Rocco Cozza • March 9, 2026

do i have an employee or independent contractor?

A Common Goal:

Small and midsize businesses are always looking for ways to stretch a dollar and run lean. That often leads to one practical question when bringing someone on: Do they have to be an employee (W-2) or can they be an independent contractor (1099)? That choice matters because it affects who pays payroll taxes, whether overtime rules apply, and whether unemployment compensation and workers’ compensation coverage may be required. In other words, the classification can drive real costs for an employer, and real protections for a worker.


The Problem:

Independent contractors are attractive because employers usually avoid payroll withholding and many employee-related costs and benefits. Those potential cost savings naturally push many businesses toward trying to utilize the 1099 relationship. The issue is that misclassification is common, and it can create real audit risk and, in some situations, meaningful penalties and back-pay exposure.


See if any of these sound familiar:

  • “Yes, we have independent contractors. We just shook hands on how it would work.”
  • “Yes, they’re independent contractors because our agreement is titled ‘Independent Contractor Agreement.’”
  • “I just fired my ‘1099 employee.’” (We hear this one a lot.)
  • “My independent contractor is subject to a non-compete.”
  • “Yes, they’re independent contractors, but they commit 30 to 40 hours a week to us.”

Here’s what surprises a lot of business owners: the IRS and other agencies focus on substance over form. They do not care what you called the relationship or that both sides “agreed” to treat it as 1099. They care about what is actually happening day to day.


The Core Idea:

Figuring out whether someone should be W-2 or 1099 can cause real heartburn for businesses. You will hear about “IRS factors,” “economic realities,” and state-specific rules. For this article, do not get lost in the labels or the sheer number of tests. In plain terms, almost every test is trying to answer the same question: Is the worker running their own business, or are they working as part of yours?


To keep it simple, let’s focus on three big ideas that show up in almost every test:

  • Control: Who directs when, where, and how the work gets done?
  • Money: Who has real profit or loss risk?
  • Integration: Is the worker part of the company’s regular day-to-day business?

The more the relationship looks like staff, the more likely it is W-2.


Control:

Control is about who is calling the shots. If the company tells the worker when to show up, where to work, what tools to use, and exactly how to do the job, that starts to look like an employee relationship. Even if the company does not micro-manage every day, what matters is whether the company has the right to direct the work. On the other hand, contractors usually decide their own schedule and method, and the company mainly cares about the final result.


Money:

Money is about business risk and reward. Employees usually get a steady paycheck and do not have to worry about profit or loss on a job. Contractors often do. A true contractor might buy their own equipment, pay their own helpers, carry their own insurance, and have expenses they manage like a real business. They can also make more money by being efficient, or lose money if they priced the job wrong. That kind of financial upside and downside is a big sign of an independent business.


Integration:

Integration asks whether the worker is part of the business, or outside help. If the worker is doing a core service the company sells every day, working alongside employees, using the company’s systems, and becoming part of the normal workflow, it leans W-2. If the worker is brought in for a specific project, provides a specialized service, and stays separate from the company’s daily operations, it leans 1099. The more the worker looks like they are “on the team” in a permanent way, the more likely the law treats them like an employee.


Simple Gut-Check:

Use this quick checklist as a reality check. Remember that no single item is decisive, but the more checks you see on one side, the more likely it is that the classification is correct.


More likely W-2 (Employee) if:

  • The company sets the worker’s schedule or expects set weekly hours.
  • The company trains the worker or directs the exact steps for how the work must be done.
  • The worker uses the company’s tools, systems, email, or workspace like internal staff.
  • The worker is doing a core part of what the company sells every day (not a one-off project).
  • The relationship is ongoing and looks permanent, not tied to a defined project.


More likely 1099 (Independent Contractor) if:

  • The worker controls how the job gets done and is judged mainly on the end result.
  • The worker has other clients and actively markets their services (website, business cards, ads).
  • The worker pays their own business expenses and uses their own tools and equipment.
  • The worker can make more profit by working efficiently, or lose money if they underbid the job.
  • The worker can hire helpers or subcontract parts of the work (and is responsible for paying them).


One final gut-check question: If you took away the title of the agreement and just watched the relationship for a week, would you say, “That person looks like staff,” or “That person looks like their own business”? 


Contact us today to get an analysis of your situation.


