Category: Business Consulting

Estate planning is as much about preventing future litigation as it is about distributing assets. A legally valid document alone does not guarantee peace for surviving loved ones. Disputes can arise from unclear instructions, poor record-keeping, family tensions, and questions about mental capacity or undue influence.

The following strategies offer practical, attorney-level insight to help San Diego residents minimize the risk of probate contests and reduce the likelihood of costly and time-consuming litigation.

1. Create and Fund a Revocable Living Trust

A properly funded revocable living trust remains one of the most effective tools for avoiding probate in California. When assets are titled in the name of the trust, they pass under the trustee’s authority bypassing the public probate process and reducing expense and delay.

California also allows Transfer on Death (TOD) deeds for real property, which can facilitate the smooth transfer of assets when drafted correctly. However, even the most carefully prepared trust will fail if it is not funded.

Attorney Tip: Confirm that all assets deeds, accounts, and titles are transferred into the trust’s name. An unfunded trust (often referred to as a “trust on paper”) is a leading cause of unnecessary probate proceedings.

2. Eliminate Ambiguity Around Execution and Capacity

Many probate contests allege lack of testamentary capacity, improper execution, or undue influence. California law imposes specific execution requirements and assesses capacity at the time of signing.

Proper documentation of the planning process meeting notes, capacity observations, and professional involvement helps establish the integrity of the documents. In situations involving advanced age or illness, obtaining a physician’s opinion or recording the execution (used appropriately) can provide valuable evidence if a challenge arises.

Attorney Tip: Maintain comprehensive records of the execution process and client capacity. Well documented files often deter litigation and protect the estate plan’s validity.

3. Use Neutral Professionals to Avoid Conflicts

Family dynamics often create tension that can escalate into disputes. Engaging neutral professionals such as independent attorneys, corporate trustees, or financial advisors reduces the potential for claims of bias or coercion.

Beneficiaries should not be present during drafting or execution. If significant revisions are made close to signing, affected parties should seek independent legal advice. San Diego probate courts routinely recognize the importance of impartiality and transparency when assessing the legitimacy of estate planning document

4. Document Decisions and Maintain Records

A thorough paper trail is one of the most effective deterrents to probate litigation. Retaining prior drafts, meeting notes, and written explanations for major decisions especially when distributions are unequal can demonstrate intent and foresight.

A personal memorandum explaining specific bequests or exclusions may help prevent emotional reactions that lead to contests.

Attorney Tip: Encourage clients to keep a secure, clearly labeled file digital or physical containing estate documents, asset lists, account details, and trustee contact information.

5. Update Beneficiary Designations Regularly

Outdated or inconsistent beneficiary designations on life insurance, retirement accounts, or financial accounts often override provisions in wills or trusts. This inconsistency is a frequent source of probate disputes.

Attorney Tip: Review beneficiary designations every three to five years and after major life events such as marriage, divorce, birth, or death to ensure consistency with the current estate plan.

6. Use No-Contest Clauses and Mediation Provisions Thoughtfully

California law permits no-contest clauses (also known as in terrorem clauses), but their enforceability is limited. When carefully drafted, these clauses can discourage frivolous claims, although they cannot prevent legitimate legal challenges.

Incorporating mediation or arbitration clauses into trust documents can also promote private resolution of conflicts and help families avoid public and adversarial court proceedings.

7. Plan for Trustee and Executor Succession

Unclear or incomplete succession language often leads to disputes over authority. Naming successor trustees and backup executors with clearly defined powers ensures continuity and minimizes the likelihood of contested appointments.

Attorney Tip: Include provisions that grant temporary authority to successor trustees to prevent administrative gaps and protect estate assets during transitions.

Closing Thoughts

No estate plan can guarantee freedom from litigation, but a transparent, well-documented plan significantly reduces risk. The most effective estate plans share the following elements:

• Properly funded trusts
• Regularly updated beneficiary designations
• Documented capacity and clear intent
• Neutral and qualified fiduciaries
• Carefully considered dispute-resolution clauses

Estate planning is more than a financial process; it is a proactive measure to preserve family harmony and safeguard a legacy for future generations.

