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Unpaid Independent Contractor May Possibly Have Fraud Claim Against Company’s Representative

On Behalf of | Apr 12, 2017 | Employment Law

Generally under New Hampshire law contracting parties are precluded from pursuing tort recovery for pure economic or commercial losses associated with a contractual relationship.  Therefore an independent contractor that has a contract with a company to provide services, if unpaid has a breach of contract claim against the company that owes the money.  Employees on the other hand will have a statutory claim for wages, possibly liquidated damages up to doubling the wage claim, reimbursement of attorneys’ fees, plus the company’s representatives that are making the decision not to pay the wages may be personally liable. That is why unpaid independent contractors may ask the Department of Labor or the Superior Court to conclude that under the statute they are really employees even though the company paid them as contractors.

However even if the independent contractor cannot prove she should really be treated as an employee when she seeks to collect the unpaid compensation for her services, under some circumstances she may still be able to not only go after the company but also the individual representative of the company that decide not to pay her. This could be important if the individual has the ability to pay but the company does not. Generally individuals are liable for their own torts even if they are acting on behalf of their employer company. While the company may also be liable and may protect the individual for actions taken by him in good faith to assist the company, if the company does not have the ability to pay, the individual if found liable may have to pay a judgment from his own assets. For example if a company employee is driving on company business and negligently hits a pedestrian in a crosswalk, both the company and the employee are liable for the pedestrian’s damages although hopefully there will be insurance to cover that claim. A question arises when a tort claim is being made in related to a contract.

A case that came out of the New Hampshire Superior Court Business Docket, Michael Coutu v. State of New Hampshire, New Hampshire Bureau of Securities Regulations states that fraud claims related to a breach of contract can seek purely economic damages.  In that case, Coutu stated that the Department of Securities Regulations made a conscious decision not to pay him even though it knew he was performing services and even though the Department was continuing to request services from him. He was claiming damages that were economic of nature in that he was not paid for what he said he was bargained to be paid. That failure to pay for services claim would not be covered under an insurance policy due to several exclusions within an insurance policy.

The Department, as part of its defenses stated that Coutu could not allege fraud related to his breach of contract claim.  This would not mean that the Department agreed that he was owed money, but stated that what Coutu alleged in the law suit would not get him a trial on the fraud claim.  The Superior Court judge ruled that if Coutu could prove his asserted claims against the Department he could succeed on his tort claim of a fraudulent inducement to perform services under the contract because this, unlike a negligence claim, is not merely another way to assert a breach of the contract.

There is an economic loss doctrine that precludes contracting parties from pursuing tort recovery for purely economic or commercial losses associated with the contract relationship. However unlike a negligence claim where one contracting party states the other negligently performed the contract, Coutu alleges the Department knew of the contract and knew it had no intent to comply by paying Coutu for his services, yet still represented to him that they would be paying him so that it could continue to get contractual services from him.  While the case did not involve a claim of individual liability of the individual from the Department Coutu alleges made the claim, since if he is successful he obviously will be able to collect a judgment from the State of New Hampshire, it is possible under this analysis that if an individual representing a private company fraudulently induced an independent contractor to perform services, that individual could possibly be personally liable if the company does not pay.  For example, if the company is not doing well and it can be proven that one of the officers of the company, knowing full well the company would not pay for services, fraudulently induced an independent contractor to continue to provide services with promises that the company would pay under the contract, that company officer could possibly be personally liable for the payment under a fraudulent inducement claim.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].