Can someone explain Escrow to me?

[#1]

I recently finished some work for a client. They had two milestones, both for $285. The second one was only $85 and then they requested a refund from me for $200. Does this mean I owe the client $200 now even though I performed two full assignments for them? The first amount was already paid to me. Was I supposed to hold on to it until further notice or something? Should I dispute this? I'm very confused. I asked the client about it and received no response. I've been looking everywhere for an explanation and cannot find anything.

[#2]

Hi Joel,

Since I don`t know all of the details about your contract I can`t advise you if you should dispute this or not, but generally when a project is delivered the freelancers needs to be paid.
In order to be eligible for our Upwork Payment Protection both milestones will need to be funded and you will need to request for a payment on the official milestone created for you. 
You can check out Fixed-Price Protection for Freelancers and take actions that will fit your case. We can`t discuss private details publicly so you can contact our customer support if you have questions about something and our team will answer them.

[#3]

That's all well and good, but that still does not answer my question. Do I owe this client money or not? If I agree to return the $200 to the client in escrow, does that mean I will physically owe the client $200? That is all I am asking.

[#4]

So is this what happened?

The contract was set up with a $200 milestone and an $85 milestone.

Escrow for both milestones were funded by the client.

You did the work associated with each milestone and submitted it to the client.

The client indicated acceptance of at least the first milestone by releasing $200 from the escrow to you.

Only after you had thus been paid, the client changed his mind and is trying to get the $200 back.

Is that correct?

So you did $285 worth of work and only got paid $200, and he's the one complaining?

I certainly wouldn't voluntarily try to give him back $200 if I were you. I didn't even know a client could dispute that after the fact like that. If he can, presumably he can't win, since Upwork's rules state: "Client’s instruction to Upwork Escrow and its wholly owned subsidiaries to pay a Freelancer is irrevocable. Such instruction is Client’s authorization to transfer funds to Freelancer from the Client Escrow Account or authorization to charge Client’s Payment Method. Such instruction is also Client’s representation that Client has received, inspected and accepted the subject work or expense."

Is the other $85 still in escrow and just hasn't been released? Is he also disputing that, claiming it shouldn't be released to you?

[#5]

I got paid $285 for the first milestone. The second milestone was also $285, but got reduced to $85 at the last second. I got paid the $85, but the $200 is still in escrow. The client requested a refund for it. Do I owe the client this $200, or am I just going to be paid the $85 with nothing happening to the $200?

I messaged the client, who was online, asking the exact same question. He has not responded. If I indeed owe the client the $200, I will dispute it and file a complaint.

[#6]

Hello Joel,

Kindly click this link to help you learn if you are qualified for Fixed-Price protection. You may also click here to learn more about Fixed-Price Escrow Instructions. Thank you.

[#7]

I already read most of it. In none of it does it specifically state what happens to the escrowed funds if the client requests a refund.

As per item 5 in the escrow instructions: "If Client wants to cancel a contract with funds held in escrow, Client must click to close the contract. Freelancer must either click to approve or dispute the Client’s cancellation within 7 days. If Freelancer approves the cancellation, Freelancer and Client agree that Upwork Escrow is authorized and irrevocably instructed to immediately release to Client all escrow funds associated with the contract."

Does this mean: If I agree on the refund, will I owe the client the escrowed funds from my own balance? Or does it mean that the $85 I just received from the client is my final payment from said client and I do not owe the client anything? Neither the instructions nor the fixed price protection literature directly answer this question.

In any case, if I do not hear back from this client by friday on what to do about this, I will dispute the request.

I do not mean to give anyone a hard time, but freelancing is my main source of income currently.

[#8]

Hello Joel,

Once your client approved the milestone, escrow will automatically release the milestone funds. If your client closed the contract with the remaining funds still available in Escrow, you will be notified to approve it or not. The only remaining funds in Escrow will be refunded to your client if you approved it. Your earnings won't be affected and you won't owe your client anything. Thank you.

[#9]

As I understand it, the full amount in escrow is released to you in 14 days if the client takes no action. That's the default; you don't have to initiate a dispute.

In order for that not to happen, the client has to initiate a dispute. (Perhaps this is the stage you are already at, as you say the client has requested their money back from escrow.) That by itself doesn't compel you to agree to let them take the $200 back from escrow. Upwork responds to the dispute request by communicating with both of you as a mediator and trying to get you to reach some compromise. Upwork does not rule on the merits of the dispute, it doesn't declare a winner or loser; it just tries to facilitate the two of you coming to an agreement. (This is for legal reasons. Upwork legally cannot rule on the merits and decide which of you should get the money.)

If that fails, there is the option of taking it to arbitration, which is conducted by a third party, not Upwork, and costs money. I believe each party and Upwork puts up $291, for a total of $873.

If one side and not the other opts to put up the money for arbitration, the side that was unwilling to put up the money automatically loses. It doesn't go to arbitration, nothing is paid for arbitration, no one is out $291. The $200 gets released to the winner.

If both sides put up the money, it goes to arbitration and is decided on the merits. Win or lose, you don't get your $291 back. All $873 goes toward arbitration; nothing is refunded.

So for a small disputed amount like $200, it's bad to go to arbitration. If you win, you're down $91 (plus your labor). If you lose, you're down $291 (plus your labor).

The question then becomes, is it best to avoid arbitration by not agreeing to put up the $291, or by putting it up with the expectation that the other party will not do so? If it's really an open-and-shut case on the merits, and you believe the client isn't too stupid or insane to see that, then you should agree to arbitration, knowing that the client won't and you'll thereby win by default. But if you're unsure of the merits of your case, or you think the client will go through with mediation, then you can only hurt yourself by putting up the $291.

I'm not sure what the default result is if both parties to the dispute decline to put up $291 for arbitration. I would think that means the disputed $200 would be released from escrow to you, but one of the veterans who knows more about this than I do will have to address that (and correct any errors I've made in the above).

Anyway, the long and the short of it is, unless I'm mistaken, the answer to your question as to whether you "owe the client the $200" is no, at this stage you do not.

[#10]

A couple of posts came up while I was writing that.

I believe you're asking if you can be compelled to pay something in addition to the $200 in escrow that you and your client currently disagree about, i.e., might you also end up having to return the $85 that was already released to you on this milestone, or worse yet pay an additional $200 of your own besides the $200 that remains in escrow?

The answer is that even if you agree to let the client take back the $200 still in escrow (it's not clear why you would, since you say you did the work), you wouldn't then be liable to pay him more on top of that.

[#11]

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@Joel C wrote:

I recently finished some work for a client. They had two milestones, both for $285. The second one was only $85 and then they requested a refund from me for $200.

What you say above is confusing, You had 2 milestones, BOTH for $285. But then you say the second milestone was only $85.  What was the total for the entire job supposed to be?  And how much was actually deposited for the 1st milestone, and how much was actually deposited for the 2nd milestone.

Does this mean I owe the client $200 now even though I performed two full assignments for them? The first amount was already paid to me. Was I supposed to hold on to it until further notice or something? Should I dispute this? I'm very confused. I asked the client about it and received no response. I've been looking everywhere for an explanation and cannot find anything.

Without knowing exactly what was agreed on for the entire job and what was actually deposited into each of the 2 milestones, it's hard to give you advice. Basically, if the client has released just a portion of the deposited funds and through the request refund button they are asking you to refund the money still in escrow, then you need to dispute that request. If you don't within a certain amount of time, then those funds will be returned to the client.