. Dan had also asked Ed to provide written contracts at times but things fell thru the cracks and it was never done. Over a period of this time, Dan started to slack and began making payments late to Ed. Ed knew he would pay it even if Dan took him time to do so since he was financially OK to cover the periods. Dan continued to be late but he would pay a couple of months as needed, even if it meant sending texts and emails telling him that he was late and that payment was needed. At times, Dan would say that ACH payments were set up but Ed would never get them in time but Dan would continue to make the payments at some point.
Fast forward to end of 2018, and now Dan owes Ed almost 6 months worth of payments (almost 20K+) but doesn't seem to want to pay it now because Dan all of a sudden, has sold or done something with his company with some new partner(s) and has gotten into some million dollar deals with them. Ed isn't really too sure of how much of this story of Dan's is true though as Dan hasn't been too truthful lately. Anyhow, Dan asked Ed to provide written contracts for the 2 remaining clients since his new partner(s) has requested it and Ed finally provided written Subcontractor Agreements to him (dated on the date that the contracts were drafted (12/7/18) but NOT signed by either party so that they can be reviewed and finally agreed upon). Ed wasn't really too sure what Dan was going to be doing with these written but unsigned contracts but Dan told Ed that he is apparently trying to show his partner(s) that there was a contract established from before between the two of us so that he could try to get Ed paid. Ed asked Dan to provide more info about this sale but Dan told him he had a NDA signed and couldn't talk about it and that he didn't need to know anything about it as well. At this time, Ed kept asking Dan for his late payments, (esp since Christmas was right around the corner and Ed had a lot of expenses and bills pending) but Dan continued making up excuses not to pay implying that since there was no written contract, the money shouldn't be paid to Ed. Contracts were given to Dan but he never got back to Ed about them saying that they are "still being reviewed" by the partner(s) whenever asked. Numerous texts and emails and invoices are being sent to Dan but he just doesn't seem to want to pay up now. Ed has maintained all payments history records and invoices and texts and convos. Dan did say that he was going to give some money from his personal account via check to Ed (he never did fulfill this) because he knew Ed needed it but said that he couldn't pay up the whole thing at this time.
Doing a little bit of research online, Ed found out that "If you are working for a business and you are not an employee, you are a contract worker. Some, but not all, contract workers have contracts. If you don't get paid for your services, begin by first writing to the business explaining the work you did and the payment you expect. If you have previously been paid, that helps establish the "contract," and you must document all previous payments and keep any tax documents, like 1099-MISC forms showing previous payments. If your attempts to get paid aren't successful, you can contact an attorney and attempt to sue for payment. Your documents will help with your case." Source: https: -- link removed
With this being said, can Ed hire a business attorney and taking Dan to court to collect the 20K+, even though there was no written agreement in the past between the two? If so, how long would something like this take to get settled and would it be worth it in the end? Or, should Ed just end all business with Dan (but he will be taking over his 2 remaining clients and have them do business directly with Ed (thru his business/company and using written/signed contracts) instead now since Dan doesn't really have any formal written contracts with the 2 clients as well) and call it a business loss? Ed is very stressed out over this during the past few months but needs to know what should be done going forward as monthly client payments would still be sent to Dan (if Ed continues to do the work), thus increasing Dan's owed balance and not to mention that Ed would still be paying quarterly taxes to the IRS to actual money that he doesn't have in his hands as well.....Ed has learned the value of written/signed contracts now but what are YOUR thoughts on the whole thing??
I'm "Ed" in this scenario.
