If my company doesn’t get paid for services of an independent contractor thatwe placed for employment, do I still have to pay the contractor?

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If my company doesn’t get paid for services of an independent contractor thatwe placed for employment, do I still have to pay the contractor?

I own a small personnel placement firm. I had an independent contractor (1099) who has since quit my firm. They had placed a candidate at a company that has filed for bankruptcy. Do I still have to pay the 1099 their commission? My firm has not been paid for the invoice in question.

Asked on July 8, 2011 under Employment Labor Law, Maryland

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

You need to look to the terms of the agreement (and if the agreement is silent as to the below, you may end up in court with each side trying to prove its position).

As a general rule, a company must pay its own contractors whether or not it has been paid by its customers. This can be different with commissions, however. It is very common for commission agreements to include a chargeback if it later turns out that the invoice is never paid; indeed, by the nature of commissions, if a commission is paid but the money never collected from the customer, the company would have good grounds to seek return of the commission even if the commission agreement did not explicitly include that term. However, that is first paying, then seeking return of, the commission.

It would be legal for the commission agreement to state that the commission is only paid on collection from the customer. However, that would normally have to be in the agreement. Otherwise, the most common interpretation would be that the commission has to be paid when normally due (e.g. monthly, quarterly), but would be charged back if the sale is never collected on. In this case, where the contractor is no longer with you and the customer is bankrupt, paying then charging back is likely not practical, then not paying at all makes sense--but if that wasn't in the agreement, there is room to argue the point, which is how you could end up in litigation if the agreement is silent. Perhaps best might be to try to negotiate or settle for some amount that you and the contractor could both live with.


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