Self-employed workers are used to wearing many hats – you’re a one-person finance, HR and marketing team.
But it might be time to add a new hat: legal.
Knowing the state laws governing independent contracting are a bit thorny, and can have real consequences for your business. That’s why we spoke with John Rudikoff, an attorney and Adjunct Professor at Brooklyn Law School who works with freelancers and the Freelancers Union, about what freelancers like you should know about state contract law.
Keep in mind that what’s included here is not legal advice, and that if you have questions, it may be helpful to consult an attorney who has a familiarity with the jurisdiction of your business.
Why it’s important for contractors to know (the basics) about their state laws
Contractors don’t have the same safety nets as traditional, full-time employees. “We don’t have HR departments,” Rudikoff explains. “We don’t have employment statutes to protect us. We really have the paper on which our agreement is drafted.”
A basic contract is an excellent starting place -- but each state has its own laws when it comes to contractors (we’ll get to the implications of that in a bit). “It’s extremely important that not only do we have a good understanding [of the state contract law where your business is based], but we also need to have a good understanding of our protections vis-à-vis a contract which is enforceable by state law,” he says.
Make sure you have a written contract
State law determines what makes a contract valid and enforceable. That’s why Rudikoff emphasizes having an agreement that reflects your local legal environment. “We need a contract that’s appropriate for our jurisdiction,” he notes.
In some states, like California, Illinois, and New York, freelancers are legally required to have a written contract for projects over a certain dollar amount. “At the very least, we should have clarity about what we’re being paid and what we’re doing,” he says. “Put it in writing.”
He also stresses the importance of specificity. “I want to be numerically precise about what I’m doing for you,” he says. “I want to know what I’m doing and what I’m not doing.” Clear scope language protects you from unpaid extra work and gives you leverage if a client disputes what was promised. “What do you retain versus what does the client own? That's not just important to you -- that's important to the client,” he says. (Intellectual property ownership for freelancers is a whole other can of worms that you can learn about more here.)
Because if you can help it, you don’t want to get into a legal battle with a client. “Enforcement is expensive,” he says. “Establishing a baseline where we're working off a contract that supports our position -- and that reflects state laws -- is a great starting place.”
Know the risks involved in remote work and contract enforcement
When contractors work with clients in other states, the contract’s governing law clause becomes especially important. “If your agreement says the only place you can bring a claim is New York, and you live in Colorado, enforcement becomes much more expensive,” Rudikoff says.
Even simple actions like filing in small claims court can become difficult if the contract requires disputes to be handled out of state. Contractors should pay close attention to where disputes must be resolved and consider whether they can realistically enforce the agreement if something goes wrong.
Understand your state’s classification rules
Before we get into the nitty gritty, it’s helpful to know the definition of an employee and a freelancer. A full-time employee is paid a salary and gets a W2 tax form at the end of the year. A freelancer typically gets a 1099 tax form, has multiple clients, and invoices the companies they work with.
If you’ve ever worked a contract job, but it feels like a full-time job based on the tasks you’re given, and the control that the company has over your time, you may be misclassified as a contractor even though you’re effectively working as a full-time employee.
Some states use the ABC test to determine whether a worker is an employee or an independent contractor, while others rely on common law standards (you can check out our state-by-state guide here). “The ABC test is useful because it makes classification legible,” John says. “But it’s not determinative. There’s a lot of nuance.”
Let’s take a quick detour into what an ABC test is:
A -- Autonomy
The worker is free from the company’s control or direction in how the work is performed, both in the contract and in real life.
B -- Business of the Company
The work performed is outside the usual course of the company’s business. (For example, if you’re a photographer working for a company whose business is manufacturing cars, your job is outside of the company business.)
C -- Customarily Independent Trade
The worker is engaged in an independently established business or trade of the same type of work (has other clients, markets their services, sets their own rates, etc.).
A number of states don’t require all three factors to be considered an employee, so make sure to check your state’s laws; for example, Colorado and Wyoming require just the A&C of the ABC Test. Generally though, if the company fails any one of these three parts, the worker is legally considered an employee, not a contractor. Misclassification can leave contractors without protections and expose them to unexpected tax and legal issues.
Rudikoff’s advice is to preserve evidence of independence. “Document, document, document,” he says. That means save your emails, but also document the “obligations and directions around your employment.” Who are you working with? Are you setting your own schedule? These records help show whether a company is exercising too much control.
Take advantage of your jurisdiction’s law
Some cities and states have passed laws aimed directly at protecting freelancers, particularly around payment rights. New York’s Freelance Isn’t Free law from 2017 inspired other jurisdictions to enact their own protections (see what Minneapolis, Seattle, and Los Angeles, and more have passed here). While enforcement may be limited, Rudikoff says these laws still provide leverage. “Every opportunity for escalation has value,” he explains. “A letter from a city agency can be enough to get someone paid.” Ultimately, these laws are helpful in creating formal complaint processes and strengthening a contractor’s position in any dispute.
Rudikoff believes legal awareness is part of professional survival. “The contract is the manifestation of the rights between you and me governing the work I’m doing,” he says. “You could do worse than having an agreement that reflects your jurisdiction’s law.”
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