New Law Requires Written Contracts For Independent Contractors

New Law Requires Written Contracts For Independent Contractors

Freelancing is growing at a quick pace and has proven to be a critical sector of the economy. In 2022, there were an estimated 60 million American freelancers. That made up 39% of the total workforce and contributed $1.35 trillion to the national economy. Now California has added protections for these workers.

The Freelance Worker Protection Act (FWPA) stipulates that any freelancer performing over $250 of work for a hiring entity over a four-month period is entitled to a contract stating the scope of the work expected, the rate of pay, and the method of payment.

In addition, clients must pay their freelancers within 30 days of completion of work unless otherwise specified in the contract, and they can’t require freelancers accept less than the contract stipulates in exchange for being paid more quickly.

To Whom Does the Law Apply?

The FWPA applies to individuals or single-person entities who provide goods or services valued at $250 or more over any 120-day period.

Under the act, “hiring party” means a person or organization in California that retains a freelance worker to provide professional services, except any of the following:

  • The United States government.
  • The State of California or any subdivision thereof.
  • A foreign government.
  • An individual hiring services for the personal benefit of themselves, their family members, or their homestead.

The law doesn’t 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).

What Information is Required in a Contract?

Under the FWPA, an agreement between a hiring party and a freelancer must be in writing and include the following terms:

  • The names and addresses of the parties;
  • An itemized list of services and value;
  • The rate and method of compensation;
  • Due dates for payment or the mechanism for determining when payment is due, and if no date is specified, payment is due 30 days after the work is completed; and
  • When the freelancer must submit an invoice to allow for timely payment.

After the work is completed, the hiring party can’t require the freelancer to provide additional goods or services without entering into a new contract. Also, they can’t assign intellectual property (IP) rights that weren’t already specified in the contract.

What Evidence Can be Used to Show the Existence of a Contract Where the FWPA Would Apply?

  • The hiring party made representations to the freelancer as to the rate for services to be performed;
  • The freelancer gave the hiring party a summary of the rate and work to be performed in writing (this could be in the form of an email or text); and
  • The freelancer performed the work.

Hiring parties must provide the freelancer with a copy of the written contract and must keep the contract for four years. And a hiring party is can’t discriminate or retaliate against a freelancer trying to assert their rights under the FWPA.

What are the Penalties?

If a freelancer shows that a hiring party violated the FWPA, the freelancer can recover the following:

  • A $1,000 penalty if the freelancer requests a written contract and the hiring party doesn’t provide one;
  • Two times the unpaid amount if the hiring party doesn’t pay for the services rendered on time;
  • Damages equal to the value of the contract for any other violations of the FWPA;
  • Attorney’s fees and costs; and
  • Any other remedies deemed appropriate by the court.

In addition, a court may also grant injunctive relief.

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

Can the FWPA Requirements Be Waived?

No. Waivers of FWPA requirements are void. The law states that the waiver of any provision of the FWPA shall be deemed contrary to public policy and is void and unenforceable.

Does the FWPA Change Contract Law in California?

No. The law doesn’t modify the test for determining whether a worker is an employee or an independent contractor. Moreover, the new law doesn’t change existing contract law. The FWPA doesn’t limit the ability of a freelancer to bring claims for breach of a verbal contract or for promissory estoppel.

The FWPA will be codified at Bus. & Prof. Code 18100 et seq. and goes into effect on January 1, 2025.

Takeaway

The FWPA prohibits a hiring party from paying the freelancer less than the contractual amount for completed work. When hiring a solo independent contractor, California business must be certain that they detail the terms of the relationship in a written contract that has all information required under the new law.

Including specifics or other requirements in the definition of services may allow a hiring party to contest this provision for work that’s substandard or fails to meet project specifications.

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