Companies Should Keep an Eye On a California Bill Protecting Freelance Workers
Companies, especially startups, rely on freelance workers: engineers to pitch in on a big project, a web designer to lead a homepage revamp, a part-time controller to make sure bills get paid, and so on. There are a number of tasks that are necessary but don’t require a full-time, or even part-time, employee. In a best case, this is a win-win for the company and freelancer. The company gets the work it needs at a fraction of the cost of an employee, while the freelancer can make more per hour than if employed while maintaining schedule flexibility. The risk for freelancers, however, is that if the company doesn’t make good on payment, they have little recourse against the better capitalized business.
A new bill making its way through the California Legislature aims to upend this dynamic. Introduced by San Francisco State Senator Scott Wiener, the Freelance Worker Protection Act seeks to ensure that freelance workers are paid reliably and fairly. This bill comes on the heels of local New York and Los Angeles ordinances with similar goals.
On the surface, the proposed law seems unremarkable. It defines a freelance worker as a single-person that a business hires as an independent contractor for more than $250, and provides that these persons are legally entitled to a written contract and timely payment. In addition, once a freelancer has commenced work, a company cannot withhold payment as a means to force the freelancer to accept less money or give up IP rights.
Read more closely however, and you’ll see that, if passed, this bill would fundamentally change the relationship between companies and freelance workers. Most notably, the bill provides for a private right of action by unpaid freelancers, entitling them to both attorneys fees and double the unpaid amount. So get in a billing dispute with a freelancer and you could find yourself in receipt of a demand letter seeking multiples of what you were originally obligated to pay. It’s not out of the question that this creates a new line of business for the plaintiff’s bar.
There’s more. The bill prohibits companies from taking adverse action against freelancers enforcing their rights under the law. That billing dispute I was talking about? If a company decides to terminate the contract of the freelancer in the middle of the dispute, it may be adding even more to the potential damages (assuming that contract termination qualifies as an adverse action). In other words, as written the law could require companies to pay freelancers who are actively suing them!
It's too early to know if this law will pass, and if so what the final form will look like. It’s apparent though that some type of reform will pass in the near future.
So what do you do now? I have three suggestions for how to get ready.
1. Be careful entering into contracts with freelancers with a lengthy and defined term. Under the new laws, it could become even tougher to get out of an engagement that isn’t working out. One idea is to makes sure you have a clear ability to terminate an agreement when certain milestones or criteria are hit, even when you have a blanket right to terminate for convenience.
2. Where payment is conditioned upon receipt of deliverables, be clear as to quality standards and the company’s discretion to accept them. I see one of the main risks of the bill being companies and freelancers arguing over whether the agreed to work was in fact completed, and thus whether payment is due. In other words, beef up that boilerplate independent contractor agreement you have been using.
3. Start to condition your business and finance teams that contractor payment is as important as employee payment. Every company takes its payroll obligations seriously, and will likely need to extend that thinking to freelance workers soon.
*This blog is intended to provide a general summary of best practices and does not constitute legal advice. You should consult with counsel to determine the exact legal requirements in a given situation.