Contractor Dilemmas - Moral and Financial Obligations?

An Anonymous Coward asks: "This is a true story, one that I am currently trying to resolve and wondered if the Slashdot community could offer any help. I've been developing a new application for a startup company, contracted on a daily basis for my services. I've been providing services for 5 weeks now, and am still trying to get payment for work completed during week 1. The company is refusing to pay me, stating that they are not happy with progress, however all of the milestones we agreed upon for that week have been met. Now, it gets interesting: I know that this company is seeking startup venture capital, and I know from whom. Yes, it would be malicious to contact this party with the information that I have, but am I morally obliged to? If you were set to pump several million into a company with loose moral fibre would you not appreciate a warning?"

Comments

Well,

[Echnin]

I personally think you should "confront" the company first, and I mean "confront" as in "threaten". If they still refuse, go ahead.

Re:Well,

[MrResistor]

I have to agree.

If you have fulfilled your contractual requirements they are required to pay you. I think it's entirely appropriate that you let them know that if they don't, not only will you sue them, but you will also do everything you can to foul the waters with their VC.

It comes down to this: another word for contractor is mercenary. Make it clear to them that you will either get paid or get revenge.

Re:Well,

[markwelch]

Echnin suggest confronting the client by threatening to report their wrongdoing. I disagree, emphatically, since this might constitute extortion, which is a crime.

California Penal Code Section 518:

Extortion is the obtaining of property from another, with his consent, or the obtaining of an official act of a public officer, induced by a wrongful use of force or fear, or under color of official right.

California Penal Code Section 519:

Fear, such as will constitute extortion, may be induced by a threat, either:

1. To do an unlawful injury to the person or property of the individual threatened or of a third person; or,
2. To accuse the individual threatened, or any relative of his, or member of his family, of any crime; or,
3. To expose, or to impute to him or them any deformity, disgrace or crime; or,
4. To expose any secret affecting him or them.

Re:Well,

[Bake]

Since when did it become extortion to demand payment for rendered services/work?

Re:Well,

[toast0]

assuming you're quoting the law correctly (which I have no reason to disbelieve, I'm just lazy and being semi-complete)...

It is fairly obvious that payment (a property) could be obtained by the threat, and that the goal is to obtain the property.

However, the use of fear must be 'wrongful', which is of course debatable. I personally would not consider it wrongful to let someone know that they are past due on payments, and if they do not become current, you will report that to various people (including presumably the VC and possibly a collection agency)

Of course weather or not it was wrongful will be up to a jury to decide.

Re:Well,

[markwelch]

It is not extortion to demand payment for services rendered. It is extortion to threaten someone -- read the statute.

Re:Well,

[Bake]

The keyword in the statute (IMO) is "wrongful".

I'll admit that the original poster is in a very gray area (probably darkish gray even). But as a principle I would consider his actions just and not in violation with the statute.

After all it is not generally considered extortion to pursue payment for an item sold/service rendered.

Going to the supervisor of the party you're dealing with should not be considered extortion if the party you're dealing with has not held up to their end of the deal. I mean, would you consider it an extortion if you got a bad burger at McD (ok ok, bad example), and you threatened the clerk you'd report him to the manager if he didn't refund the said burger.

But IANAL, and that's just my two cents.

Re:Well,

[BitGeek]

Its only illegal if what he were to tell the VC was untrue-- then it would be threatening to misrepresent them in a bad light.

Telling the VC the truth about the situation is not wrongful, and therefore would not constitute extortion.

Its only extortion if your threat is to do something illegal.

Re:Well,

[markwelch]

The confusion here is "reporting" versus "threatening." You can be held liable for "threatening" even if you are seeking something you are entitled to, and even if you are truthful about the thing you would report, and even if the actions you threaten to report are bad or illegal or breaches of contract.

It is the threat-for-gain that is the crime. Is it a fine line? Yes, it is. For example, you may include, on your invoices, the information that you report defaults to credit-reporting-agencies and/or to Dun & Bradstreet. But you may not call someone who is asserting objections to your invoice, and threaten to contact their investors unless they pay up. That is extortion.

Finally, let me repeat: threatening to report someone's non-payment to their financial backers (actual or prospective), or making such a report, will absolutely, positively NOT accomplish anything positive, and the risks of negative responses (whether criminal complaints, or lawsuits, or nefarious revenge tactics) are NOT worth the potential satisfaction from trying to screw with the deadbeat's business.

Re:Well,

[markwelch]

> Its only illegal if what he were to tell the VC was untrue <

No, no, no. You are missing my point: I never suggested that "telling the VC" was illegal, but that "threatening to tell the VC" would be extortion (a crime).

