Protecting Contractors: Legal Remedies and Preventive Measures for Unpaid Jobs

As a handyman or any contractor, there is always a risk of encountering a client who fails to pay for the work done. This unfortunate scenario not only leads to financial losses but can also cause significant stress. In this article, we will explore the legal remedies available and preventive measures to avoid such situations. We will also discuss the importance of having a formal contract and understanding the role of both the employee and the contractor.

Legal Remedies for Unpaid Contractors

When a client does not pay for services rendered, it is crucial to understand your legal recourse. In extreme cases, such as the one you mentioned, where a handyman remedied a property damage and was awarded a $500,000 judgment, but the homeowner's insurance refused to pay due to a workers' compensation issue, it is essential to grasp the legal implications. Property owners who hire contractors to perform work can often be treated as employers, thus falling under workers' compensation laws. This underscores the importance of having comprehensive insurance coverage.

Legal Remedies Explained

In many jurisdictions, you can file a lien against the property of the client if they fail to pay. However, this method is not a guarantee of payment, as the lien only becomes effective if and when the property is sold. Additionally, there is a fee for filing the lien and it can expire over time, requiring you to refile. Unfortunately, there are no dedicated hotlines such as the 1-800 HOMEOWNER FRAUD line, which highlights the importance of being proactive and preventing such situations before they occur.

Preventive Measures for Contractors

To avoid becoming a victim of non-payment, it is essential to have a well-documented contract with the costs and payment schedules clearly outlined. For small jobs, a contract might not be mandatory, but having one ensures that you have legal recourse in case of disputes. If the job is substantial, a payment schedule ensures that you receive partial payments as you complete each phase of the work.

Another preventive measure is to request an upfront, non-refundable retainer. This can range from 5% to 10% of the total project cost and is applied to the final payment. This retainer ensures that you receive a significant portion of the payment upfront, reducing the risk of non-payment. Additionally, it is advisable to estimate the cost of each project item by adding your overhead (OHE) to the cost of the materials and billing on the percentage of completion of the work.

The Role of the Contractor and the Employee

Understand the difference between being an employee and a contractor. As a contractor, you submit a bill and wait for payment, while the employer (the business) is responsible for compensation, admin payments, and taxation. Knowing your rights as a contractor is crucial, and this includes having a contract that outlines your terms and conditions. Some contractors request material cost payments upfront, while others request partial payments at performance-oriented milestones.

Conclusion

Protecting yourself as a contractor is not just an option but a necessity. By having a well-drafted contract, understanding the legal implications of non-payment, and implementing preventive measures, you can minimize the risk of becoming a victim of unpaid jobs. Furthermore, understanding the roles of both the contractor and the employee is crucial for safeguarding your interests.

For more information and resources, you can consult contract samples and examples of payment structures online or at the library. Additionally, contacting your local government labor board can provide you with the information and support needed to navigate these legal complexities.