From January 1, 2025 forward, California businesses and others who hire freelance workers to perform various “professional services” (as defined by Labor Code §2778(b)(2)) as independent contractors will be required to have written contracts in place. If you hire an individual freelancer to perform specified commercial work with a value of more than $250 over the course of a year, this law very likely applies to you.
The written contract must include each party’s name and mailing address, an itemized list of the services that the contractor will provide, the specific compensation to be received for the services provided, the date by which such compensation will be paid or the method for determining such date if a date cannot otherwise be specified due to the nature of the project, and the date by which the independent contractor must provide their invoice or other form of billing to receive timely payment. These contracts must be retained for a minimum of four years by the hiring party.
Beyond the contract itself, the hiring party is required to provide timely payments to the contractor as specified in the contract, or within 30 days of the time the contractor has completed their work if no date is specified. Requiring the freelancer to accept less than the pre-determined payment in exchange for timely payment is expressly banned by the new statutory scheme. Likewise, a qualifying independent contractor may not be required to provide additional goods and services or sign over intellectual property rights not agreed to in the initial written agreement in exchange for timely payment of the agreed-upon fees. The laws do not, however, apply to those hiring a freelance worker or independent contractor to perform work which is primarily benefiting themselves, their family members, or their home (e.g., someone servicing or cleaning your family home’s pool).
A hiring party may not retaliate or take any adverse action against a freelancer for seeking to enforce these new rules or opposing any practices which are prohibited thereby. Among other things, if a written contract is requested and not provided, the freelancer is entitled to a $1,000 penalty from the hiring party. Failure to pay the agreed-upon amount on a timely basis may result in a penalty of up to twice the amount unpaid. If the worker requests a contract and none is provided, the worker will be entitled to recover the amount that the contractor reasonably believed would be paid (and will almost certainly be given great deference in this regard). Violations of the statutory scheme will likely entitle the freelance worker to recover attorney’s fees and costs in addition to the various damages and penalties available under the law.
A well-written contract with a freelance worker or independent contractor certainly helps to avoid disputes and has nearly always been advisable, but now such contracts are required. If there is any doubt as to whether a particular relationship may be covered by the new law, reaching out to an attorney to get a template in place and to understand the new rules and the consequences for failing to abide by them is crucial. When the New Year comes, operating without the required written agreements in place will open you up to significant trouble in 2025 and beyond.