Need Legal Advice?

Estate planning disputes and probate matters can be complex and emotionally charged. Hoffman & Forde, Attorneys at Law, A.P.C. provides experienced counsel to help clients prevent and resolve probate conflicts while protecting their assets and family relationships.

Contact Hoffman & Forde today at (619) 546-7880. The firm’s estate planning and probate attorneys offer clear, strategic guidance to help craft legally sound estate plans and protect family legacies.

Disclaimer

The information in this post is considered attorney advertising under applicable California law. The contents of this post are for informational purposes only and do not constitute legal advice. The information may be incomplete or out of date. No representations, testimonials, or endorsements on this website constitute a guarantee, warranty, or prediction regarding the outcome of any legal matter.

Running a business in California means balancing opportunity with risk. In such a complex legal environment, one of the most effective ways to protect your company is through a well-drafted business contract.

 A contract is more than a signature or formality—it’s the legal foundation upon which your enterprise operates. When crafted with foresight and precision, it safeguards your interests, strengthens relationships, and ensures stability when challenges arise.

Why Contract Precision Matters in California

In California’s fast-evolving business and regulatory landscape, precision is essential. Every clause in a contract must be clear, accurate, and enforceable under state law. Ambiguity or missing details can easily turn into disputes that drain time and resources. As experienced California contract lawyers, we often see issues such as:

• Vague payment terms or undefined deliverables
• Missing termination clauses or unclear exit procedures
• Ambiguous responsibilities between parties
• Noncompliance with California-specific laws such as AB 5, data privacy, or employment regulations

Each oversight increases the risk of misunderstanding or litigation. A strong, carefully worded contract turns uncertainty into clarity—protecting your rights and ensuring predictability when disagreements occur.

Beyond Templates: The Value of Custom Contract Drafting

Disclaimer: The information in this post is considered attorney advertising under applicable California law. The contents of this post are for informational purposes only and do not constitute legal advice. The information may be incomplete or out of date. No representations, testimonials, or endorsements on this website constitute a guarantee, warranty, or prediction regarding the outcome of any legal matter.

Running a business takes long-term planning, not just for today but for the future. One of the most important steps you can take is preparing for succession and continuity. This ensures that when leadership changes, your business continues to operate smoothly and the people who depend on it remain supported.

Whether you own a family company, a startup, or an established business, planning ahead protects both your legacy and your team.

Why Succession Planning Matters in California

Many businesses do not survive a leadership transition. Without a clear plan, owners in California face risks such as:

• Probate delays when ownership is not transferred properly.
• Community property concerns for married owners.
• Heavy tax burdens that reduce business value.
• Disputes between family members, partners, or shareholders.

Planning early avoids these problems and helps your company stay steady during change.

Legal Tools for Succession and Continuity

California business owners can use several legal tools to protect their companies:

• Buy-Sell Agreements
• These contracts explain how ownership will transfer if an owner retires, passes away, or leaves. They prevent unwanted outsiders from gaining control and provide certainty for the remaining owners.
• Trusts for Business Succession
• Business interests placed in a trust can transfer smoothly without probate. This is especially useful for family-owned businesses.
• Shareholder or Partnership Agreements
• These agreements define rights and responsibilities among owners. They set rules for selling shares or interests and help maintain clear governance.

Each of these options has tax effects, so it is best to review them with professional guidance.

Connecting Succession and Estate Planning

For many owners, the business is the largest asset they hold. That makes succession planning an essential part of estate planning. By coordinating trusts, wills, and business agreements, you can:

• Protect your company from probate delays.
• Provide for your family while keeping operations steady.
• Ensure your wishes for leadership and ownership are followed.

This alignment reduces the risk of disputes and strengthens both business and family security.

