Newest State Independent Contractor Pay Protection Law Creates Uncertainties: October 2024 IC Legal News Update
The most significant legal development in the past month in the area of independent contractor compliance was the enactment of California’s Freelance Worker Protection Act, which goes into effect on January 1, 2025. We have reported on freelance pay protection laws enacted recently in Illinois and New York, as well as similar laws in municipalities including New York City, Los Angeles, Minneapolis, Columbus, Ohio, and Seattle. These types of enactments impose statutory liabilities on businesses that either fail to pay freelancers the agreed upon fees for services rendered or neglect to enter into independent contractor agreements encompassing the terms required by these laws. As we note below in our summary of this new California law, it actually covers only a limited number of freelancers – those who provide a diverse array of “professional services.” This new California law is unclear as to which companies and independent contractors it covers. While the law states that it governs a business “organization in the State of California that retains a freelance worker to provide professional services,” it is unclear whether it only covers companies operating in California that engage such freelancers located in California, or it if also covers companies engaging those types of contractors where the business or contractor is located outside the state. More importantly, this and other independent contractor payment protection laws only cover workers that have been properly classified as ICs under applicable legal tests. Companies using workers they classify as ICs may mistakenly regard themselves as being free from liability if they comply with these freelancer pay protection laws. But such compliance does not immunize businesses from exposure to IC misclassification liability. Companies using an IC business model also need to structure, document, and implement their IC relationships in manner that maximizes compliance with applicable state and federal tests for IC status. A process such as IC Diagnostics (TM) can enhance IC compliance while also satisfying these new freelance pay protection laws.
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