From JDSupra, Richard Reibstein discusses uncertainities in California’s Freelance Worker Protection Act. Richard writes:
The most significant legal development in the past month in the area of independent contractor compliance was the enactment of California’s Freelance Worker Protection Act, which goes into effect on January 1, 2025. We have reported on freelance pay protection laws enacted recently in Illinois and New York, as well as similar laws in municipalities including New York City, Los Angeles, Minneapolis, Columbus, Ohio, and Seattle. These types of enactments impose statutory liabilities on businesses that either fail to pay freelancers the agreed upon fees for services rendered or neglect to enter into independent contractor agreements encompassing the terms required by these laws. As we note below in our summary of this new California law, it actually covers only a limited number of freelancers – those who provide a diverse array of “professional services.” This new California law is unclear as to which companies and independent contractors it covers. While the law states that it governs a business “organization in the State of California that retains a freelance worker to provide professional services,” it is unclear whether it only covers companies operating in California that engage such freelancers located in California, or it if also covers companies engaging those types of contractors where the business or contractor is located outside the state. More importantly, this and other independent contractor payment protection laws only cover workers that have been properly classified as ICs under applicable legal tests. Companies using workers they classify as ICs may mistakenly regard themselves as being free from liability if they comply with these freelancer pay protection laws. But such compliance does not immunize businesses from exposure to IC misclassification liability. Companies using an IC business model also need to structure, document, and implement their IC relationships in manner that maximizes compliance with applicable state and federal tests for IC status. A process such as IC Diagnostics (TM) can enhance IC compliance while also satisfying these new freelance pay protection laws.
Legislative Initiatives
CALIFORNIA ENACTS PAY PROTECTION LAW THAT APPLIES TO A LIMITED NUMBER OF IC’S, BUT IT PROVIDES FOR COSTLY DOUBLE DAMAGES. The California Freelance Worker Protection Act (Senate Bill 988) was recently signed into law by California Governor Gavin Newsom. While this new statute has been characterized by columnists and a number of legal commentators as covering all freelancers, it does not. Instead, as codified in Section 18100 of the California Business and Professions Code, it only requires written contracts with freelancers providing “professional services.” Regrettably, there is no description in the law itself as to what constitutes “professional services.” Instead, it defines “professional services” by cross-referencing Section 2778(b)(2) of the California Labor Code. And that section covers only a relatively small and varied group of independent contractors, including creative marketing professionals, human resources administrators, travel agents, graphic designers, grant writers, fine artists, tax preparers, payment processing agents, still photographers, photojournalists, freelance writers, translators, editors, newspaper cartoonists, cartographers, manicurists, barbers, appraisers, and registered professional foresters. California businesses operating in Los Angeles, however, are governed as well by that city’s pay protection law, which covers freelancers providing any and all types of work and not just these select “professional services.”
As noted in the introductory paragraph of this blog post, the new law does not make clear whether it only covers contractors if the professional freelance services are rendered within California and whether it only covers companies operating in California. This lack of clarity is not, however, the most troubling aspect of this law. Rather, the new law includes a provision for double damages if a hiring party does not pay the contractor’s fees within 30 days or as otherwise agreed by the parties “after completion of the freelance worker’s services under the contract.” This double damages provision is problematic because, as we recently pointed out in a blog post critiquing a similar double damages clause in the New York freelancer pay protection law, is that the term “completion of … services” can be very subjective. Has the contractor “completed” his or her work if, in the good faith view of the company engaging the contractor, the services either were not performed satisfactorily or fail to meet all of the express and implied specifications of the parties’ contract? A hiring party’s genuine good faith view that work was unsatisfactory or failed to “meet specs” should not expose it to the risk of double damages. Indeed, most employment laws only add double or liquidated damages where there is a showing of willfulness on the part of the employer or where the employer has failed to demonstrate its bona fides in not making payment of wages. Companies can minimize the risks of double damages by utilizing the tips we have suggested to businesses seeking to comply with other state and local freelancer pay protection laws.