Cozza Law Group Business Law Blog

How Restrictive Covenants And Non-Compete Agreements Are Enforced

By Rocco Cozza • August 22, 2026
The enforceability of restrictive covenants and non-compete agreements depends on various factors, including how and when the employee/contractor initially signed the document. A company or employer may find it easier to enforce these agreements if they work with business law attorneys in Pittsburgh during the initial drafting and signing processes. If a company can steer clear of common mistakes from the very beginning, it can protect its competitiveness and avoid issues caused by former employees/contractors. Pennsylvania Only Enforces Non-Compete Agreements That Meet Five Requirements While Pennsylvania does not have a clear statute governing non-compete agreements, past cases have established a three-part test for their enforceability. First, a non-compete agreement must clearly define a timeframe in order to be enforceable. In other words, it must have an expiry date. You cannot stop an employee or contractor from competing indefinitely. Case law also suggests that non-compete agreements with the strongest enforceability are only valid for a few years (and not decades). A Pennsylvania court is also likely to reject a non-compete agreement with an ill-defined scope. In other words, the contract must describe exactly what the employee or contractor is prohibited from doing. The scope must also be reasonable, meaning you can only prevent employees from joining clear competitors. If a company is only distantly related to your industry or field, a non-compete probably can’t prevent your former employee from joining that organization. Scope also encompasses the type of company information that the employee uses to compete in the future. You cannot stop a former employee from using their own inherent skills and knowledge to set up a competing business. The only way you can legitimately curb competition from a former employee is by limiting the way they use your company’s “confidential information.” You might be surprised to learn that your former employees have every right to use company information that you consider to be confidential. As long as that information is publicly available, your employees can use it freely. This includes price lists, your suppliers' contact information, and general business practices well-known in your industry. One example of “confidential information” in this context is a list of your customers, complete with their email addresses and telephone numbers. Although this information might be publicly available, a normal person would not be able to recreate the finished list without spending years building a business (as you have). Intellectual property is another example of protected, confidential business information. If you have gone through the trouble of obtaining a patent or a copyright, your employee has no right to steal this information and use it to set up a competing business. The same logic applies to “trade secrets,” which may include confidential formulas or recipes. That said, it is important to remember that these violations are governed by intellectual property law, and not necessarily non-compete agreements. Non-compete agreements in Pennsylvania must also clearly define their geographical “reach.” You can only prevent an employee from competing with you in your geographical area, such as the City of Pittsburgh or Allegheny County. Even if your employee signs a non-compete agreement, they could theoretically travel to another state or country before starting a competing business. Finally, companies in Pennsylvania generally need to offer employees or contractors something in return for signing non-compete agreements. If the penalties for violating the agreement represent the “stick,” then the reward represents the “carrot.” In business law, this reward is called “consideration.” A common type of consideration is a job offer. With the job offer on the table, there is a clear reward for signing the non-compete agreement. On the other hand, the potential employee could always walk away from the job offer without excessive penalties. Another type of consideration is career advancement. This might be a raise or a promotion. An employee may decide to sign a non-compete agreement in order to access these career benefits. If they reject the offer, they would presumably keep their current position in the company without any other consequences. Pennsylvania courts may deem unenforceable a non-compete agreement that lacks these promised rewards. In the eyes of the court, an employee faces a difficult situation if they could lose their job by not signing a non-compete agreement. As with all contracts, duress or undue influence can make non-compete agreements unenforceable. Penalties Help Enforce Valid Non-Compete Agreements Assuming a non-compete agreement is valid, what exactly stops an employee from violating it? Without effective penalties, a non-compete agreement is useless. You can enforce your non-compete agreements with “injunctions.” These are court orders that require your former employee or contractor to immediately stop working for the competing business. If they have set up their own business, a court order could force them to shut down operations. Penalties may also include damages. The court can order the competing employee or contractor to pay compensation for your losses. For example, an employee might have stolen all of your customers by offering the same services for a lower price. In this situation, you could recover all of the profit you would have earned if those customers had remained loyal. Negotiation Is Often the First Step of Enforcement While taking your former employee or contractor to court can lead to positive results, most parties attempt to resolve their disputes through negotiation first. Indeed, mandatory “arbitration clauses” are often built into non-compete agreements. A business law attorney can represent your best interests during these negotiations, ensuring positive outcomes without an expensive, time-consuming trial. Can a Business Law Attorney in Pittsburgh Help Me? A b usiness law attorney in Pittsburgh may be able to help if you are serious about making your restrictive covenants and non-compete agreements as enforceable as possible. Legal assistance with drafting and negotiating these agreements from the outset may improve their enforceability if a dispute arises later. That said, lawyers can also help resolve disputes over restrictive covenants signed long in the past. To explore this topic further, consider contacting Cozza Law Group, PLLC at (412) 790-2789. You can also find us online .

