Beyond the Handshake: Why SB 988 Demands a Proactive Approach to Every Independent Contractor Agreement

The End of the Handshake Era for California Freelancers

Effective January 1, 2025, California Senate Bill 988 (SB 988), officially codified as the Freelance Worker Protection Act (FWPA), represents a paradigm shift in the legal landscape for engaging independent contractors within the state.¹ The era of informal, handshake agreements for freelance services has definitively ended, replaced by a regulated framework that mandates formal written contracts, strict adherence to payment protocols, and robust enforcement mechanisms.² This legislation, chaptered as Chapter 870, Statutes of 2024, passed with overwhelming support in the legislature, signaling a strong public policy commitment to protecting a growing segment of the workforce.¹

For legal counsel advising California businesses, the FWPA is far more than an administrative hurdle; it is a strategic imperative that demands a proactive, not reactive, compliance approach. Understanding this Act is not merely about updating a contract template. It necessitates a fundamental re-engineering of the entire lifecycle of engaging, managing, and paying independent contractors to mitigate significant new legal and financial risks. The law is built upon three foundational pillars that will fundamentally alter client operations: first, the non-negotiable requirement for written contracts with highly specific terms for most freelance engagements ⁸; second, the establishment of rigid payment deadlines and a strict prohibition against using payment as leverage to alter agreed-upon terms ²; and third, the creation of a powerful private right of action with potent anti-retaliation provisions and severe financial penalties for non-compliance.³

Deconstructing the FWPA: A Triage Guide for Applicability

To effectively advise clients, counsel must first employ a systematic framework to determine if a specific engagement falls under the Act’s jurisdiction. This analysis proceeds through three distinct thresholds: the nature of the parties, the type of service provided, and the monetary value of the contract.

Threshold 1: Defining the “Freelance Worker” and “Hiring Party”

The Act’s applicability begins with a precise definition of the parties involved. A misinterpretation at this stage can lead to a cascade of compliance failures.

A “Freelance Worker” is statutorily defined as “a person or organization composed of no more than one person, whether or not incorporated or employing a trade name,” who is retained as a bona fide independent contractor.⁸ This definition is critical; the law is narrowly tailored to protect solo practitioners, including single-member LLCs or individuals operating under a trade name. It explicitly does not apply to larger consulting firms, agencies, or any organization with more than one individual.

A “Hiring Party” is defined broadly to include any person or organization in California that retains a freelance worker for professional services.¹³ The key exemptions are government entities (the United States government, the State of California and its subdivisions, and foreign governments) and individuals hiring for personal, family, or household services.⁶

The statutory language defining a “hiring party” as an organization “in the State of California” has profound geographic implications that clients are likely to overlook.¹³ This phrasing strongly indicates that the law’s applicability hinges on the hiring entity’s location, not the freelancer’s. For instance, a technology company headquartered in San Francisco that engages a freelance graphic designer residing and working exclusively in Portland, Oregon, would still be subject to the FWPA. The client might incorrectly assume that Oregon or federal law governs the relationship. However, because the “hiring party” is “in the State of California,” the Act’s stringent requirements for a written contract, timely payment, and four-year record retention apply with full force to this out-of-state engagement. This effectively extends California’s regulatory scheme based on the client’s nexus to the state, creating a compliance obligation for all remote contractor relationships managed from California.

Threshold 2: The Critical “Professional Services” Limitation

The most significant constraint on the FWPA’s scope is its limitation to freelancers providing “professional services”.¹² The Act does not create a universal set of rules for all independent contractors. Instead, it explicitly imports its definition of “professional services” from California Labor Code Section 2778(b)(2), the same section that provides certain exemptions from the AB 5 worker classification test.¹³

Covered categories of professional services include, but are not limited to: marketing, human resources administration, travel agent services, graphic design, grant writing, fine art, photography and photo/video editing, freelance writing and copy editing, translation, and services provided by licensed estheticians or barbers.¹⁶

This reliance on an enumerated list creates a potential minefield of ambiguity and is a fertile ground for future litigation. The statute includes broad, undefined terms like “marketing”.¹⁹ This ambiguity presents a significant risk. A business might hire a “search engine optimization (SEO) specialist” or a “social media influencer” and, noting these titles are not explicitly listed in the statute, conclude that the FWPA does not apply. If a payment dispute subsequently arises, the contractor’s counsel will almost certainly argue that SEO and social media campaigns are core components of “marketing,” a covered category. A court would then be tasked with interpreting the legislative intent and scope of that term. For risk mitigation, the most prudent counsel is to advise clients to adopt a broad and inclusive interpretation of these categories. Any contractor whose work could plausibly fall under one of the listed professional services should be treated as covered by the Act to avoid becoming a test case for the statute’s boundaries.

