Contractors’ Questions: What if an Upwork contractor we paid didn’t do the work?

Contractor’s Question: What can we do if a freelance contractor takes their fee in advance and doesn't deliver the work, and doesn't respond to any contact? Needless to say, we won’t be paying up-front again!

The consultant was hired via Upwork.com and we are not UK-based. Although it's not a huge amount of money, our business is very small. We do have the consultant’s phone number and postal address, but are unsure if they’re a sole trader or ‘Ltd.’ Please help!

Expert’s Answer: We are sorry to hear about the problems you had with your freelance contractor. We often advocate paying small or micro-suppliers in advance, so to see a contractor behave in this way offends our sense of fairness!

Given your company is based overseas, and the contractor in the UK was hired via upwork.com, it does make life a little trickier than usual, but the good news is you do still appear to have options to recover your money.

First of all, let’s get the obvious out of the way – while we do advocate paying smaller suppliers up-front, it does carry an element of financial risk, and especially so if you use one of the many freelance project / marketplace sites, like Upwork. The problem is that it can be difficult to do thorough credit checks on these sites, and buyers are often reliant on an eBay-like feedback system.

In your situation, even though it wasn’t a huge amount of money involved, losing it could be very problematic for a business where funds are tight. If your profit margin is 10 per cent, a loss of just £100 means you have to generate an additional £1,000 in sales just to cover the loss!

Site policies

As for your options for recovering the money owed to you, the first recourse is to look at the policies Upwork has in place for handling refunds and disputes. This is not our specialist area and Upwork has 19 separate policies on the legal page, but the following would appear to be the process offered assuming that payment is made through Upwork with funds handled in escrow.

You have the option to close the contract in Upwork and make a request for a refund. There are then three possible outcomes:

• The freelancer accepts the refund request and pays back the money through Upwork.
• The freelancer does not respond to the refund request and eventually, Upwork will make a refund themselves. However, Upwork’s many terms make the usual caveats that it carries “no responsibility for services or payments”, including the line:

“Upwork does not guarantee the performance, functionality, quality, or timeliness of Freelancer Services or that a Client can or will make payments.”

• The freelancer disputes the claim. Creditor and contractor then have the option to go through Upwork’s dispute resolution service (at a cost of $290 each). It is worth noting that this arbitration service is non-binding and both parties have to agree and pay for it to proceed.

The interpretation we would draw from this is that unless the contractor agrees to the refund request, or fails to respond when funds remain in escrow, there is no guarantee from Upwork that you will get your money back. Even if you pay to go to arbitration, any outcome is non-binding anyway.

Professional debt recovery

If Upwork’s terms or dispute resolution service are not able to resolve your problem then all isn’t lost, as you probably still have enough evidence to pursue the debt in the UK. In the event of non-provision of services, the law is firmly on the side of the creditor and this is equally the case for creditors based overseas -- UK law recognises your rights and the process of debt recovery is the same.

In this case, as you have the phone number and postal address of the freelance contractor along with proof of the payment being made, you would have sufficient evidence to hire a professional debt collection agency and let them attempt to recover the monies amicably – i.e. without it escalating to the County Court (colloquially known as the “Small Claims Court” in the UK).

When looking for a debt collection company, make sure you pick a respectable and established firm that doesn’t have any advance fees, as you have had enough trouble with advance payments already! Also, be sure to pick an agency that has named testimonials and easily verifiable reviews. Any debt collection company with vague, unattributed reviews or apparently happy but unidentified customers should be avoided.

In respect of the difference between a UK sole trader and Limited Company, the basic difference is that a sole trader is personally responsible and legally liable for any debts incurred by the business. Whereas in most circumstances, the directors and shareholders of a limited company do not have any personal liability for the company’s debts.

Ultimately if push comes to shove and you do need to take court action to recover the money owed to you, a County Court Judgment (CCJ) against an individual can be used to seize assets they own personally to satisfy the judgment. This is as opposed to a CCJ issued against a limited entity, which can only be used to levy against goods or assets owned by the company. Best of luck!

The expert was Adam Home of Safe Collections, a debt recovery specialist for contractors and the self-employed.