An ordinance took effect July 1 in Los Angeles that established certain requirements for employers who hire and retain freelance workers within the city. The ordinance also established certain rights for freelance workers to file a complaint or bring a civil action to enforce the ordinance or recover damages for alleged violations of the ordinance.
Dental practice owners in Los Angeles must follow the new ordinance, but practice owners throughout California should also take the opportunity to examine the legal relationships with their workers and ensure they are classifying and paying associate dentists correctly.
Dentists employed as associates or who are considering associateship should similarly understand their job classification and expect or request a written contract. (CDA offers members a sample associate agreement described later in this article.)
Los Angeles ordinance requires written contract, timely payment, record-keeping
The Freelance Worker Protections Ordinance of Los Angeles applies to a contract between a freelance worker and the employer or hiring entity implemented on or after July 1. The ordinance’s provisions apply to any freelancer’s work entitled to payment of $600 or more in a calendar year, but the work is applicable only if it is performed within the city of Los Angeles and for the hiring employer.
Practice owners in Los Angeles should read the ordinance for the full details but, in brief, the ordinance requires employers do the following:
- Implement a written contract that includes three specific pieces of information related to employer and employee contact information, date of compensation and itemization and value of the freelancer’s services.
- Provide timely, full payment on or before the date specified in the contract.
- Maintain written records for no less than four years. Freelance workers share this requirement.
The ordinance clarifies, “No hiring entity shall discriminate or take any adverse action against a Freelance Worker that penalizes the Freelance Worker” or otherwise deters the worker from seeking to assert or lawfully enforce their rights under the ordinance’s provisions.
Enforcement, complaint reporting and allowable damages are defined. For example, if the hirer fails to pay the freelance worker the amount agreed to under the contract by the specified time, the freelance worker will be awarded damages up to twice the amount that remains unpaid and will be awarded an additional $250 if they requested and were refused a written contract before beginning work.
Defining employee vs. independent contractor or freelance worker
The Los Angeles City ordinance sets its own definition of “freelance worker” that impacted hiring entities must heed, but all practice owners throughout California should examine the legal relationships of their workers to ensure they have classified and are paying them correctly. Associate dentists or individuals considering joining a practice as an associate dentist should also understand how their relationship with their employer is structured.
An associate dentist can be hired into an established practice as an employee who abides by the practice owner’s policies, qualifies for minimum required benefits and is paid in accordance with wage and hour laws. Or, the associate dentist may be hired on as an independent contractor, who is not an employee and does not receive employer benefits but retains the right to control how they provide their services, including setting their own schedule.
Importantly, independent contractors or freelance workers may be paid based on their production or on a flat rate per service, to which most wage and hour labor laws do not apply.
CDA’s member-only resource Associate Legal Relationships explains in detail the distinctions between an employee and independent contractor and how to correctly determine that classification using the Borello test. (The ABC test should be used to classify non-dentist office staff, but CDA in 2021 advocated and secured an exemption to legislation, which allows employers to continue using the more flexible Borello test to classify associate dentists.)
The impact of this classification for the employer and independent contractor is significant.
Properly classifying a worker as an independent contractor may save the practice owner money and the expense of benefits, such as pension, group health and workers’ compensation insurance as well as Social Security and unemployment insurance taxes.
Associate dentists should ask questions to protect themselves. They can fairly ask the practice owner for proof of workers’ compensation and premises liability coverage, for example. The CDA resource outlines questions the associate dentist candidate should ask related to compensation prior to entering a contract with a dental practice.
Beyond potential confusion over duties, hours and pay are the potential legal liabilities of misclassification.
“The exposure for unintentional misclassification is serious, but not as serious as an intentional misclassification,” says CDA Employment Practices Analyst Michelle Coker, PHR, PHRca.
Practice owners who have intentionally misclassified their associate may be held liable for unpaid withholding and payroll taxes.
Whatever the classification, have a written associate agreement in force
“Regardless of the working arrangement you choose, it is vital that you memorialize the terms in a written agreement,” Coker says.
“A written associate agreement creates a ‘win-win’ opportunity for both the potential associate and the practice owner,” Coker adds. “When both parties have the opportunity to communicate their own goals and expectations about the potential relationship, those goals and expectations are much more likely to be achieved.”
Because an associate’s misclassification or a poorly written associate agreement can result in financial and legal complications for both the practice owner and the associate dentist, CDA advises both parties to consult with an attorney or a tax advisor who deals with dental transactions and associate agreements.
Member-dentists can use CDA’s sample associate agreement, which is part of the Legal Reference Guide for California Dentists. Additional resources on associateships are also available.