California Imposes New Requirements for Engaging Independent Contractors

Following other states and cities across the nation, California Gov. Gavin Newsom signed Senate Bill 988, the Freelance Worker Protection Act (FWPA), into law on Sept. 28. This new law aims to provide greater protections to freelance workers (for example, “independent contractors”). Codified at California Business & Professions Code Section 18100 et seq., the FWPA imposes requirements on individuals and companies that hire freelance workers for specified “professional services.” Individuals and companies should familiarize themselves with these new obligations, the implications for their businesses, and the potential risks of noncompliance.

What Does the FWPA Require?

Written Contracts

The FWPA requires that the terms and conditions of a freelance worker’s services to a “hiring party,” as defined in the statute, be reduced to writing—that is, the parties must enter into a written contract. At a minimum, the contract must include:

• Each party’s name and mailing address.
• An itemized list of the services that the freelance worker will provide, including the value of the services (monetary amount) and the method of compensation.
• The date by which the hiring party must pay the freelance worker for services rendered, or if there is no specific date, the mechanism by which the date will be determined.
• The date by which the freelance worker must submit a list of the services rendered under the contract (for example, an invoice) to the hiring party to ensure timely payment.

Record Keeping

Companies must retain copies of contracts under the FWPA for a minimum of four years.

Timely Payments

Full payment must be made by the date specified in the contract, or within 30 days after the work has been completed if no date is specified. A hiring party may not require a freelance worker to accept lower compensation than agreed upon in the contract as a condition of timely payment.

Anti-Retaliation Protections

The FWPA prohibits hiring parties from discriminating or taking adverse action against a freelance worker when such actions would penalize the freelance worker for—or deter them from—exercising, or attempting to exercise, any rights under the FWPA.

Who Is a ‘Freelance Worker’ Under the FWPA?

Under the FWPA, a freelance worker includes, 1) a person or organization (of no more than one person), 2) that is hired or retained as an independent contractor, 3) to provide “professional services,” 4) for an amount equal to or greater than $250 (in aggregate during the immediately preceding 120 days). Put simply: Any independent contractor hired for professional services of $250 or more is a freelance worker under the FWPA.

Which Companies Are Subject to the Requirements of the FWPA?

Almost all companies are subject to the requirements of the FWPA. The FWPA is broad, and it defines “hiring party” as a person or organization in the state of California that retains a freelance worker to provide professional services. Under this definition, all natural persons and companies (including sole proprietorships, corporations, LLCs, etc.) are covered under the FWPA. The act does not impose any employer-size threshold but applies to small, medium, and large companies as well as most individual hiring parties.

The FWPA does not apply to the federal, state, local, or foreign governments, or to an individual that is hiring services for the personal benefit of themselves, their family members, or their homestead. 

Any Other Things to Bear in Mind?

Besides requiring written contracts and timely payment and prohibiting retaliation, the FWPA also imposes administrative responsibilities on hiring parties, who must ensure compliance with the new contract and record-keeping requirements. As a result, businesses that regularly engage freelancers should review their current practices.

Steps that California companies may wish to take include: 1) assessing whether any of their independent contractors provides “professional services” that would trigger FWPA application; and 2) reviewing independent contractor agreements to ensure they include all the information required under the FWPA. It is essential to be prepared to customize each freelance contract to reflect the specific needs of each engagement. It would also be wise to consult legal counsel about additional terms and needs that may arise.

Keep in mind that the FWPA’s formalization of freelance contracts and the introduction of specific legal protections may lead to an increase in legal disputes. Companies may not contract around or waive the requirements of the FWPA; any such attempts will be deemed void and unenforceable.

In addition, a freelance worker or a public prosecutor may bring a civil action to redress violations of the FWPA. If a freelance worker is successful in establishing a violation of the FWPA, the freelance worker will be entitled to reasonable attorney fees and costs, injunctive relief, and damages (which vary based on the nature of the violation).

When Does the FWPA Go Into Effect?

The FWPA will take effect Jan. 1, 2025, and will not apply retroactively.

Joy C. Rosenquist is an attorney with Littler in Sacramento, Calif. Rick Reyes is an attorney with Littler in New York City. Blair C. Senesi is an attorney with Littler in San Francisco. © 2024 Littler. All rights reserved. Reposted with permission.