Can I Recover for Lost Income if I’m Self-Employed?

One of the main elements of damage in any settlement or judgment that arises from a car accident is lost income. In a typical accident, an injured party is unable to work for a period of time. As a result of this inability to work, their income stream is interrupted, causing an economic loss. If the car accident that caused this inability to work was the fault of someone else, then that person is responsible for compensating the person injured for that economic loss, among other things.

As with any damages associated with a personal injury, it is the responsibility of the person injured to not only prove that the damage occurred but to also prove the value of that damage. The standard of proof involved in these situations is more likely than not. In other words, the person injured has to show that it is more likely that the damage occurred and that the value of the damage is accurate than the damage didn’t occur or that its value is inaccurate. This is sometimes expressed as the “51% rule”. If the injured party presents evidence that establishes that an element of damage occurred by a slight preponderance, then they are entitled to recover.

Self-Employment vs. Regular Employment

In a typical injury case where the injured party is employed by someone else, establishing lost income due to an inability to work is relatively simple. The injured party’s physician can provide evidence that shows specific injuries caused by the accident prevented that person from working. Then that person’s employer, usually by letter, can establish the specific value of the lost income for the time in question, as well as the value of other lost compensation, such as sick or vacation days used, lost overtime, or other missed perks.

When you are self-employed, the situation becomes more complicated. You did not simply lose wages because you had to stay home from a job. Instead, a much more complicated chain of events was initiated concerning your loss of income when the other driver injured you. In all cases, you will likely require an attorney to represent your interests and in some cases, you may require the testimony of an expert who will be able to establish exactly how much money you lost through an inability to work. This is because self-employment, unlike regular employment, does not always involve a steady paycheck and a set schedule of additional benefits. Instead, self-employment damages often involve items that can be less tangible, like lost profits, contracts, and opportunities.

Self-Employment Damages

Typically, the average injured employee is entitled to recover for lost wages and for lost compensation. Wages are the set amount that the employee would have earned if he or she had been able to work. Lost compensation is the additional benefits that would have been earned over and above wages during the time in question.

Compare this to the damages that are recoverable in a self-employment situation. These typically include:

  • Lost income
  • Lost earning capacity
  • Lost profits
  • Lost opportunities and
  • Loss of goodwill

As can be seen, the damages recoverable in a typical self-employment situation are far less concrete that the damages involved when a salaried employee is injured in an accident. Nonetheless, these damages are provable.

One of the best ways to show lost income and lost earning capacity is through tax returns. You business’ tax returns over several years can establish a pattern for your income. In addition, any contracts that you had that went unfulfilled due to your injuries can also help to set specific amounts of money that you lost. Appointment books, calendars, and correspondence can also establish who you would have met with had you not been injured. This information can be used to show the amount of income you would have realized in the future but for your injuries. By way of explanation, let’s look at a specific example.

Suppose that you are a software consultant and you’ve been in business for yourself for five years. At the time of your accident, you had two months remaining on a six-month consulting contract with Company A. In addition, you were actively marketing yourself to a number of other companies. You were negotiating the terms of a one-year contract with Company B. You also had appointments to discuss working with Company C on a full-time basis and Company D on a part-time basis.

Your injuries prevented you from working for six weeks. As a result, you lost one and a half months income under your contract with Company A. In addition, they hired another consultant to finish out the term of your contract. All told, you lost two months of income under that contract. In addition, you were unable to finalize your deal with Company B. They ended up hiring someone else. You lost the value of that opportunity. You were also unable to keep your appointments with Company C and Company D. As a result, you lost the potential income that contract with those companies represented. It may be likely that none of these companies will choose to do business with you in future because they now consider you a risk. Finally, during the time you were recuperating, you were unable to do any marketing for your firm whatsoever in order to generate additional business leads.

Now, aside from the specific losses involved with the contract you had with Company A, much of your additional damages are somewhat speculative. This is where your attorney and the aforementioned expert, a forensic economist, come into play. A forensic economist will be able to use your existing business documents, your tax returns, profit and loss statements, calendars, and correspondence to establish a specific value for the more speculative damages involved in lost opportunity, goodwill, and marketing. He or she will be able to do this by showing that past behavior similar to present behavior resulted in a definite amount of income being generated. As a result, your attorney will be able to establish that the business behaviors that were impacted as a result of your accident would have more likely than not generated a similar amount of income.