California’s New Freelancer Law Sets Rules for Retaining Solo Independent Contractors

10/15/2024|3 minute read

Key Takeaways:

• The California Legislature has created new requirements for retaining solo independent contractors.
• Businesses can be exposed to costly penalties and damages for noncompliance.
• Engagements with solo independent contractors require a written contract that must include certain information.

A new California law requires written contracts when engaging most solo independent contractors. The written contracts must contain certain types of information.

With this new freelancer law, California joins Illinois, New York state, New York City, Los Angeles, Minneapolis, Seattle and Columbus, Ohio, in imposing specific requirements for engagements with freelance independent contractors.

The Freelance Worker Protection Act (FWPA), which will be codified at Bus. & Prof. Code 18100 et seq., takes effect on January 1, 2025. The law does not change the test for determining whether a worker is an employee or an independent contractor.

Who Is Affected

The FWPA applies to the retention of freelance workers, defined as individuals or single-person entities, who will provide goods or services valued at $250 or more over any 120-day period.

The FWPA does not apply if the hiring party is an individual and the work is for the hiring party's personal benefit or the benefit of their family (e.g., babysitter, dog walker).

FWPA Requirements

Under the FWPA, an agreement between a hiring party and a freelancer must be memorialized in a written contract that includes:

1. The name and address of each party.
2. An itemized list of services and value.
3. The rate and method of compensation.
4. When payment is due or the mechanism for determining when payment is due.
5. When the freelancer must submit an invoice to allow for timely payment.

Hiring parties must provide the freelancer with a copy of the written contract and must retain the contract for four years.

Payment to the freelancer must be made by the date specified in the contract. If no date is specified, then payment is due 30 days after the work is completed.

Once the work is completed, the hiring party cannot require the freelancer to (a) accept less in payment than what is specified in the contract, (b) provide more goods or services without entering into a new contract, or (c) assign intellectual property (IP) rights that were not already specified in the contract.

Other Provisions

The FWPA does not limit existing contract law. It does not limit the ability of a freelancer to bring claims for breach of a verbal contract or for promissory estoppel.

The following may be used as evidence to show the existence of a contract to which the FWPA would apply:

1. The hiring party made representations to the freelancer regarding the rate for services to be performed.
2. The freelancer provided a summary of the rate and work to be performed in writing (including email, text messages, etc.).
3. The freelancer performed the work.

The FWPA can be enforced through a private civil action or by a public prosecutor.

If a freelancer proves a violation of the FWPA, the freelancer can recover:

1. A $1,000 penalty if the freelancer requested a written contract and the hiring party failed to provide one.
2. Twice the unpaid amount if the hiring party failed to timely pay for the services rendered.
3. Damages equal to the value of the contract for any other violations of the act.
4. Attorney's fees and costs.
5. Any other remedies deemed appropriate by the court.

A court may also grant injunctive relief.

Waivers of FWPA requirements are void. A hiring party is also prohibited from discriminating or retaliating against any freelancer attempting to assert their rights under the FWPA.

Tips for Compliance with the FWPA

When hiring a solo independent contractor, businesses need to make sure they memorialize the terms of the retention in a written contract. The written contract must contain all information required under the new law.

To protect against other provisions in the law, hiring parties should also consider including the following items in their written contracts:

1. Specify the assignment of IP Rights.
   • Do not leave those details until later or assume there is a handshake understanding of who will own the IP.
   • Use terms that automatically assign ownership upon creation of the new work. It might not be sufficient to require future assignment by the freelancer.
   • Do not say that IP created by the freelancer is a "work made for hire." Under California labor laws, that phrase will cause the freelancer to be classified as an employee.
2. Specify a due date for payment or a process for determining when payment is due. Avoid the default 30-day pay deadline imposed by the FWPA.
3. Carefully define the work to be performed.
   • Specify what constitutes completion of the work. Consider including project specifications or mandatory results as part of the defined services.
   • To limit misclassification risks, be sure to specify the results required, not how to achieve those results.
   • Remember, the FWPA prohibits a hiring party from paying the freelancer less than the contractual amount for completed work. By including specifications or other requirements in the definition of services, a hiring party might be able to sidestep this provision for work that is shoddy or unprofessional or fails to meet project specifications.

Our Labor and Employment Practice Group is prepared to help businesses comply with these new requirements.

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