A reader writes:
I run a small health care practice and recently had a difficult transition with a longtime employee that I’m trying to learn from.
Sarah worked for me for almost five years as our director of business development and head of marketing. During that time, I invested heavily in her development through training, tools, and embracing the inevitable mistakes that come with growing into any role. She worked remotely, set her own schedule, had significant autonomy, and earned well above the market rate. I also told clients about a small business he ran.
About six months ago, she told me she “fell away” from the organization professionally and wanted to change the relationship from Employee (W-2) to Contractor (1099). I expressed some concerns about that change, which led to an emotional conversation. Shortly afterward, she sent an email summarizing the conversation as if I supported the change.
As we tried to work out the details, it became clear that she didn’t fully understand the legal and structural differences between W-2 and 1099 work. Once we began mapping out the contract, she realized that many of the duties she previously handled could no longer legally be part of the contractor relationship, meaning the scope and compensation would be less than she expected. She was upset and accused me of not cooperating.
After much negotiation, we finally reached an agreement that met the legal definition of a 1099 relationship, and my company became one of her clients for several marketing services (social media, blog writing, online advertising and outreach).
Almost immediately after the change, the quality of his work declined significantly. When I raised concerns about the deliverables, it responded by unilaterally removing two services from the agreement. Our contract allowed 30 days’ notice to terminate the agreement but did not allow for withdrawal of personal services while the contract was active. At that point, I concluded that it would be more appropriate to transition to a new marketing firm rather than continuing the relationship.
The whole situation has been frustrating because I feel like I have lost someone I invested heavily in and tried to support. Finally, I also suspect that she may not actually have wanted the contractor arrangement after realizing the implications, but by that time the relationship had already changed.
I have a questions:
When a valued employee feels pressure to transition from employee to contractor, how should a manager handle that conversation?
Is it generally a mistake to agree to become a client of a former employee in order to protect the investment you have made in his development?
How do you avoid completely losing someone you’ve invested in when they push for change like this?
I’m trying to understand what I could have done differently so that I don’t repeat this situation in the future. As a small business, this kind of loss is huge. I feel nervous about investing in the future, and I can’t shake the feeling that I should have handled this differently.
The first thing is to accept that you will always lose the employees you have invested in eventually, and that’s okay! If you try to prevent this from happening at all costs, you may make choices that will not be good for the organization. So first and foremost: be okay with the idea that people will move and that it’s a natural and inevitable thing that will happen in running a business.
I say this because it seems like this all stems from your trying to find a way to keep a hold on Sarah, even though that arrangement doesn’t make sense for the business. Instead, when Sarah told you that she felt she was outgrown by the organization, perhaps it would have been better to wish her good luck and make a clean break.
There Are There are times when transitioning a valued employee to contractor status makes sense for all parties. If you look at what the employee is proposing and you can work out an arrangement that makes sense to both of you – not just “we’ll agree because we’re desperate to keep them”, but actually makes sense – then great. But you shouldn’t agree just because they suggest it.
In Sarah’s case, it sounds like you were looking for a way to make things go smoothly even though you had significant reservations. It would have been fine, and probably better, to decline the contract conversion – if not at the beginning, certainly after your conversation would have revealed that you were confused about what it should look like. You can do this without being hostile; It’s totally helpful to say, “I’d love to work together, but we really need the person who does this work as an employee. If that can’t be you anymore, I understand.”
You put it this way so you want to know how not to lose an investment in a good employee. But benefiting from your investment in a good employee doesn’t mean “they’ll be here forever.” It means that your investment in their good work bears fruits while they are there And how their work sets the next person up for success. You can also benefit from the satisfaction that comes from working with someone you’ve seen grow and develop. but they Desire Ultimately find other opportunities and move on, and this is naturally part of running a business and employing people. When you agree with this, you will make better decisions for the business and yourself.