Dan and Ed (fictional names) are two IT friends that have known each other for well over the past 10-15 years. Back around 2015, Dan quit his job & decided that he wanted to start his own software and mobile app based business using programmers from overseas. His business started to grow from word of mouth and he networked heavily to gain a lot of new contacts and business. Afterwards, around 2016, he asked Ed to work with him to see if they can grow an IT side of Dan's business so that he could bring in extra income. During this time, Ed was having some medical issues with his son, who constantly was in and out of the hospital and knew his employer wasn't going to always be willing to let him take so many days off and/or unexcused. So, he decided to take the plunge and quit his job as well to "join forces" with Dan and see what IT business that Dan can help him get so that he could be home with his son as needed and work at the same time from home (most of the time). Slowly but steadily, Dan had gotten Ed 3 monthly recurring small business based clients (one in NJ and 2 in PA), where Ed's job was to provide IT support to the clients (primarily remotely), on a monthly ongoing basis. Ed was looking to add more clients since he seemed to be able to handle the load but there were "no bites" at the time but he did pick up a lot of hourly based clients (who were being invoiced separately under Ed's business only - he registered a new business name and took out professional and general liability insurance as well). Dan's business is NJ based and Ed's is PA based. There were NO written contract between the two for these 3 monthly recurring clients (just working under a verbal & mutual understanding) but Dan had established pricing with the clients whereby they were being charged a specific amount per month and he would just easily get a cut from it on a recurring basis, thus bringing in Dan additional easy income. For example, from a $3500 monthly client's check - $3000 would go to Ed and $500 would go to Dan. All 3 clients monthly payments would get sent to Dan's business and then he would cut a check back to Ed and Ed was getting paid on a 1099 basis, invoicing Dan on a monthly basis as well. Things were going well for quite sometime (payments were being cut on time and paid out via checks/ACH, extra one time setup fees charged were split between the 2, Dan was issuing 1099-MISC forms for the yearly income, etc) and Ed was making quarterly 1099 payments to the IRS as needed until Dan started a side business with one of the IT clients (NJ based one) on a software project and things started to take a big turn. It was a huge project and the client decided to add on additional staff in the office to handle certain tasks so that the could get the project done on time. Long story short, Dan told Ed that the client has "given notice" that he wants to hire an in house IT person since he required immediate assistance for his IT issues. Ed believes that this was an internal decision between Dan and the client though. It was completely unexpected since Ed just bought a new house at this time, thinking that he had sufficient income to cover mortgage and other expenses required for a new house. Regardless, Ed had to let go of that client and was down to 2 monthly recurring clients now. He took a big hit on his income but still managed to move forward. During this time, Dan's business has done so well that he has offices setup internationally now and is booming. His app business was really doing well and he was making good money from the business. In the past, Dan asked Ed to join him as an employee under his company but due to personal experience with the way that Dan is along with a few other things (such as daily commute to NJ office, timing, etc), Ed decided to stay independent and just continue to provide IT support for the other 2 monthly recurring clients. Dan had also asked Ed to provide written contracts at times but things fell thru the cracks and it was never done. Over a period of this time, Dan started to slack and began making payments late to Ed. Ed knew he would pay it even if Dan took him time to do so since he was financially OK to cover the periods. Dan continued to be late but he would pay a couple of months as needed, even if it meant sending texts and emails telling him that he was late and that payment was needed. At times, Dan would say that ACH payments were set up but Ed would never get them in time but Dan would continue to make the payments at some point.
Fast forward to end of 2018, and now Dan owes Ed almost 6 months worth of payments (almost 20K+) but doesn't seem to want to pay it now because Dan all of a sudden, has sold or done something with his company with some new partner(s) and has gotten into some million dollar deals with them. Ed isn't really too sure of how much of this story of Dan's is true though as Dan hasn't been too truthful lately. Anyhow, Dan asked Ed to provide written contracts for the 2 remaining clients since his new partner(s) has requested it and Ed finally provided written Subcontractor Agreements to him (dated on the date that the contracts were drafted (12/7/18) but NOT signed by either party so that they can be reviewed and finally agreed upon). Ed wasn't really too sure what Dan was going to be doing with these written but unsigned contracts but Dan told Ed that he is apparently trying to show his partner(s) that there was a contract established from before between the two of us so that he could try to get Ed paid. Ed asked Dan to provide more info about this sale but Dan told him he had a NDA signed and couldn't talk about it and that he didn't need to know anything about it as well. At this time, Ed kept asking Dan for his late payments, (esp since Christmas was right around the corner and Ed had a lot of expenses and bills pending) but Dan continued making up excuses not to pay implying that since there was no written contract, the money shouldn't be paid to Ed. Contracts were given to Dan but he never got back to Ed about them saying that they are "still being reviewed" by the partner(s) whenever asked. Numerous texts and emails and invoices are being sent to Dan but he just doesn't seem to want to pay up now. Ed has maintained all payments history records and invoices and texts and convos. Dan did say that he was going to give some money from his personal account via check to Ed (he never did fulfill this) because he knew Ed needed it but said that he couldn't pay up the whole thing at this time.
Doing a little bit of research online, Ed found out that "If you are working for a business and you are not an employee, you are a contract worker. Some, but not all, contract workers have contracts. If you don't get paid for your services, begin by first writing to the business explaining the work you did and the payment you expect. If you have previously been paid, that helps establish the "contract," and you must document all previous payments and keep any tax documents, like 1099-MISC forms showing previous payments. If your attempts to get paid aren't successful, you can contact an attorney and attempt to sue for payment. Your documents will help with your case." Source: https: -- link removed
With this being said, can Ed hire a business attorney and taking Dan to court to collect the 20K+, even though there was no written agreement in the past between the two? If so, how long would something like this take to get settled and would it be worth it in the end? Or, should Ed just end all business with Dan (but he will be taking over his 2 remaining clients and have them do business directly with Ed (thru his business/company and using written/signed contracts) instead now since Dan doesn't really have any formal written contracts with the 2 clients as well) and call it a business loss? Ed is very stressed out over this during the past few months but needs to know what should be done going forward as monthly client payments would still be sent to Dan (if Ed continues to do the work), thus increasing Dan's owed balance and not to mention that Ed would still be paying quarterly taxes to the IRS to actual money that he doesn't have in his hands as well.....Ed has learned the value of written/signed contracts now but what are YOUR thoughts on the whole thing??
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