If I threaten to tell your wife (truthfully) that you had an affair with your secretary, unless you pay my disputed invoice, I am blackmailing you (blackmail is a type of extortion). I can tell your wife if I wish, but threatening to do so unless you do something for me, is extortion.

It does not matter that the "statement" being threatened is true, nor does it matter that you actually owe me the money.

Accurately telling the VC is NOT extortion, and probably is not a crime at all (though it might lead to lawsuits and perhaps revenge tactics). It is the threat that is illegal.

Read the statute. I posted the California statute here, and the third and fourth alternatives seem to apply here.

Again, the risk of criminal prosecution is very slight. Every day, people stand at the customer service desk at retail stores, demanding a refund and threatening to report the store's unethical practices to the Better Business Bureau or the local D.A. unless the refund is given. That is, technically, extortion.

Often, Slashdot posts come with the warning, "I am not a lawyer" (IANAL). Let me repeat: I am a lawyer, and this is not legal advice, I am doing my best to accurately state the law, as applied to the very incomplete set of facts presented.

Re:Well,

[BitGeek]

You're quite wrong.

Otherwise every lawyer and debt collector in that state would be out of business.

Re:Well,

[BitGeek]

Well, since you admit you are a lawyer I should assume everything you say is a lie.

Anyway, if you are afraid of your wife finding out, or of being hauled into court, then either threat is extortion by your definition and you, yourself, are a criminal if you have ever mentioned meeting someone in court to settle a dispute.

By the way, you don't get to claim to be an authority "I am a lawyer" and then claim to not be giving legal advice. IF you aren't willing to be bound by what you say, shut up about being a lawyer. On the net, nobody can tell you're a dog.

Furthermore, the law is irrelevant to this discussion-- the poster asked about MORALITY, not the law. The law has nothing to do with morality, and, in fact, a very large portion of the laws are flat out immoral. (Such as taxation for services not received-- anyone paying property taxes to schools who doesn't have kids is being stolen from immorally.)

Re:Well,

[kasparov]

They are not using fear of force or exposure to obtain property. The lawyer isn't saying, "If you don't give my client x dollars, I will tell the whole world that you have sex with sheep." The debt collector is not saying, "Give us our money, or we'll break your legs."

Now, if the lawyer just goes out for fun and tells the world that you have sex with sheep (and you do)--or the debt collector shows up and breaks your legs, then neither are guilty of extortion. The debt collector is guilty of assault, of course, but the lawyer has committed no crime (that I'm aware of).

Re:Well,

[CTalkobt]

Hold on - If a bill collector calls demanding payments then he is legally protected by law so as to make any claims /statements he wants as long as they do not involve physical harm.

What's to prevent this guy from doing the same thing? I see no differance here.

Re:Well,

[DEBEDb]

A threat of legal action is not blackmail.
You can just threaten to sue, and mention
that the VC will certainly find out about it.

Re:Well,

[DEBEDb]

Now, if the lawyer just goes out for fun and tells the world that you have sex with sheep (and you do)--or the debt collector shows up and breaks your legs, then neither are guilty of extortion. The debt collector is guilty of assault, of course, but the lawyer has committed no crime (that I'm aware of).

Try slander or defamation. Not crimes, but you
can still be liable for damages.

Re:Well,

[DEBEDb]

By the way, you don't get to claim to be an authority "I am a lawyer" and then claim to not be giving legal advice

Yes, you do. To give an advice this lawyer
would stand behind and say "this is legal
advice" may necessitate getting more information
from the client, maybe doing some research
into the relevant facts and laws.

Do you have to be a jerk, or are you just playing
one on /.? :)

Re:Well,

[kasparov]

In both of these instances, I believe that "truth is an absolute defense." IANAL

conflicting forces

[n9hmg]

A: You are right to warn the investor, but
B:You will give yourself a difficult reputation to carry through a career.

Now, if you have a personal contact within the investor company, you can slip it in that way, but it still probably won't gain you much.
Perhaps you can use your knowledge for .... oh, how can I say this, blackmail? No, that's such an ugly word... How about extortion?

Re:conflicting forces

[n9hmg]

I have to ammend my comment a bit...
You say you're at week 5, trying to get paid for week 1, and you have the agreed-upon milestones finished for week 1. What about weeks 2 through 4?
While you may have the employer contracturally, if you're only 20-25% as far along as you should be, he's got to be getting nervous and regretting hiring you.
If, in fact, you've completed up to maybe week 3 (or especially 4), that's not far behind, and he's purely a scumbag, probably short on VC because of poor management, and trying to stretch to his own milestones to get more VC.

Re:conflicting forces

[stilwebm]

B:You will give yourself a difficult reputation to carry through a career.