Understanding Shareholder Disputes and How They are Resolved

By Rocco Cozza • June 8, 2026
Shareholders set corporations apart from other types of businesses, and they often help companies achieve considerable levels of success. On the other hand, executives and directors often forget that each shareholder is a part owner. With so many owners, it is easy to see how complex shareholder disputes can become. The first step is to understand why and how these shareholder disputes arise. The second step is to resolve the dispute, potentially with guidance from an experienced business litigation attorney in Pennsylvania . Shareholder Disputes Arise Because of Shareholder Rights To understand shareholder disputes, you first have to understand shareholder rights. Common shareholders have voting privileges, which means they can control the trajectory of the company. Although some shareholders never bother to vote, others take these rights very seriously. The more shares you have, the more power you have to control major decisions. Shareholders also have the right to profit from the success of a company. Because of this, they have a financial incentive to oversee the company’s trajectory. If the company leadership starts to make mistakes or intentionally act against the interests of the shareholders, disputes naturally arise. Finally, shareholders rely on the accuracy of records and corporate books to make their investment decisions. For example, they might choose to sell or hold their stocks depending on the published earnings of a company. If these records are inaccurate or intentionally altered, the shareholders may make poor investment choices as a result. Now that you understand shareholder rights, it is easy to see how shareholder disputes might arise. Shareholders might sue if they feel that the company is making major decisions without bothering to hold votes. They might also sue if they feel that the leadership is acting against their best interests. Another type of lawsuit might involve shareholders suing a company for inflating their earnings and releasing inaccurate data. Shareholder Disputes Often Begin With Alternative Dispute Resolution Most lawsuits, including shareholder disputes, go through a process of alternative dispute resolution (ADR) before parties actually proceed to the courtroom. ADR may involve mediation or arbitration, and it takes the form of private negotiations. The shareholders may select legal counsel to negotiate on their behalf, as it would be impractical for thousands of individuals to sit at the negotiation table. In other situations, an individual shareholder might file a lawsuit on their own. In this situation, that individual might be present at the negotiation table alongside their legal counsel. ADR often serves everyone’s best interests, helping to resolve disputes without resorting to expensive and time-consuming litigation. Public trials are not good for business, and shareholders might be just as willing to resolve these issues in private as the executive suite. Arbitration clauses are often “built in” to the corporate bylaws or charter. In other words, parties may have no choice but to attempt mediation/arbitration before proceeding to a trial. That said, parties are under no obligation to successfully complete the arbitration process. One party could refuse to negotiate, and a trial would subsequently become inevitable. What are Some Common Types of Shareholder Disputes? Shareholder disputes may take various forms. All of these lawsuits fall into four main categories, however. An individual shareholder might file a direct lawsuit against the company. Another type of lawsuit might be a “derivative suit,” which involves the shareholders suing on behalf of the corporation. This type of lawsuit often targets a specific bad actor within the company, such as a self-dealing CEO. Class actions are also relatively common. In this type of lawsuit, numerous shareholders join forces to file a single lawsuit against the corporation, often under federal securities law. Finally, a dispute might take the form of an “appraisal proceeding,” which focuses on whether the company has received a fair valuation before a merger. How Does Pennsylvania Law Affect Shareholder Disputes? Pennsylvania law is quite deferential to the board of directors, granting it considerable control and authority. A common source of conflict in a corporation is the contrast between the “democracy” of the shareholders and the authority of the board of directors. Pennsylvania tilts the scales in favor of the board. First, Pennsylvania requires a shareholder to make a written demand to the board before they can file a derivative lawsuit. The board can then appoint a “Special Litigation Committee” to investigate the shareholders' claims and demands. If the committee determines that a lawsuit would go against the best interests of the company, courts in Pennsylvania may not allow it to continue. It is difficult to circumvent these requirements for derivative lawsuits in the Keystone State because of strict limits on direct lawsuits. Finally, Pennsylvania has no rule that states a board must place its shareholders’ interests above those of other relevant parties. These parties might include employees, customers, suppliers, and even the greater community or environment. This is not the same in other jurisdictions, making the Keystone State a “board-friendly” state that repels takeovers. In fact, it is considered by many to be the most management-friendly state in the country and one of the toughest places for shareholder plaintiffs to sue. While this is good news for boards facing shareholder lawsuits, the Keystone State’s protections are not infinite. Effective legal representation is necessary to take advantage of the jurisdiction’s legal safeguards. On the other hand, plaintiff shareholders can still achieve success in Pennsylvania, but they may need to rely on innovative, experienced business litigation lawyers in the face of strong regulatory barriers. Contact Cozza Law Group PLLC to Learn More About Shareholder Disputes While online research can provide plenty of insights into shareholder disputes, each case is slightly different. Given the varied nature of shareholder disputes, it may help to discuss your specific circumstances with a business litigation attorney in Pennsylvania . Cozza Law Group PLLC serves enterprises of all sizes, offering a fractional counsel model that provides legal guidance that fits your company’s unique needs. Continue this dialogue by contacting us at 412-453-8673 or visiting us online .