Threshold 3: The $250 Monetary Trigger

The final threshold for applicability is monetary. The FWPA applies to any engagement for professional services with a value equal to or greater than $250.² This low threshold ensures the Act covers even relatively small projects.

Critically, the statute includes an aggregation clause. The $250 trigger is met if a single contract is valued at $250 or more, or if the aggregate value of all contracts between the same hiring party and the same freelance worker over the immediately preceding 120-day period meets or exceeds $250.³ This provision prevents circumvention of the law through a series of smaller contracts. For example, a client who hires a writer for three separate $100 blog post assignments within a four-month period would trigger the FWPA’s requirements on the third assignment. This aggregation rule necessitates that clients implement a robust internal system for tracking all payments to each individual contractor to ensure they do not inadvertently cross the threshold and fall out of compliance.

The Four Pillars of FWPA Compliance: A Proactive Framework for Client Agreements

For any engagement that meets all three applicability thresholds, the FWPA imposes four distinct and non-waivable duties on the hiring party. Advising clients to build their contractor engagement process around these four pillars is the most effective compliance strategy.

Pillar 1: Anatomy of a Compliant Written Contract

Under the FWPA, a written contract is no longer a best practice; it is a legal mandate.⁸ The hiring party bears the legal responsibility for providing this contract and must retain a copy for a minimum of four years after the services are completed.⁹ The statute is prescriptive, requiring that every contract include, at a minimum, the following four elements:

1. Party Information: The full name and mailing address of both the hiring party and the freelance worker.⁸
2. Services and Compensation: An itemized list of all services to be provided by the freelancer, including the value of those services and the specific rate and method of compensation (e.g., flat fee, hourly rate, per-project rate).⁸ Counsel should advise clients that specificity in this section is paramount to preventing future disputes over scope creep.
3. Payment Due Date: The date on which the hiring party must pay the contracted compensation, or the specific mechanism by which that date will be determined (e.g., “30 days after acceptance of final deliverable”).⁸
4. Submission Deadline: The date by which the freelance worker must submit a list of services rendered (e.g., an invoice or timesheet) to meet the hiring party’s internal processing deadlines for timely payment.⁸ This clause is a key protection for the hiring party, as it places a clear obligation on the freelancer to initiate the payment cycle.

Significantly, the Act anticipates situations where a hiring party fails in its duty to provide a written contract. It specifies that a freelancer can still enforce their rights by presenting other evidence that a contract was formed, such as emails, text messages, or proof that the work was performed as understood by the parties.⁶ This provision makes it clear that failing to provide a contract does not shield the hiring party from liability; it merely weakens their evidentiary position and exposes them to a direct statutory penalty for the failure itself.

Pillar 2: The Mandate for Timely Payment & Prohibition on Leverage

The FWPA establishes clear and inflexible payment deadlines. Compensation is due on the date specified in the contract. If the contract fails to specify a date, a default 30-day payment term applies, running from the date of the completion of the freelancer’s services.⁸

More critically, the Act contains a powerful anti-leverage provision. It states that once a freelance worker has commenced performance of services, the hiring party cannot require, as a condition of timely payment, that the worker accept less compensation or provide more goods, services, or intellectual property rights than was originally agreed upon in the contract.⁴ This language directly targets the common and exploitative practice of pressuring freelancers at the point of payment to accept a “haircut” on their invoice or to perform additional, out-of-scope work to get paid for work already completed.

Pillar 3: Understanding “Adverse Action” and Retaliation

The FWPA provides robust anti-retaliation protections. It prohibits a hiring party from discriminating or taking any “adverse action” against a freelance worker that “penalizes” them or is “reasonably likely to deter” them from exercising their rights under the Act.⁸ Protected activities are defined broadly and include opposing any prohibited practice, participating in an enforcement proceeding, seeking to enforce rights, or otherwise asserting rights under the FWPA.⁸

The concept of “retaliation” in the freelance context differs significantly from the traditional employment model. While an employee might face termination or demotion, an adverse action against a freelancer is more likely to manifest as being “blacklisted,” receiving an unwarranted negative reference, or simply not being considered for future projects. These more subtle actions are highly likely to fall under the Act’s broad “reasonably likely to deter” standard.

