Ah, the perils of doing business with friends. Both of you could have some problems here. You're calling this person an employee, but I'll bet a dollar to a doughnut that you didn't withhold the appropriate employee taxes, nor did you pay the withholding over to the taxing authorities. I'll also wager that your "friend" didn't declare what he earned from you as income and isn't planning to pay taxes on it. You're both in the wrong. I'm not clear on how his actions "cost you," but unless he's guilty of something grossly negligent or criminal (or if you have some agreement to the contract...which you don't), you're generally responsible for paying an employee wages in connection with all services rendered. You had no agreement, so there was no notice period he was required to give you.