Best Practices for a Smooth Transition

Legal documents form the base of your plan, but success also depends on preparation. Strong succession and continuity planning includes:

• Identifying successors early – Decide whether family, partners, or key employees will step into leadership.
• Training and mentorship – Give successors the knowledge and experience they need to lead.
• Clear communication – Share plans with family, partners, and employees to build trust.
• Regular updates – Review and adjust the plan as your company grows or changes.

A Step-by-Step Framework

1. Review your business structure and ownership.
2. Identify successors or exit strategies.
3. Draft legal agreements such as buy-sell agreements, trusts, or shareholder agreements.
4. Address tax considerations and estate planning overlap.
5. Develop training and transition plans for new leaders.
6. Communicate with family, partners, and employees.
7. Revisit your plan regularly to keep it current.

Need Legal Advice?

Succession and continuity planning is more than preparing documents—it is about securing the future of your business and the people who depend on it. Every company is different, and the right plan should reflect your goals, values, and long-term vision.

Contact us today at (619) 546-7880 to schedule a consultation and learn how our attorneys can help you design a strategy that protects both your business and your family interests.

Disclaimer: The information in this post is considered attorney advertising under applicable California Law. The contents of this post is for informational purposes only and is not legal advice. The information may be incomplete or out of date. No representations, testimonials, or endorsements on this web site constitute a guarantee, warranty, or prediction regarding the outcome of any legal matter.

Strong business contracts help things run smoothly. Whether you’re starting a business or growing an existing one, clear agreements make working with clients, vendors, and partners easier and more reliable.

In this guide, we’ll walk through important contract clauses every business owner should understand—especially if you’re based in California. You’ll also find helpful insights for making sure your agreements follow local and state rules.

Why Business Contracts Matter

A clear and enforceable contract does more than outline responsibilities—it builds a foundation of trust. Whether you’re working with vendors, clients, or partners, contracts define the expectations, deadlines, and remedies that keep your business running smoothly.

California Civil Code enforces written contracts that are lawful, mutual, and specific. However, vague or incomplete clauses can lead to disputes that are costly and time-consuming. That’s why having your agreements reviewed—or drafted—by a business attorney is one of the smartest investments you can make.

Key Contract Clauses to Include

Here are some of the most important provisions to understand and include in your business contracts:

1. Parties to the Agreement

Clearly identify who is entering into the agreement. Use full legal names and business entities (e.g., LLC, Corporation). Mistakes in naming parties can weaken enforcement or create confusion.

2. Scope of Work or Services

This section defines what each party is expected to do. Be specific—detail the type of work, deliverables, deadlines, and any performance standards. Avoid generic phrases that leave room for interpretation.

3. Payment Terms

Outline the total cost, payment schedule, due dates, and acceptable methods of payment. You may also want to include late payment penalties or interest.

4. Termination Clause

Explain how either party can end the agreement. California law often favors contracts with reasonable and mutual termination options. Be sure to outline notice periods and what happens if the contract ends early.

5. Dispute Resolution

This clause can help you avoid litigation by outlining how disputes will be handled. Common options include mediation, arbitration, or venue clauses requiring disputes to be handled in San Diego courts. Learn more from the California Courts Self-Help Center.

6. Governing Law

Specify that the contract is governed by California law. This helps prevent confusion if the parties are located in different states.

7. Confidentiality & Non-Disclosure

If your contract involves sensitive information (e.g., customer data, trade secrets), include a confidentiality clause to protect your business.

8. Indemnification

This clause outlines who is responsible if a third party makes a legal claim. It protects your business from losses caused by the other party’s actions. These clauses are particularly nuanced under California law.

9. Force Majeure

Unforeseen events—like natural disasters or pandemics—can make it impossible to fulfill contract terms. This clause excuses performance during events beyond the parties’ control.

10. Entire Agreement Clause

Also known as a “merger clause,” this confirms that the written agreement is the full and final understanding between the parties, superseding any prior discussions.