Consider a scenario where a freelancer, upon completing a project, must remind the hiring manager about the 30-day payment deadline and requests a formal contract for the next engagement, as is their right under the FWPA. The manager, perhaps annoyed by this formality, pays the invoice but makes a note not to work with this “difficult” contractor again. When a new, similar project arises, that freelancer is not contacted. If the freelancer can establish a causal link between their assertion of FWPA rights and the subsequent failure to be considered for new work, they could have a viable retaliation claim. Counsel must therefore advise clients to meticulously document legitimate, non-retaliatory business reasons for all hiring and contracting decisions, especially concerning freelancers who have previously asserted their statutory rights.

Pillar 4: The Four-Year Record-Keeping Imperative

The FWPA imposes a clear and unambiguous record-keeping duty: hiring parties must retain all compliant freelance contracts for a minimum of four years from the completion of the services.⁹ This is not a passive filing task. It requires the implementation of a systematic and reliable process for either digital or physical storage. The system must be durable enough to withstand personnel changes and organized in a way that allows for quick and easy retrieval in the event of a dispute, an audit by the Labor Commissioner, or a discovery request in litigation.

Critical Legal Context: Navigating the Perilous Intersection of SB 988 and AB 5

The most sophisticated level of counsel regarding the FWPA involves understanding its relationship with California’s foundational worker classification law, Assembly Bill 5 (AB 5). It is crucial to state unequivocally that SB 988 does not alter, replace, or in any way affect the “ABC Test” for worker classification established by the Dynamex decision and codified by AB 5.²⁴ The protections of the FWPA apply only to individuals who are already correctly classified as bona fide independent contractors.¹²

This creates a two-step compliance funnel that every business must navigate:

1. Step 1 (AB 5 Analysis): The first and most critical step is to rigorously apply the three prongs of the ABC Test to determine if a worker is a legitimate independent contractor. The hiring entity bears the burden of proving that the worker: (A) is free from its control and direction in performing the work; (B) performs work that is outside the usual course of the hiring entity’s business; and (C) is customarily engaged in an independently established trade, occupation, or business.²⁵
2. Step 2 (SB 988 Analysis): Only if a worker successfully clears the high bar of all three parts of the ABC Test does the analysis proceed to the FWPA to determine if the engagement requires a written contract and adherence to its payment and record-keeping rules.

The true danger for businesses lies in how these two laws can interact in litigation. The FWPA creates new, straightforward, and relatively low-cost causes of action (e.g., failure to provide a contract) that can serve as a “gateway” for plaintiffs’ attorneys to initiate discovery into the entire working relationship. A minor FWPA dispute can easily act as a tripwire, unearthing evidence of control or integration that exposes the company to a far more catastrophic misclassification lawsuit under AB 5.

For example, a company might fail to pay a freelance writer’s $1,500 invoice within the 30-day statutory deadline, a clear violation of SB 988. The writer’s attorney files a suit seeking double damages ($3,000) plus attorney’s fees under the FWPA. During discovery for this seemingly minor claim, the attorney requests all emails and project management records. These communications reveal that the hiring manager dictated the writer’s work hours, required the use of proprietary company software for submissions, and provided daily, step-by-step instructions on content—all classic evidence of control that violates Part A of the ABC test. The attorney then amends the complaint to add a cause of action for willful misclassification. The legal exposure instantly metastasizes from a few thousand dollars to a potential six-figure liability, including claims for back wages, overtime, meal and rest break penalties, unreimbursed business expenses, and PAGA penalties. The initial SB 988 violation served as the key that unlocked the door to the much larger misclassification claim.

The High Cost of Non-Compliance: A Sobering Look at Penalties and Enforcement

The FWPA is not a toothless piece of legislation. It includes a formidable enforcement scheme with significant financial penalties. An aggrieved freelancer, the California Labor Commissioner, or a public prosecutor can bring a civil action in court to enforce the Act’s provisions.⁸ The potential liabilities are stark and should be communicated clearly to clients to motivate immediate compliance.

The following table crystallizes the abstract legal requirements into the concrete financial risks clients face for each type of non-compliance. This tool allows counsel to shift the conversation from a recommendation to a clear-eyed assessment of calculable financial exposure, transforming compliance from a low-priority administrative task into a high-priority risk management imperative.

