What am I able to do legally when I'm unpaid for a project as a freelancer?

Question

A company has me developing software on a contract basis. The software is for a client of the company. The project had been split into phases, with the client paying a portion of the total after the satisfactory completion of each phase. The software will be hosted by the company for the client (as a service) after the completion of the final phase.

The client has approved and paid for the first few phases. The end of the final phase is in about two weeks. I, as the developer, have only been paid for phase 1 and only a small portion of phase 2 (the rest of the money that was received for phase 2 was spent elsewhere in the company). The company is not in good financial shape and I am afraid that I will not get what I'm owed.

However, I am developing this software on a private server that only I have access to. Neither the company or the client have access to the server and cannot obtain the source code without me giving to them.

I'm just curious as to what rights I have as a developer. Am I obligated to turn over the source code, even if I am not paid? What is the best approach for me to take? There is a chance that the client would do business with me personally if the company went under. Is there anything I need to watch out for?

I have not signed any contract specific to this project. The only contract I have signed is a general 1099 when I began working with the company (I have worked on other projects for them, some of which I'm unpaid for as well). There has never been any discussion as to who is the "author" of the source code. I have not signed any non compete agreements.

Any advice?

Answer 1

Yes, one piece of advice.

Don't ask legal questions on a generic website! To do so leaves you open to lawsuits and many other things. We're not all in the same locality or subject to the same laws. Jurisdiction applies to civil matters as well as criminal ones.

Contact an attorney. No ifs, ands, or buts. If you follow legal advice given in an open forum like this, and end up getting sued (or worse), you deserve all the losses you incur.

Answer 2

If you've not signed a contract, and you are 1099, then it could vary state to state, assuming you are in the US.

Legally, what you should do is hire a lawyer. If it's not a large enough sum to justify hiring a lawyer, you should take them to small claims court.

Even though you are most likely not legally bound to turn over the product of your labor when you have not been paid, that's a road I'd avoid if possible. The client has spent the money, if the middle-man (the company) has no money to pay you with, then in all likelyhood withholding code will not get you money AND smear your name with anyone in the client company (and potentially anyone they know), hurting your chances for future work.

Answer 3

As a contractor, you own all the source code (and subsequent materials) you've generated. If they didn't make you sign a IP-ownership contract initially, you own ALL the code, including the phase 1 material. If they do not pay you, you should not provide them anything. Seek legal counsel, but if you wasted part of your time and life on a project that didn't come to fruition, the company should see no product.

Answer 4

Disclaimer up front: IANAL (I Am Not A Lawyer)

The major thing you'll want to keep in mind, is that you're probably going to need to take them to court--either to small claims court for a small case, or a larger court for a major case.

Keep all records of conversation with them. If you can prove communications where you've asked for payment, communications where they've talked about payment, the contract, everything else, then the case will go much smoother.

Basically, all information is valuable, be prepared to prove how much you did for them, how much they'd agreed to pay you, how much they have or have not paid you--the more information, the better.

If the amount is large enough, by all means, hire a lawyer--it can be costly, but it's a necessary bit of handling this situation. He can give much better advice than I can.

Regarding keeping the code--that's a gray area that you'll have to look at. If you give them the code in a finished state, then ask for the money, that will look most favorable on you in court--not giving the code may make a judge more inclined to call the contract null, or outright force you to relinquish the code. This point is the thorniest you bring up, and a discussion, however brief, with a lawyer, might be the best way to handle it.

In short, remember that civil court is won by a preponderance of the evidence--where it is more likely than not that you are correct. Keep all documents that might have any bearing on the case.

Answer 5

(I have worked on other projects for them, some of which I'm unpaid for as well)

You should do the following things:

1. Contact a lawyer.
2. Find another client/job ASAP
3. Stop taking work from people who have a history of not paying you.
4. No matter what, continue working as if you will be paid. You don't want to give them any reason(s) to claim you are unprofessional. "Back doors" and withholding work product are NOT the way to handle things like this.

Answer 6

Legally you have a few options:

1. You can file against them in small claims court. There is usually a minimum amount that you must file for, however depending on your location, the amount is usually very small. You can usually add a reasonable amount for past due payment, etc as well to the claim. The cost to file is small claims is intentionally very cheap, and the process quick and effective (compared to any other legal alternatives, ie: arbitration).

2. You can report them to a collections agency. There are a few online that you can sign up with for free. You then submit the bills to the collections agency and they get 50% or so of whatever they collect from your past due client. You don't have to pay if they don't collect anything. Half is better than none, right?

3. You can report them to a credit bureau, the easiest way to do this is by referring them to the collections agency, typically they have the ability to automatically file the issue with the credit bureau and therfore ding their personal and/or business credit.

Personally what I would do:

1. Send them a letter, outlining your expenses, time, etc. Let them know that times are tough and that you are willing to work out a payment plan is the lump some is hard to swallow.

2. If they are refusing to pay because of the quality of work, I would ask them if they could agree on an amount that would make them happy, or negotiate some sort of compromise.

3. If they are simply being malicious, and do not want to pay - I would take a more direct approach to the first step, and letting them know you will be submitting them to collections if you can't recover the payment.

Answer 7

1) Contact a lawyer.

2) See 1.

3) No, really. Our advice is worse than useless. Odds are, you're going to wind up having to simultaneously sue both the client and employer so that neither one can point a finger at the other. For this, or even the credible threat of it, you will need a lawyer.

4) Did you miss the part about contacting a lawyer?