California-Specific Considerations

Business contracts in California are subject to state-specific laws and court interpretations. For example:

• Non-compete clauses are generally unenforceable under California Business and Professions Code §16600.
• California courts closely scrutinize indemnity clauses, especially in construction and service industries.
• Certain contracts, such as real estate agreements, must comply with California’s Statute of Frauds – California Civil Code §1624 to be enforceable.

If your business operates in San Diego, it’s especially important to ensure local compliance—many industries have city or county-specific licensing, disclosure, or regulatory requirements. Resources like California SBDC offer additional support for small businesses.

Need Legal Advice?

Don’t sign without a review!

A contract is only as strong as the clarity and detail it provides. Templates or past agreements may no longer reflect what your business needs today.

Whether you’re drafting new contracts or reviewing existing ones, our Business Consulting Attorneys at Hoffman & Forde provide thoughtful guidance rooted in California law. We work with startups, small businesses, and established companies to create clear, reliable contracts that support your goals and protect your interests.

Contact us today at (619) 546-7880 for a consultation and ensure your business contracts are supporting your goals every step of the way.

Disclaimer: The information in this post is considered attorney advertising under applicable California Law. The contents of this post is for informational purposes only and is not legal advice. The information may be incomplete or out of date. No representations, testimonials, or endorsements on this web site constitute a guarantee, warranty, or prediction regarding the outcome of any legal matter.

Running a business with a partner can be rewarding, but disputes are often inevitable. When these disagreements arise, they can significantly impact the business’ operations, finances, and future growth.

Understanding the types of disputes, finding ways to resolve them, and knowing the legal rules in San Diego or California can help protect your business.

• Financial Disagreements – Disputes often surface when partners have conflicting perspectives on financial contributions, profit distribution, or expense management. These conflicts can be exacerbated by a lack of transparency in financial records or differing interpretations of the partnership’s financial health and priorities. When one partner feels that their investment or contribution is not being adequately recognized or compensated, this can foster mistrust and create a significant rift within the partnership.
• Decision-Making Conflicts – Strategic decision-making is at the core of any successful business, but partners may differ in their visions for the company’s trajectory. Disagreements might involve expansion plans, marketing strategies, or day-to-day operational management. These conflicts often arise when partners have varying risk appetites, differing levels of experience, or conflicting ideas about the company’s growth and development.
• Breach of Fiduciary Duty – Partners are bound by a fiduciary duty to act in the best interest of the business, prioritizing the collective good over individual gains. Breaches occur when a partner engages in actions such as self-dealing, fraud, or misappropriation of company assets for personal gain. Such breaches not only violate the legal obligations of the partnership but also erode trust, potentially leading to legal action and dissolution of the partnership.
• Management and Role Conflicts – Clear delineation of roles and responsibilities is essential for maintaining harmony. Disputes arise when there’s ambiguity, overlap, or when partners perceive an imbalance in workload, authority, or contribution. Power struggles often emerge when one partner feels marginalized or when there’s a perception that another partner is overstepping their agreed-upon role, undermining the agreed governance structure.
• Leaving the Partnership – When a partner decides to exit, it can be a sensitive and complex process, especially if there’s no predefined agreement on handling such departures. Issues such as valuation of the departing partner’s share, transfer of responsibilities, and non-compete agreements can become contentious points of negotiation, potentially destabilizing the entire partnership if not addressed proactively.

Resolution Strategies

• Negotiation – Discussing the problem openly can sometimes lead to a solution without needing outside help. A clear partnership agreement can guide these conversations.
• Mediation – Involving a neutral third party to facilitate discussions can be an effective way to reach a mutually beneficial agreement.
• Arbitration – In this process, a neutral arbitrator listens to both sides and makes a binding decision. It’s often faster and less costly than going to court.
• Legal Action – When other methods fail, taking the dispute to court might be necessary. In California, partnership disputes fall under the jurisdiction of the California Corporations Code, which governs how conflicts are resolved.

Legal Consequences of Partner Disputes

• Financial Losses – Prolonged disputes can drain business resources, impacting profitability.
• Business Dissolution – In extreme cases, unresolved disputes can lead to the dissolution of the partnership.
• Legal Liability – Breaches of fiduciary duty or contract can result in lawsuits, with partners potentially facing significant financial damages.

