Does calling someone a consultant make them an independent contractor in California?

No. Labor Code section 2775(b)(1) provides that a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates all three ABC conditions, and the hardest of them is subdivision (B): the person performs work that is outside the usual course of the hiring entity's business. The title in the contract is not one of the three conditions, so it does not decide the question.

What is the penalty for misclassifying a consultant in California?

Labor Code section 226.8(b) sets a civil penalty of not less than $5,000 and not more than $15,000 for each violation where the Labor and Workforce Development Agency or a court finds willful misclassification, and section 226.8(c) raises that to not less than $10,000 and not more than $25,000 for each violation where the person or employer has engaged in or is engaging in a pattern or practice of these violations. Section 226.8(i)(4) defines willful misclassification as avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor. Those penalties sit on top of unpaid wages, taxes, and expense reimbursement.

Does the business-to-business exemption get me out of the ABC test?

Not the way most people assume. Labor Code section 2776 says that where a contracting business demonstrates all twelve listed criteria, the determination of employee or independent contractor status of the business service provider shall be governed by Borello, the older multi-factor test, rather than by section 2775. That is a change of test, not an exemption from classification. Section 2776(b) also provides that the individual workers behind the business service provider are still governed by section 2775.

Is the non-compete in my consulting agreement enforceable in California?

Business and Professions Code section 16600(a) provides that except as provided in that chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void, and subdivision (b)(1), added by AB 1076 effective January 1, 2024, directs that the section be read broadly to void any noncompete in an employment context no matter how narrowly tailored. Section 16600.5(a) adds that a contract void under the chapter is unenforceable regardless of where and when it was signed, and section 16600.5(e) gives the restrained person a private action for injunctive relief or actual damages plus attorney's fees to a prevailing employee.

Can a consulting agreement make the consultant pay their own business expenses?

Between two genuine businesses, yes. If the person turns out to be an employee, Labor Code section 2802(a) requires the employer to indemnify the employee for all necessary expenditures or losses incurred in direct consequence of the discharge of duties, and section 2802(c) includes attorney's fees incurred enforcing that right within the recoverable amount. So the expense clause is only as durable as the classification underneath it.

Professional Services

Consulting Agreement: build a starting draft free, or have me draft it around your engagement

The generator below produces a clean starting draft with live preview. It cannot know what your company actually sells, how many people you engage on the same paper, or whether the person you just papered is legally an employee. That part is my day job.

Sergei Tokmakov, California attorney, CA Bar #279869. Drafting services contracts since 2011.

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Sergei Tokmakov, Esq., California attorney, CA Bar #279869 — Sergei Tokmakov, Esq.
California Bar #279869

The most common way a consulting agreement reaches my desk

You already have a ChatGPT or Claude draft of a consulting agreement

The clause language is probably fine. The risk is the six things the model had no way to know, because none of them are in its training data or in your prompt.

1. What your company actually sellsProng B of the ABC test asks whether the work is outside the usual course of your business. The model never saw your revenue lines.

2. Which exemption route you qualify forSection 2776 needs twelve conditions. Section 2778 needs six plus a listed occupation. The model guessed.

3. How many people are on this paperOne misclassified person is a violation. Several on the same template is what a regulator calls a pattern or practice.

4. That the non-compete it wrote is void hereCalifornia voids it, and the statute now reaches contracts signed in other states for people who work here.

5. Whether the IP clause actually assigns anythingA work-for-hire recital does not transfer copyright in most consulting deliverables. A present assignment does.

6. Whether your expense clause survivesPush costs onto a person who turns out to be an employee and Labor Code section 2802 pushes them straight back, with fees.

Have me harden the draft, $750 How I redline services contracts →

$750 flat: one consulting agreement drafted or redlined, written comments, up to three rounds of email revisions. Scope confirmed in writing after a conflict check; nothing here creates an attorney-client relationship.

Short answer

The word “consultant” in the title decides nothing. Under Labor Code section 2775(b)(1), a person providing labor or services for remuneration is considered an employee rather than an independent contractor unless the hiring entity demonstrates all three ABC conditions, and the one that fails most often is subdivision (B): the person performs work that is outside the usual course of the hiring entity’s business. Nothing in the contract can satisfy prong B, because prong B is a fact about your company, not about your paperwork. When it fails, section 226.8 sets a civil penalty of $5,000 to $15,000 for each willful violation, rising to $10,000 to $25,000 for each violation where there is a pattern or practice, and that sits on top of back wages, taxes, and expense reimbursement. The generator below writes a sound baseline; the classification question is a judgment call about what you sell.

What does this consultant cost if a court calls them an employee?

Every number you enter is your own. The only figures I supply are the statutory penalty bands in Labor Code section 226.8, which I verified against the official text. The calculator just does the arithmetic a Labor Commissioner would do.

What you pay this person per month (USD)

Months engaged so far

People you engage on this same template

More than one on identical paper is what section 226.8(c) describes as a pattern or practice.

Business costs they pay out of pocket per month (USD)

Software, phone, mileage, home office, equipment. Section 2802 makes these the employer’s if the person is an employee.

Is their work outside the usual course of your business?

Any exemption route that moves you off the ABC test?

Paid out so far–

Section 226.8 penalty range–

Section 2802 expense exposure–

Test that applies–

Have me review the classification, $750

Arithmetic on your own inputs against the statutory penalty bands, not a prediction, an audit, or legal advice. Penalties are discretionary within the range and a real assessment also reaches unpaid wages, overtime, taxes, and interest, which are not modeled here.

Where consulting agreements actually bleed

Five consequences, not definitions. Each one is a place I have watched real money change hands. Tap to open.