Table: SB 988 Violations & Potential Client Liabilities

Violation	Statutory Penalty / Remedy	Key Counseling Considerations for Clients
Refusal to Provide Written Contract (Upon Request)	$1,000 statutory damages 3	This is a strict liability penalty. The freelance worker need only prove they requested a contract and the hiring party refused. The penalty is awarded in addition to any other damages.
Failure to Pay by Deadline	Damages up to twice the unpaid amount 6	This creates the potential for treble damages (the original unpaid amount plus double damages). This potent remedy is designed to strongly deter late payment.
Retaliation / Discrimination	Damages equal to the greater of the contract value or the work performed 14	For high-value or long-term contracts, this penalty can be substantial. This remedy also includes injunctive relief, such as a court order to cease the retaliatory conduct.
Any Other FWPA Violation	Damages equal to the greater of the contract value or the work performed 14	This “catch-all” provision covers breaches of other requirements, such as the four-year record retention rule, if the breach causes harm to the freelancer.
For ALL Prevailing Plaintiff Claims	Reasonable Attorney’s Fees and Costs 8	This is the single most significant risk-multiplier in the statute. A dispute over a small invoice of $500 can easily generate tens of thousands of dollars in legal fees, which a non-compliant client will be ordered to pay.

Actionable Compliance Roadmap: A Checklist for Advising Business Clients

To translate this legal analysis into a practical implementation plan, counsel should guide clients through a three-phase compliance process.

Phase 1: Audit & Identification (Immediate Action Required)

1. Conduct a Comprehensive Audit: Immediately generate a complete list of all current 1099 vendors and independent contractors.
2. Apply the FWPA Triage: For each contractor on the list, systematically apply the three applicability thresholds:
   • Is the contractor a solo operator (or single-person entity)?
   • Are they providing a “professional service” as defined under Labor Code § 2778(b)(2)?
   • Does the engagement meet the $250 monetary threshold, including the 120-day aggregation rule?
3. Create a Master Compliance List: Compile a definitive list of all contractors who fall under the FWPA’s purview. This list will be the foundation for all subsequent compliance actions.

Phase 2: Contract Remediation & Template Development

1. Develop a Master FWPA-Compliant Template: The most critical proactive step is to work with counsel to draft a master Independent Contractor Agreement that includes all statutorily required clauses.²⁰
2. Remediate Existing Agreements: Review all current agreements with freelancers on the Master Compliance List. For any contract that will be active or is likely to be renewed on or after January 1, 2025, a new, compliant agreement or a formal, signed addendum must be executed.
3. Ensure Flexibility: The master template should be designed to be easily adaptable for different scopes of work, payment structures, and project timelines while maintaining the core compliance elements.

Phase 3: Process & Policy Implementation

1. Update Accounts Payable Protocols: AP departments must be trained to identify FWPA-covered invoices and prioritize them for payment strictly according to the contract date or the 30-day default rule. A system should be in place to flag these payments to prevent inadvertent delays.²
2. Establish a Record Retention System: Implement a centralized, reliable, and easily accessible system for storing all freelance contracts for the mandatory four-year period. This system must be managed institutionally, not by individual hiring managers.⁹
3. Mandatory Training: Conduct mandatory training for all managers, procurement staff, and any other personnel with the authority to engage independent contractors. They must understand that informal email or verbal agreements for covered services are no longer legally permissible and expose the company to significant liability.⁴

Transforming Compliance from a Burden into a Best Practice

California’s Freelance Worker Protection Act is a fundamental and permanent alteration to the state’s business landscape. It signals the end of informal arrangements and ushers in an era of mandatory formalization, transparency, and accountability. For businesses and the counsel who guide them, a passive or reactive approach is an invitation to significant legal and financial liability. Proactive adaptation—through immediate auditing, contract remediation, and process implementation—is the only prudent course of action.

Ultimately, advising clients to embrace FWPA compliance should be framed not merely as a defensive legal necessity but as a strategic business advantage. By implementing clear, professional, and compliant contracting processes, businesses can mitigate disputes, foster stronger and more reliable relationships with California’s vital independent workforce, and insulate themselves from the cascading risks of non-compliance—most notably, the ever-present threat of a minor payment dispute escalating into a major worker misclassification challenge.