Legal Question in Civil Litigation in California

If this is work for which a contractor's license is required, and you don't have one, the court will award your former friend all of his money back. And if your 1099 gets injured on the job, or employs others and they get injured on the job, and he doesn't have work comp insurance, the accident goes on your comp insurance, or more likely out of your pocket.

Stone is right on this one. You screwed up big time. If you arranged for the work and billed for it, you contracted without a license. Also, there is no such thing as a 1099 employee. Either you have a totally independent contractor or subcontractor to whom you issue a 1099, or you have an employee. And whether or not you issue a 1099 or not is in absolutely no way relevant to whether the person is an independent contractor/subcontractor, or an employee. And if you have an employee, who you do not treat as an employee, and instead try to make them a contractor by not withholding and paying taxes, and issuing a 1099 instead, you are REALLY screwing up and can face fines and penalties, including tax evasion charges.

You should cover your friend's expenses, applogize profusely, and then THANK them for unearthing this ticking timebomb in how you are doing business. Then make an appointment with a good small business lawyer and have them help you fix these major illegalities in how you are doing business.