I own small business and use two individuals that do word processing from home for me. At times, things are very busy and sometimes they are very slow. My first processor worked solo for me for two years and was issued a W2 for her services and then I found a backup for her. I never intended for the first one to be considered an employee and only set her up on payroll so we could withhold taxes from her check (per her reqeust). The second processor is much more agreeable to work with and lives out of state. She is set up to receive a 1099 for her services. When I advised the first processor that I wanted to shift her over to receiving a 1099 instead of a W2, she resigned as she said her husband would not allow her to be considered a contractor. Keep in mind she has always worked from home and all of our business is done via e-mail. I am inclined to accept her resignation as she does not work well with the other processor. My quesiton is whether she can seek unemployment against my company if I accept her resignation. Also, is changing her status from a W2 to a 1099 unethical in any way? She worked less than 400 hours last year and was always a contractor in my mind despite putting her in our payroll system to withhold taxes. Thanks for your assitance!