Independent Contractor Misclassification and Compliance News October 2024

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we bring you the latest news stories from around the web.

California Joins Illinois and New York with Freelance Worker Protection Act

California joined the states of Illinois and New York with its Freelance Worker Protection Act. California’s law goes into effect on January 1, 2025. The law is similar to laws in other states and cities that have adopted ordinances protecting freelancers including Seattle, Minnesota, Los Angeles, Columbus, and New York. (see Independent Contractor Misclassification and Compliance News August 2024; Independent Contractor Misclassification and Compliance News November 2023; Independent Contractor Misclassification and Compliance News: August 2020)

California’s Freelance Worker Protection Act law applies to services provided by an individual or person or entity with only one person and for services in exchange for $250 or more.

A business that engages with freelancers must sign a contract with the freelancer that includes:

• The name and mailing address of the business and the freelancer.
• An itemized list of all services to be provided by the freelancer.
• The value of the 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 a freelance worker 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.

If the contract does not specify when the business will pay the freelancer, then the business must pay the freelancer within 30 days after the services have been provided.

California is the third state to enact a law that provides freelancers specific rights and supports the independent economy.

Office of the Solicitor (SOL) and Department of Labor (DOL) Issue Report on Coercive Contractual Provisions

The United States Department of Labor (DOL) and the Office of the Solicitor (SOL) issued a report on employment contracts that contains provisions that may discourage workers from exercising their rights under worker protection laws. These provisions may be highly coercive and may violate the law. The DOL and SOL play a role in enforcing the law and combatting the use of contractual provisions that violate worker protection laws. The report identified seven types of highly coercive provisions including provisions that purport to require employees to agree that they are independent contractors.

The report observed that some employers seek to support the misclassification of their workers by requiring the misclassified workers to sign agreements claiming that they are independent contractors under the law. An agreement stating that a worker is an independent contractor does not determine whether the worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA). A worker’s classification is determined by the economic realities of the worker’s relationship with the employer. A contractual provision stating that the worker is an independent contractor does not make the worker an independent contractor under the FLSA.

The DOL and SOL have fought the use of coercive provisions in employment contracts because the agreements may have a chilling effect on workers’ ability or willingness to exercise their rights under the FLSA. This report describes the concerns of the DOL and SOL and gives businesses and employers a roadmap to avoid scrutiny by the DOL and SOL.

For more information, check out our resources page on misclassification and compliance. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help.