On September 28, 2024, California Governor Gavin Newsom signed into law Senate Bill 988, “The Freelance Worker Protection Act” (FWPA), which imposes requirements on companies that hire freelance workers (i.e., independent contractors) for professional services. The FWPA applies to contracts entered into or renewed on or after January 1, 2025.
New Requirements for Independent Contractors
Companies and individuals who hire independent contractors must:
- Outline the terms and conditions of an independent contractor’s services in a written contract.
- Retain copies of contracts for at least 4 years.
- Fully pay independent contractors by the date specified in the contract, or if no date is specified, no later than 30 days after the completion of services under the contract.
- Not retaliate against independent contractors for exercising their rights under the FWPA.
Which companies are subject to the FWPA?
The FWPA applies to almost all companies that hire independent contractors, regardless of company size. The FWPA applies to “hiring parties,” which is defined as a person or organization in the State of California that retains a freelance worker (i.e., independent contractor) to provide professional services, as defined under Section 2778(2)(b) of the Labor Code. The FWPA does not apply to the federal, California, or foreign governments, or individuals hiring for services for the personal benefit of themselves, their family members, or their homestead.
Which individuals are covered by the FWPA?
The FWPA applies to “freelance workers,” which are defined as:
- A person or organization comprised of no more than one person;
- That is hired or retained as an independent contractor by the hiring party;
- To provide “professional services”;
- In exchange for an amount equal or greater than $250, either by itself or when aggregated with all contracts for services during the immediately preceding 120 days.
What contractual requirements does the FWPA impose?
The FWPA requires a written contract. The hiring party must also sign and furnish a copy of the contract, either physically or electronically, to the independent contractor and retain the contract for at least 4 years.
The contract must include, at a minimum:
- The name and mailing address of each party;
- An itemized list of all services to be provided by the independent contractor, including the value of those services and the rate and method of compensation;
- The date on which the hiring party shall pay the contracted compensation or the mechanism by which the date shall be determined;
- The date by which an independent contractor shall submit a list of services rendered under the contract to the hiring party to meet the hiring party’s internal processing deadlines for purposes of timely payment of compensation.
It is important to highlight that the FWPA does not limit existing contract law or an independent contractor’s ability to enforce an oral contract or recover under the doctrine of promissory estoppel.
Further, employers cannot compel independent contractors to waive any provision of the FWPA, as the statute explicitly states that any waiver “shall be deemed contrary to public policy and is void and unenforceable.”
What are the potential consequences of non-compliance?
The FWPA provides both aggrieved independent contractors and public prosecutors the right to bring a civil suit. A prevailing plaintiff can be entitled to reasonable attorney’s fees and costs, injunctive relief, any other remedies deemed appropriate by the court, and damages.
Employer Action
In anticipation of the January 1, 2025, effective date, employers that hire independent contractors should:
- Work with counsel to ensure their contracts include the required FWPA provisions;
- Set up an internal policy to retain contracts for at least 4 years; and
- Set up internal processes to ensure independent contractors are timely paid.
Additional Resources
Connect with a Sequoia consultant to learn how Sequoia’s compliance services are integrated in our benefits services and tailored solutions. And if you’re already a Sequoia client, stay on top of your employer obligations with your Compliance Checklist that highlights important compliance dates, action items, and resources.
The information and materials on this blog are provided for informational purposes only and are not intended to constitute legal or tax advice. Information provided in this blog may not reflect the most current legal developments and may vary by jurisdiction. The content on this blog is for general informational purposes only and does not apply to any particular facts or circumstances. The use of this blog does not in any way establish an attorney-client relationship, nor should any such relationship be implied, and the contents do not constitute legal or tax advice. If you require legal or tax advice, please consult with a licensed attorney or tax professional in your jurisdiction. The contributing authors expressly disclaim all liability to any persons or entities with respect to any action or inaction based on the contents of this blog. © 2024 Sequoia Consulting Group. All Rights Reserved.