I think a five week contract job for a soon-to-fail start-up is highly unlikely to make even a blip on the radar of this guy's career. Employers checking references won't even be that interested. If they are, they will be fully aware of the relative weight of a short-term job with a failed company. If the future employer doesn't recognize this, then he does not want to work for them anyway. More likely, the venture capitalists will be pleased. There is much more networking to gain from gaining the favor of venture capitalists.

This guy should be more concerened about the affect on his paycheck than his career if he reports this.

Re:conflicting forces

[topham]

Don't know about you, but in this business (and a city of 700K) I trip over my old bosses way too much to believe that any bad action on my part wouldn't come back to haunt me.

Each of the people I worked for (in IT) were working at/for a new client site of mine AFTER I left their employment. The reasons for them there arn't relevent. I am sure that they felt free to speak for, or against any past actions I have done.

I.T. is a small world sometimes, even in bigger cities.

Bitching to VCs about company?

[markwelch]

First, if you call the client and threaten to report the non-payment to the financial backers unless you get paid, you are most likely engaging in extortion, a crime.

Second, if you just go ahead and call and report the non-payment, your goal is clearly to interfere with the existing relationship between the company and its backers. The company might sue you (for interference with contract, interference with prospective economic advantage, defamation, etc.) and of course they have the money to fight and you don't. Can they win? If what you say is truthful, probably not.

Of course, if you file suit against the client, for breach of contract, your filing of a lawsuit will be a matter of public record, and your attorney might find it necessary to schedule depositions or subpoena the financial backers for some reason, in which case the financial backers would find out. It is possible that your filing a lawsuit might trigger a termination clause in the financing arrangement, but the I can't imagine how the mere filing of a legitimate lawsuit to collect money owed, without more, could be actionable under any theories unrelated to the lawsuit (e.g. you could get sued for malicious prosecution or punished under the SLAPP statute or court rules if your lawsuit is thrown out, but you can't be sued for defamation just for filing a lawsuit).

Do you have an obligation to report the non-payment? Absent some additional information, I don't think so. You might have an obligation to speak up, if you have any kind of relationship with the financial backers, or if you made some statements to them, or if you are aware that your name and reputation were represented to the backers in order to get the funding.

It appears that you are, in fact, ending your relationship with the client. If you are not going to sue them for the money owed, then you should probably just move on and learn from the experience. If you are going to sue them, let your lawyer handle the matter, and don't try to take actions that could cause you more problems down the road.

Yeah, you're mad, and the client is scum. You can gain nothing from bitching to the money-guys, period, and you can lose a lot.

Re:Bitching to VCs about company?

[Odinson]

"Of course, if you file suit against the client, for breach of contract, your filing of a lawsuit will be a matter of public record, and your attorney might find it necessary to schedule depositions or subpoena the financial backers for some reason, in which case the financial backers would find out."

That's it. You can't threaten them directly but you can tell them you have spoken to council (after you have of course), and you can mention that signifigant stakeholders may be called to testify.

So long as you can find some other fairly similar case where stakeholders were suppoenaed by a contractor, you can reply to any challenge to your "threat" with the case. You know Joe Smith vs BobCorp, and we all know what public record says happened to BobCorp after the VCs had to appear...

Re:Bitching to VCs about company?

[gnovos]

You own the IP until they pay you. You need to go to the VCs and tell them that if they buy it they will be guilty of copyright infringment.

Re:Bitching to VCs about company?

[Hard_Code]

First, if you call the client and threaten to report the non-payment to the financial backers unless you get paid, you are most likely engaging in extortion, a crime.

Uh, doesn't extortion imply extracting money which you are not entitled to. If he is contractually (legally, whatever) entitled to this money, how is it a crime? If a neighbor steals money from me and I tell him that if he doesn't give it back I'll tell others (or the polic), is this really extortion? (in the poster's case, it is his labor that has been "stolen")

hairy situation

[tongue]

With regards to ratting them out to the VC's, I'd watch out that you don't violate any NDA's or something of that nature.

As for the non-payment, your course of action is fairly limited. If it were me, I would notify them that if they don't pay you for the work completed thus far, you will stop work altogether and have to resort to a lawsuit. I'd also consider dropping that company from your client list altogether--given how much trouble you have collecting from them in the first place, I wouldn't be anxious to take on more work from them.

You need the VC as well as them.

[WasterDave]

They probably don't have the money. You can be as pissed off as you like about it, but that won't help you get paid. Ditto bitching to the VC's - won't put money in your pocket.

I suggest you have a little chat with them along the following lines:

1, You've not paid me, I'm a bit pissed off.
2, But fundamentally I like you guys, I like working here, what we are doing has value and I hope to have a long and prosperous working relationship.
3, So can we be honest about this - if you've not got the money to pay me right now, just tell me and we'll work something out.
4, But if push comes to shove, until you pay me for it I own the intellectual property on the stuff I'm doing for you. You have to see this as a risk to the bigger picture, and clearly it's a risk that you'll be wanting to alleviate.