California Considerations

In California, partnership disputes are governed by the California Revised Uniform Partnership Act (RUPA). This act outlines the rights and duties of partners and the procedures for resolving disputes. San Diego courts also emphasize alternative dispute resolution (ADR) methods, such as mediation and arbitration, to resolve business disputes efficiently.

Why You Need Legal Support

Disputes can be difficult to manage, it’s important to have a knowledgeable attorney who understands the intricacies of California law. An experienced business attorney can help you manage negotiations, draft clear partnership agreements, and represent your interests in mediation or litigation.

Need Legal Advice?

Partner disputes can be challenging, but with the right approach and support, you can protect your business.

If you’re facing a partnership dispute, consulting with us can provide clarity and assist in resolving any conflicts. Our experienced attorneys are ready to help you every step of the way, ensuring your business stays strong.

Contact us today at (619) 546-7880 for a consultation to discuss your specific situation and learn how we can support you in managing these new requirements.

Disclaimer: The information in this post is considered attorney advertising under applicable California Law. The contents of this post is for informational purposes only and is not legal advice. The information may be incomplete or out of date. No representations, testimonials, or endorsements on this web site constitute a guarantee, warranty, or prediction regarding the outcome of any legal matter.

You want to start a new business, which is exciting. But what type of structure is best? In California, like in other states, you can form an LLC or set up a corporation. Here are some of the differences between the two.

Limited Liability Company (LLC)

Typically, an LLC is run by business owners but can also be structured where a manager is responsible for daily operations rather than the owners. Small businesses, startups, and single-owner businesses are good fits for this type of structure.

The Advantages

An LLC is an entity separate from the business owners (members). This structure provides owners with liability protection to shield their assets from business debts and obligations. The risk of loss is limited to what the owners invested in the business.

Other advantages of forming an LLC include:

• Perpetual existence (the business can remain in existence even if ownership changes)
• Flexible management structure
• Pass-through taxation that avoids double taxation (LLCs, as an entity, are not subject to taxation; tax obligations are passed down to members on their personal income tax returns)

The Disadvantages

An LLC can cost more than a sole proprietorship or general partnership. There’s an initial fee to form the LLC and ongoing expenses at the state level. In California, for example, there’s an $800 annual fee.

Transferring ownership of an LLC can also be more complex than transferring ownership of a corporation, where buying and selling shares of stock determine ownership.

How to File for an LLC Formation in California

Filing is handled through the Secretary of State. You’ll need to file an Operating Agreement – which outlines your company’s operations, management, and ownership structure.

Corporation

In a corporation, you’ll have shareholders, a board of directors, and officers such as CEOs and CFOs.

There are two main types of corporations – a C corporation and an S corporation. A C corporation is responsible for paying taxes on its profits. Shareholders also pay taxes on dividends they receive. An S corporation has pass-through taxation, similar to an LLC. It comes with limitations, though, such as the number and type of allowed shareholders.

The Advantages

A corporation provides personal asset liability protection that protects owners from the company’s debts or legal obligations. 

Other advantages include:

• Access to capital (you can raise funds by selling stock)
• Tax breaks available to corporations
• Business perpetuity

The Disadvantages

Corporations can get bogged down in legal and regulatory requirements that can become time-consuming and costly. Recordkeeping can become a bear.

Double taxation comes into play when you form a corporation. The corporation is taxed and shareholders are also taxed on dividends.

How to File to Become a Corporation

To form a corporation in California, you must file for Articles of Incorporation with the Secretary of State. 

How to Choose the Right Structure

When deciding between an LLC and a Corporation, you’ll want to consult with a knowledgeable business attorney who can help you consider the following factors:

• Liability Protection: Both structures offer liability protection, but the formalities and management styles differ.
• Tax Implications: Evaluate how the business structure’s taxation aligns with your financial goals and the nature of your business.
• Business Goals: Assess your long-term objectives, growth plans, and exit strategy to determine which structure better suits your needs.
• Complexity and Formalities: Consider each structure’s administrative requirements and ongoing compliance obligations.

