Getting sued as a freelancer

I used to believe people who were sued had probably done something shady or even criminal. I did a ton of web design work in the years leading up to forming our Ruby on Rails consultancy and our bookkeeping service for freelancers but never worried about using contracts with my clients because I treated people right and assumed no one would ever sue me.

Here’s how it went down.

So here we were in 2008, LessEverything was cruising along building products and making clients happy. Suddenly, one of my former clients decided they weren’t happy with a web site I built for them years before, even though they’d used the site for years and made a profit from it. I didn’t suspect they were unhappy, because when the site launched the client and I played a round of golf together to celebrate.

We thought everything was fine…until that client served my former business entity, me personally, and even the newly formed LessEverything with a lawsuit. My business partner, Steve, was also named in the lawsuit. We didn’t even know each other when I launched that website, so including Steve in the suit made no sense. Ugh, stress out time…we had exactly 30 days to respond.

What were the allegations? Fraud, a broken verbal agreement, and they said I promised “a lifetime of free website updates.” Who would promise that? The client never asked for any updates!

We called a lawyer we knew personally, who worked at a huge law firm. This attorney examined the suit and found an interesting loophole. The suit originated in Alabama, but Alabama state law stipulates that a suit cannot cross state lines. When I worked for the client, it was in Alabama, but when the suit was filed, LessEverything was located in Florida. None of the defendants (us) actually resided in Alabama.

At that point, we had the option to proceed to the “discovery” phase, in which case there was a very good chance the judge would throw the suit out. Our costs would only be $3,500. However, there was a chance the judge wasn’t aware of the loophole, or perhaps he’d just be in a bad mood that day, and the case could drag on for some reason. Rather than take that chance, we decided to offer the disgruntled client $3,500 (which was a very small percentage of the suit’s original price).

The former client accepted the offer. We were able to settle and move on. The total amount we paid, including legal fees, was $8,000. Yes, $8,000 and many nights of missed sleep.

Our Dysfunctional Legal System

The legal system in the United States is a mess. Even when the allegations are false, you will have to pay money (sometimes a lot of money) to defend yourself and your business. No matter how honest you are, or how good your work is, you can be sued. Even with a well­written contract, lawsuits are possible.

Stop and think about this fact. You can be sued at any moment for almost anything, and you will pay to defend yourself. Forcing the other party to pay for legal fees that result from this battle is rare, and you cannot rely on that. To recover those fees, you may have to engage in a secondary lawsuit, with all the costs and stress that second suit entails.

Again, you can be sued for just about anything, even if you’re the sweetest, nicest person and all your clients seem super happy and you always do what you feel is right and just. I’m repeating myself again, you can be sued for anything and then you have to PAY to defend yourself.

Our loophole story is the exception, not the rule. If our attorney had not found that loophole, LessEverything would have tried to settle for tens of thousands of dollars, or gone into the discovery phase with depositions. The costs could easily have soared into the ten thousand to one hundred thousand dollar range.

Protect Yourself

Bite the bullet. Buy Errors and Omissions insurance. It should only cost you a couple hundred dollars a year. What you’re really buying is peace of mind. If you do business long enough, you will be sued.

If you have insurance…

Errors and Omissions insurance and General Liability insurance help in situations where you are sued based on work you’ve done. Here is how a lawsuit might unfold if you have insurance: you are served papers, you call your insurance company and send them the files, the insurance company handles the bills and filings, and will periodically ask you for answers. Financially, you’re covered.

Legal Disclaimer:

Even if you have insurance (including Errors and Omissions insurance), you should consult an attorney immediately if you are sued or are threatened with being sued.

Contracts Help

Contracts are necessary. A solid contract will ward off frivolous people who toy with the idea of suing you. However, a contract will not stop a lawsuit from happening. Remember, anyone can sue anyone for anything.

Preparation.

Litigation is expensive, and the stress of being in a situation you can’t control is considerable. The uncertainty and loss of sleep can have a real impact on your life and your workday.

No matter how honorable, loving and kind you think you are, someone will eventually be upset with you. Be prepared. Have your Errors and Omissions policy and General Liability insurance paid up, and know the name of your insurance agent. Ask around and find an attorney you can trust who has experience with business­related lawsuits.

You cannot keep an angry/crazy/misinformed client from suing you, but you can be prepared.

Guest post by Allan Branch

Posted in The Business of freelancing   ·   See more articles

 

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