Barthel: Are You an Employer, or Do You Use Independent Contractors? Can You Prove It?

Wednesday, December 24, 2025 | 0

As California’s Assembly Bill 5, AB 2257, Proposition 22 and the millions of dollars poured into that campaign have all demonstrated, whether a hiring party can prove that a worker is an independent contractor makes all the difference in the world.

Don R. Barthel

This status can give rise to significant cost savings, including relief from payroll taxes, avoidance of workers’ compensation coverage and steering clear of overtime or minimum wages.

Although it has attracted little attention from the workers’ compensation industry in the last couple of years, a significant piece of legislation found its way out of Sacramento in 2024. Effective Jan. 1, 2025, the Freelance Worker Protection Act (Senate Bill 988) imposed minimum contractual and payment requirements on companies that hire freelance workers.

Effective for contracts entered into or renewed on or after Jan. 1, 2025, the objective is to provide workers with prompt payment, enhanced stability and predictability. In so doing, it provides alleged employers with additional evidence to demonstrate that the worker truly is an IC.

The act does not change the legal classification test, which still remains the ABC test that was enunciated in the California Supreme Court’s landmark decision of Dynamex Operations West Inc. v. Superior Court.

The ABC test determines if a worker is truly an IC or whether he should be classified as an employee.

Instead, SB 988 imposes new regulations on the contractual relationship between those already properly classified ICs and their clients.

Contract particulars

Applying to contracts exceeding $250 (whether a single contract or multiple contracts totaling $250 within 120 days), the hiring party must provide a signed copy of a written contract with names and addresses of parties and a comprehensive list of all services (specifying their value, rate and the method of compensation).

It must also include such information as the compensation to be paid or the mechanism used to determine the rate, the date by which the freelance worker must submit completed services, or an invoice for timely payment processing. Hiring parties must retain all executed contract copies for at least four years.

If there is no specified date for payment to the IC for his services, payment must occur within 30 days of completion of the work.

Protection against retaliation and contract changes

The act is designed to preclude unfair practices sometimes employed after work has been completed, such as a prohibition of conditional payment (e.g., a reduction in the contracted compensation or requiring more than the previously agreed-upon goods/services). Also, a hiring party cannot punish or retaliate against a worker (e.g., firing or cutting pay) for exercising his rights.

Penalties and enforcement

A worker, the labor commissioner or public prosecutor can file a lawsuit to enforce the act. A worker may be entitled to attorneys’ fees and costs, along with other possible remedies such as damages up to twice the unpaid amount if payment was late.

Impact on workers' comp

When an individual files a workers’ compensation claim asserting that he is an employee who was improperly misclassified as an independent contractor, the hiring entity faces a significant challenge. A crucial piece of the defense is a robust, formally executed IC agreement.

A contract created per SB 988 provides strong evidence that the worker was genuinely treated and intended to be a bona fide IC. In particular, if well-written, this contract:

• Documents the mutual understanding and intent of both parties to work under a contractorship.
• Outlines the terms, responsibilities and control that are consistent with an IC relationship. This is assisted by underscoring the contractor’s ability to control his own work schedule, provide his own equipment or hire subordinates.
• Demonstrates the hiring party’s good-faith efforts to comply with the law governing IC relationships.

Though the contract provides evidence, it is not a complete shield. The ABC test is the primary legal standard for determining worker classification. A court (or the Workers' Compensation Appeals Board) will look beyond the contract’s language and examine the actual practice to determine if the worker satisfies all three prongs of the ABC Test.

Nonetheless, when facing an employee-IC disagreement, it is incumbent upon the adjuster and/or defense attorney to contact an employer representative and obtain a copy of a contract created per the dictates of the Freelance Worker Protection Act. Contact with the drafter of the contract should be made in most cases, and potentially using his testimony deserves strong consideration.

Conclusion

Independent contractor agreements mandated by SB 988 could serve as very useful pieces of evidence in defending against misclassification allegations. Those who hire independent contractors could really benefit by simply abiding by SB 988’s requirements, which are now the law.

Don R. Barthel is a founding partner of Bradford and Barthel and is based in the firm’s Sacramento office. This entry from Bradford & Barthel's blog appears with permission.