Making an informed decision now can set the foundation for your company’s success and mitigate potential challenges in the future.

Meet With a Business Attorney

At Hoffman & Forde, we provide business and legal guidance for business formation and more. To meet with one of our experienced business attorneys, contact our office to book an appointment.

As businesses grow, so do the legal complications and the potential pitfalls. For all but the smallest of these businesses, the question is not if your business needs a lawyer but when you should call in their services.

Most small to medium-sized businesses don’t need to hire full-time, in-house counsel.   Still, they should strongly consider forming a relationship with an outside attorney who is familiar with their operations and can provide assistance on an as-needed basis. 

Here are some of the top reasons your business might need a lawyer.

Business Formation

When your business is just starting, or if you are considering changing the way it’s organized, there are many decisions to make that can have significant consequences in the future. From a sole proprietorship to an LLC to incorporation, all of these structures have advantages and disadvantages in terms of taxation, liability, etc. It is a good idea to sit down with a business attorney to discuss your options and get help with the paperwork.

Similarly, if you are considering forming a partnership with other individuals, it is well worth your time to meet with an attorney and work out the details of an agreement. One of the best services a lawyer can provide in this situation is to help you and your business partners plan for potential conflicts and unanticipated events. What happens when one of you wants to sell their share of the business? What happens if one of you dies? How do you proceed if you disagree on important decisions? Understanding this in advance can save you a lot of grief in the future.

Compliance Issues

Spanning a myriad of areas, from taxes to HR to data privacy, compliance issues are the bane of many business owners. They are often viewed disdainfully as bothersome government interference that pulls resources away from the business’s core mission. Whatever your feelings may be on the topic, the consequences of noncompliance can be pretty costly for a business.

An attorney who understands how your business works can, first and foremost, bring compliance issues to your attention that you may not have even been aware of yet. Later, they can help you create policies and procedures that help keep your business on regulators’ good side.

Workplace Disputes

Employment law is a fraught area for businesses. Conflicts with and between employees have a high potential for future legal disputes. 

For example, firing employees is an unfortunate necessity that comes with running a business, and it should always be approached as the precursor to a lawsuit. Everything you do or say may come up later, so it’s essential to go by the book. However, that can be hard if you don’t know what rules to follow. Consulting with an attorney will help you navigate this situation without exposing your company to a lawsuit.

Similarly, dealing with problems between employees can be just as important. For example, if an employee complains that they were harassed in the workplace, it’s crucial to handle this properly and not just wing it. Draft policies in advance with the help of your lawyer, and then have their phone number ready if a situation arises.

Lawsuits

Some consider it a rite of passage or a sign of success when a business is sued for the first time. Indeed, the longer your business is around and the higher its profile, the more likely this will happen. 

If you or your business receives notice that it is being sued, the next thing you should do is contact an attorney. If your business already has a lawyer, you will be in a much better position than if you shop around for one while the clock is ticking.

Southern California Business Attorneys

Your business is too important to leave anything to chance. Having an experienced attorney who can advise you when needed is critical to protecting your business and building a sustainable foundation for future success.

Our highly credentialed attorneys have been proudly serving the Southern California business community for years. With broad-ranging experience in a variety of practice areas—from commercial real estate to civil litigation—Hoffman & Forde can provide the legal expertise your business needs.

In California, as in other states, professionals in a wide variety of fields are required to hold a license in order to practice their trade. Such professions range from medical doctors to accountants to private investigators. Each has a licensing board or other authority that makes and enforces rules on competence, ethical standards, and more.

If a professional falls afoul of their licensing board for one reason or another, the board may file an accusation of misconduct against them. The professional will then be given a chance to defend themselves in an administrative hearing, often before an administrative law judge (ALJ). If they are found to have committed some sort of misconduct, punishment can include the suspension or even revocation of their license.

