LA independent contractors move closer to employee-type treatment

Individuals operating as independent contractors within Los Angeles city limits now have greater protections and rights, some akin to those traditionally afforded to employees, following the passage of a new ordinance by the City Council. Effective July 1, the Freelance Worker Protections Ordinance (“the Ordinance”) – codified as a new section of the Los Angeles Municipal Code – has the stated aim of “ensuring that freelance workers are treated fairly and receive the compensation they are due.” As explained herein, while the Ordinance does just that, it does so through imposition of several requirements upon a broad swathe of the Los Angeles business community which, while not burdensome, if not strictly complied with could lead to potentially substantial liability.

Who is covered? The Ordinance applies to “freelance workers” hired by and providing services to “hiring entities” in Los Angeles. A “freelance worker” is any individual or entity with no employees. Though it is limited to small contractors, the Ordinance broadly defines a “hiring entity” as any entity regularly engaged in business or commercial activity – no matter the size, scope, or industry – with only two narrow exceptions.

Who is not covered? Those professionals already required by the Business & Professions Code to contract for their services in writing are exempt from the Ordinance, as are the ever popular businesses hiring app-based transportation and delivery drivers, such as Uber, Lyft, GrubHub and DoorDash.

What services are covered? Services contracted for on or after July 1t and valued, individually or in the aggregate (during a calendar year), at $600 or more are covered.

How can a qualifying business comply with the Ordinance? The Ordinance does not impose any complicated or particularly costly dictates. Indeed, most businesses already do such things. The Ordinance requires timely payment, either as called for in the parties’ agreement or within 30 days of completion of the work, if no date has been agreed to. The Ordinance also requires that both parties retain records of their dealings, including a “barebones” written contract that the hiring entity must now have prepared and provide to the contractor. This simple written contract must include, at a minimum, (i) the name, address, phone number and, if available, e-mail address of both parties, (ii) an itemization of all services, their value, and rate and method of compensation, and (iii) the date for payment or manner by which such date will be determined.

What does the Ordinance affirmatively prohibit? Much like employees protected by the Fair Employment and Housing Act (FEHA), qualifying contractors under the Ordinance cannot be punished, penalized, retaliated against or subjected to adverse employment action for exercising their rights. This could arguably entail informal protests of non-compliance directly to the hiring entity, as well as pursuit of relief through the formal avenues now expressly made available to contractors through the Ordinance.

What avenues are available and what can be expected? Aggrieved contractors can file a civil lawsuit, an administrative complaint with the Bureau of Contract Administration, or both. The Ordinance does not indicate when a civil suit brought under the Ordinance must be filed. Nor does the Ordinance require the filing of an administrative complaint as a prerequisite to filing suit, unlike the mandates imposed upon employees filing suit for alleged violations of the FEHA. However, if a contractor does seek administrative intervention, a complaint must be filed within one year of the alleged violation, or else they waive their right to pursue it.

As with administrative complaints made by employees to the California Civil Rights Department (CRD), the Bureau of Contract Administration will inform the hiring entity of the contractor’s complaint and their legal obligations, request relevant documents and information, and in turn provide the same to the contractor. However, the failure of a hiring entity to timely respond to the complaint under the Ordinance – within 20 calendar days – triggers a rebuttable presumption in any related civil action that the hiring entity committed the violations alleged by the contractor.

What relief is available to the contractor? The Ordinance does not speak to available administrative remedies. It does, however, provide for a number of mandatory remedies for a prevailing plaintiff in a civil suit. This includes, as with claims brought by employees under the FEHA, entitlement to (i) recovery of reasonable attorneys’ fees and costs, (ii) injunctive relief if requested, and (iii) any other remedies deemed appropriate by the Court. The Ordinance also provides for additional remedies, dependent upon the violation found. If the factfinder determines that, prior to commencing work, a written contract was requested but refused, the contractor is entitled to monetary damages of $250. If the factfinder determines that there has been untimely payment, monetary damages are triggered and can be awarded in an amount up to twice the sum remaining unpaid under the contract. If it is found that the hiring entity has violated any other provisions of the Ordinance, a prevailing contractor is entitled to monetary damages equal to the value of the contract or the work performed, whichever is greater, an uncapped measure leaving businesses potentially exposed to amounts exceeding the express value agreed to in the contract.

Finally, as with most California employment laws, the Ordinance entitles a prevailing plaintiff to recoup their reasonable attorneys’ fees and costs, while depriving a prevailing defendant of their own. Such provisions, long prone to abuse, are and will continue to be a driving force behind the dearth of employment suits filed in California, already (in)famous for an unfavorable and increasingly hostile business climate.

What should businesses do? Businesses should pay the Ordinance the attention it is due, or else risk its consequences. Prompt review should be conducted of existing vendor relationships, and management should consult with experienced employment counsel to ensure proper classification and compliance under the Ordinance.