Dave

Re:You need the VC as well as them.

[cpeterso]

I definitely agree that you should own the IP to your work IF you have not been paid. Don't check in your code or leave your laptop unattended, if possible.

Re:You need the VC as well as them.

[catfood]

Work something out?

Look, the client has the money. It may be tied up in hardware or office equipment that they'll have to sell at a loss, but they have the money.

I want to know when it happened that geeks turned into happy, generous bankers.

They're avoiding paying the guy because they can. This is like "working something out" with a mugger.

Be honest here

[Otter]

What's the question, really? "Do my moral standards obligate me to warn the VC's?" or is it "Will running to the VC firm help me get my money back?"

If the latter, then forget it. They won't lift a finger on your behalf, and just threatening the company that hired you is liable to create more trouble for you than good. There's a legal system for a reason -- get a lawyer.

If you're acting out of genuine altruism, I'd suggest minding your own business. It's not like you've uncovered some WoldCom'ish fraud. And even if you're the world's greatest humanitarian, I can't imagine the VC mind grasping the possibility that you're not just trying to extort your fees out of the company.

Not very anonymous, are we?

[TTop]

Geez, if you're gonna be anonymous, try a little harder, Mr. lee.bolding@unixconsulting.co.uk (the email link connected to the AC).

Other people have good suggestions, but it seems consulting an attorney (and not Slashdot) would be the best suggestion.

You're essentially asking for legal advice here and Slashdot is not the place to ask for moral advice, either (see Warez thread earlier today).

Your obligations are to your customer

[topham]

Your obligations, regardless of whether they have paid you or not, are to your customer.

Currently they owe you for work done previously, for that you can stop work, threaten them with legal action, etc. All of which is ethical and fair.

Destroying their funding because you have a squable over the first weeks pay (while on the 5th week) could make you, in their eyes, liable for a few million in financing.

Even if they couldn't sue you over it they could ruin your name as a consultant saying you used insider information to destroy their business. And they would be right.

Currently your in the situation where they COULD pay you, they COULD resolve the outstanding situation.

Re:Your obligations are to your customer

[topham]

The problem in this example is the time period.

5 weeks.

5 weeks is NOTHING toa business. Companies typically take 30 days (or more) to pay P.O., even if they get a discount for paying earlier. Thats over 3 weeks on a standard purchase.

There was a dispute over what was finished, or not finished. fair enough, stop ork and wait for it to be resolved, or, continue working and hope it is resolved.

Interfering with other aspects of the business is not, in my opinion, ethical.

If they get the VC funding perhaps they can pay the individual. Maybe they CANNOT pay him until then. Bad situation, but telling the VC might prevent them from getting funding, resulting in the individual not being paid. Why shoot yourelf in the foot? Its much easier to sue a company that has money (assuming the situation cannot be resolved).

Morality?

[anthony_dipierro]

Yes, it would be malicious to contact this party with the information that I have, but am I morally obliged to?

Depends if your morality follows "eye for an eye" or "turn the other cheek".

Re:Morality?

[dubl-u]

Yep! If it's the latter, you *might* want to publish the fact that they haven't paid you on your site, so that anybody who searches on them can find it. But you have no moral obligation to the VCs in particular.

Lein

[stinkydog]

You should file for a lien on the eventual "product". That should get their attention quickly. The "mechanics lein" allows you to collect your pay and expensenses and if necessary, to liquidate their asset (your code) in the 'real' world. If intellectual property is actually 'real' property it should work. Or at least get some lawyers all twisted up. Of course IANAL.

SD

In California

[dubl-u]

Are you there on a W2? Or a 1099?

If you're on a W2, then you have a lot of leverage. In California, at least, businesses are required to pay wages first, before other obligations. Not paying wages can get them in a whole heap of trouble with some state department, resulting in really impressive fines.

When a company tried to welch on three months of W2 contract work, I got a lawyer to write a mean letter. If you are in Cali and on a W2, send me an email to the obvious address and I'll send you a copy of the letter for you to show to your lawyer.

They'll be delighted

[Lars T.]

Delaying to pay one's contractors is quite common business practice, and the VCs will sure like that the start-up knows how to save money.

clarification?

[rabbits77]

From the post it sounds like teh only week you met the miletsones for was week 1. Is that true? If so, I woudln't pay you either seeing as you seemed to have f-ed up the other *month* of the contract so far.

Re:Not clear . . .

[SuiteSisterMary]

The way I read it, he's done five weeks of work, meeting milestones, but they haven't paid him for ANY work done thus far.