Is it possible to get your license back after it’s revoked? The answer is yes, and you have a couple of options.

Petitioning for Reinstatement

Your license can either be revoked with stay or revoked without stay. A revocation with stay is a type of probation. It means the board will hold off on actually revoking your license for a period of time, during which you must fulfill certain requirements (taking educational courses, for example). A revocation without stay, on other hand, is a final judgment, but that doesn’t mean you don’t have any options left.

Most boards allow professionals to petition for reinstatement after some time has passed. This period can vary, but is usually one to three years. At this hearing, you can show that you have resolved the issue which led to the revocation, call fellow professionals as witnesses to vouch for you, and generally convince the board that there will be no further problems. If successful, the board can restore your license and you will be able to practice again.

Appealing the Board’s Decision

You can always appeal a board’s decision if you believe it was mistaken or unfair. Depending on the particular board involved, there may be an internal appeals process, which must first be exhausted. If you have tried everything at the board level, you can appeal its decision to a regular state court.

The court can overrule the board if it lacked jurisdiction, denied you a fair hearing, or abused its discretion. California courts have recognized license revocation as depriving someone of the “fundamental right” to practice their profession, and will look to see if the punishment was too severe for the misconduct. If the board’s decision to revoke is overturned, it may still impose some other punishment, such as probation or suspension.

Learn More About Your Options

If you are facing disciplinary action by a licensing board or your license has already been revoked, your livelihood is at stake and it’s critically important to have assistance from an administrative law attorney. An experienced attorney can help ensure you receive a fair hearing, minimize disciplinary action, and even get your license back.

Our team of administrative law experts practice all across Southern California. Contact us today to schedule a consultation.

Whether a worker is designated as an independent contractor or employee has significant consequences both for the employer and the worker. Most of these consequences are financial; employers are not required to pay unemployment insurance, payroll taxes, health benefits, vacation time, and more. In return, ideally, the contractor has more control over their schedule, how they perform the work, and what jobs they take on.

There is little doubt that many businesses have abused this system by miscategorizing employees as independent contractors in order to save money, but efforts at reform have been contentious, especially in California. Industry groups and even some worker groups have fought against legislative changes, arguing that freelancers will lose their independence and jobs will leave the state. 

Here is the current state of freelancer laws in California.

The ABC Test

The test for whether a worker should be categorized as an independent contractor or an employee as established by the California Supreme Court in Dynamex Operations West, Inc., and has since been codified and extended by the legislature in Assembly Bill 5. Under this law’s “ABC test,” a worker is presumed to be an employee unless the employer can demonstrate each of the following:

• The worker is free from the control and direction of the employer in connection with the performance of the work, both under the contract for the performance of the work and in fact.
• The worker performs work that is outside the usual course of the hiring entity’s business.
• The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

If all of these do not apply, then the worker should be considered an employee, not an independent contractor.

Exceptions to the ABC Test

Not surprisingly, the law also recognizes quite a few exceptions to the rule stated above. First, there are a number of professions that are exempted. These include physicians, dentists, veterinarians, lawyers, architects, accountants, commercial fishermen, and more.

Also, if the worker provides one of a number of specific “professional services,” the ABC test does not apply. However, this is only true if the worker’s situation meets a variety of requirements, such as a separate business address and the ability to control their own schedule, which serve to establish the worker’s actual independence from the employer. 

The law’s exceptions are numerous, and many have their own list of unique requirements that must be individually evaluated.

Prop 22

In November 2020, California voters approved Proposition 22 by ballot initiative, which exempted app-based ridesharing companies from the requirements of AB 5. As a result, drivers for companies such as Uber and Lyft are not considered employees (as they would have been under AB 5), but independent contractors. In exchange, these drivers receive a few additional protections and benefits, though only while “engaged” in work for the companies.

If your business is unsure how to categorize its workers, or if you are a worker and believe you have been wrongly categorized as an independent contractor, contact Hoffman & Forde today for a consultation.