A serious car accident can affect more than a person’s health, but for someone who is self-employed, even a relatively short recovery period can interrupt projects, cause clients to cancel contracts, delay invoices, and prevent the business owner from accepting new work.
Under California law, self-employed individuals may be able to recover income they lost because accident-related injuries prevented them from working. While it is a little more complicated than the average claim, but depending on the circumstances, a claim may also account for future earnings the injured person is reasonably certain to lose.
What Counts as Self-Employment?
According to the Internal Revenue Service (IRS), self-employed individuals are people who are running a business as a sole proprietor or performing a contracted role as an independent contractor. Depending on the circumstances of the car accident, a lost-income claim could take into account the structure of the business, because it can matter when determining whose income was actually lost.
Can Self-Employed People Claim Lost Income After a California Car Accident?
California does allow self-employed people to file a lost income claim because the state does not limit lost-earnings damages to traditional W-2 employees. California Civil Code § 3281 outlines how a person who suffers detriment because of another person's unlawful act or omission may recover monetary compensation from the person at fault. This means a self-employed person may potentially recover lost earnings even though their income does not come from a conventional paycheck.
Furthermore, in Sharfman v. State of California (1967), the court explained that a sole proprietor's loss of business profits resulting from an inability to work can effectively represent a loss of personal earnings or earning power and may constitute a recoverable element of damages. Depending on the facts, a self-employed claimant might include:
Income lost while recovering from accident injuries
Payments lost from canceled jobs or projects
Work the person could not complete because of physical limitations
Lost commissions or professional fees
Reduced income after returning to work on a limited schedule
Future earnings reasonably certain to be lost because of lasting injuries
Losses associated with the injured person's inability to personally operate their business
Exactly what can be claimed will depend heavily on how the business operates and what evidence connects the financial loss to the accident.
Why Are Lost-Income Claims More Complicated for Self-Employed Workers?
For a traditional employee, calculating lost wages may be relatively straightforward because an employee that normally earns $1,500 per week can easily calculate their losses due to the consistent nature of their job and role. However, self-employed people like a freelance graphic designer, for example, may have fluctuating earnings according to the season and number of active projects.
Business revenue can also differ substantially from the owner's actual earnings because operating expenses must be considered. As a result, an insurer may challenge whether a claimed loss represents income the person would actually have earned or merely hypothetical revenue.
How Do You Prove Lost Income If You Are Self-Employed?
Documentation is particularly important in a self-employed lost-income claim, because multiple records may be used together to establish the person's pre-accident earning history and demonstrate how the accident changed it.
Furthermore, local precedence has already been set in Newson v. City of Oakland (1974) where a self-employed painter lacked records substantiating his claimed pre-accident earnings, illustrating why documentation of earnings can become significant when lost income is disputed. In any event, any of the following documents can be used to prove lost income as a self-employed individual.
Tax Returns
Federal and California tax returns may provide evidence of a self-employed person's historical earnings. Depending on the business structure, relevant documents could include:
Form 1040 returns
Schedule C records
Business tax returns
Forms 1099
Profit-and-loss statements
Partnership or corporate tax documents
Bank Statements
Personal and business bank statements may show recurring deposits from clients or customers. They can be especially useful when combined with invoices or accounting records showing where individual payments originated.
Invoices and Payment Records
Invoices can help establish how much the self-employed individual typically charged and how frequently they performed paid work before the accident. For example, a contractor who completed approximately four projects every month before an accident but could complete only one per month afterward may be able to use invoices and corresponding payment records to help document that change.
Contracts and Client Agreements
Existing contracts can be particularly valuable when an accident causes the person to cancel work that had already been scheduled. A signed contract showing that a consultant was scheduled to perform a $10,000 project, for example, may provide stronger evidence than simply claiming that the person expected to find approximately $10,000 worth of work during the recovery period.
Client Communications
Emails, text messages, cancellation notices, and other communications can help establish that specific work was lost. A message telling a client that a project must be canceled because the business owner was hospitalized following the accident could help connect the financial loss directly to the injuries.
Can You Recover Income From Work You Had to Turn Down?
This is an issue that commonly arises when a self-employed person receives work through individual projects rather than long-term employment. The strength of any lost income claim may depend on how certain the opportunity was.
For example, there is a significant evidentiary difference between a contractor saying “I probably would have found three clients that month” and evidence showing that the contractor had three clients already booked projects, agreed to a price, and subsequently canceled because the injured person could not perform the work.
Can a Self-Employed Contractor Recover Future Lost Income?
A serious injury may affect a person's earning ability long after their immediate recovery period. CACI No. 3903C states that future lost earnings may be recovered when the plaintiff establishes earnings they are reasonably certain to lose in the future as a result of the injury and this can be complicated because it requires projecting losses that have not happened yet.
For example, future losses might arise when a car accident leaves a self-employed person with permanent restrictions that prevent them from performing the same amount or type of work. Depending on the severity of the injuries and amount at stake, attorneys may use economists, vocational rehabilitation professionals, physicians, accountants, or other experts to evaluate future earning losses.
Common Insurance Company Challenges to Self-Employed Lost-Income Claims
Insurance companies may scrutinize self-employment claims more closely because income is often less predictable. Common disputes may include allegations that:
The claimant's income was already declining before the accident
Claimed revenue does not reflect actual net earnings
The business could have continued operating despite the injury
The claimant could have returned to work sooner
Lost contracts were not sufficiently certain
Business losses resulted from unrelated market conditions
The claimant lacks documentation supporting the requested amount
Future projections are too speculative
For this reason, consistency between medical records, tax documents, business records, and the amount being claimed can be important. However, if there is any trouble with the claim or there is too much dispute surrounding it, hiring an experienced car accident lawyer can help get you the compensation you need to live.
Contact Frank Penney Injury Lawyers Today
Being self-employed does not mean an accident victim has to absorb the financial consequences of being unable to work. California law allows injured people to seek compensation for economic losses caused by another person's wrongful conduct, and lost earnings can be an important component of a car accident claim.
At Frank Penney Injury Lawyers, our team of attorneys understand the nuances of filing a claim as an independent contractor and business owner and are committed to help people get the compensation they deserve.
Contact our firm at 888-888-0566 or by filling out our online contact form today for a free consultation.