Prong B is the one you failThe contract cannot fix a fact about what your company sells

Labor Code section 2775(b)(1) puts the burden on you, not on the worker: the person is treated as an employee unless the hiring entity demonstrates all three conditions. Prong A is about control and prong C is about whether they run a real independent business, and a careful contract genuinely helps with both. Prong B is different. It asks whether “the person performs work that is outside the usual course of the hiring entity’s business,” and no clause you write changes the answer. A marketing agency that engages copywriters, a dev shop that engages developers, a bookkeeping firm that engages bookkeepers: those all fail prong B no matter how the agreement is drafted, because the work is exactly what the company sells.

The one-line test. Describe the consultant’s deliverable, then describe what your customers pay you for. If those two sentences sound alike, prong B is failing and the rest of the agreement is decoration. Run the numbers in the calculator above.

Verified against Labor Code section 2775 at leginfo.legislature.ca.gov on 2 August 2026 (added by Stats. 2020, ch. 38, AB 2257, effective September 4, 2020; never amended). Applicability to work performed on or after January 1, 2020 is set by section 2785(c), a separate section.

The business-to-business exemption is not an exemptionTwelve conditions, and it changes the test rather than ending it

Founders reach for section 2776 the moment a consultant incorporates, and it is the most over-read section in the article. What it actually says is that if the contracting business demonstrates all twelve listed criteria, then “the determination of employee or independent contractor status of the business services provider shall be governed by Borello.” That is a switch to the older multi-factor test, not an exit from classification. Twelve is a lot of conditions: a written contract stating the rate and the payment due date, a separate business location, a business license where the jurisdiction requires one, the ability to negotiate its own rates and set its own hours, its own tools, actual advertising to the public, and freedom to serve other clients without restriction from you. Miss one and you are back on the ABC test.

The trap almost nobody reads. Section 2776(b) provides that when two genuine businesses contract under subdivision (a), the individual worker behind the business service provider is still governed by section 2775. The entity relationship can pass while the human being inside it remains someone’s employee.

Verified against Labor Code section 2776 at leginfo.legislature.ca.gov on 2 August 2026 (added by Stats. 2020, ch. 38, AB 2257; never amended).

The professional-services route, and who is actually on the listSections 2778 and 2783 were both amended effective January 1, 2026

Two other routes move an engagement to Borello. Section 2778 covers a defined set of “professional services” and requires six factors: a separate business location, the required business license where the jurisdiction demands one, the ability to set or negotiate rates, the ability to set their own hours outside project deadlines and reasonable business hours, customary engagement in the same work for others, and the customary and regular exercise of discretion and independent judgment. The enumerated occupations run from marketing that is original and creative in character through graphic design, grant writing, freelance writing and editing, still photography, appraisers, and licensed estheticians, among others. Section 2783 is a different list of whole occupations, and subdivision (c) is the one consultants usually mean: an individual holding an active California license practicing as a lawyer, architect, landscape architect, engineer, private investigator, or accountant.

Check the current text, not last year’s summary. Both sections were amended by AB 1514, effective January 1, 2026. If your template or your memo predates October 2025, the occupation lists and the sunset dates inside them have moved.

Verified against Labor Code sections 2778 and 2783 at leginfo.legislature.ca.gov on 2 August 2026, both as amended by Stats. 2025, ch. 305 (AB 1514), effective January 1, 2026.

The non-compete you pasted in is void, and you owed notice by February 2024Section 16600, the 2024 amendments, and a one-way fee shift

Business and Professions Code section 16600(a) makes every contract restraining anyone from engaging in a lawful profession, trade, or business void to that extent. AB 1076 then added subdivision (b)(1), directing that the section “be read broadly… to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored,” and subdivision (c), which extends the section beyond contracts where the restrained person is even a party. Section 16600.5(a) then closes the forum-shopping door: a contract void under the chapter “is unenforceable regardless of where and when the contract was signed,” and subdivision (b) forbids an employer from attempting to enforce one even where the contract was signed and the employment maintained outside California.

Two consequences with teeth. Section 16600.5(e) gives the restrained person a private action for injunctive relief or actual damages, with attorney’s fees running one way, to a prevailing employee only. And section 16600.1(b)(1) required employers to notify current employees, plus former employees employed after January 1, 2022, that their noncompete is void, by February 14, 2024. That deadline has passed; a violation is an unfair competition act under section 17200.

Verified against Business and Professions Code sections 16600, 16600.1, and 16600.5 at leginfo.legislature.ca.gov on 2 August 2026. Section 16600 amended by Stats. 2023, ch. 828 (AB 1076); section 16600.1 added by the same act; section 16600.5 added by Stats. 2023, ch. 157 (SB 699). All effective January 1, 2024.

The expense clause that reverses on youSection 2802 travels with the classification, not with the contract

Nearly every generated consulting agreement says the consultant bears their own costs, and between two real businesses that is a normal, enforceable allocation. It is also the clause that inverts hardest when classification fails. Labor Code section 2802(a) requires an employer to “indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties,” and subdivision (c) folds the attorney’s fees incurred enforcing that right into the recoverable amount. So a clause you wrote to save a few hundred dollars a month becomes a claim for every month of the engagement, multiplied by everyone you engaged on the same template, with their lawyer paid out of your side.

What I look at first on a redline. Not the fee. The deliverable description next to your own marketing copy, then the headcount on that template, then the expense and non-compete clauses. Those four tell me the real exposure before I read a single boilerplate section.

Verified against Labor Code section 2802 at leginfo.legislature.ca.gov on 2 August 2026 (as amended by Stats. 2015, ch. 783, AB 970, effective January 1, 2016).

Questions I get about consulting agreementsClassification, penalties, exemptions, non-competes, expenses

Does calling someone a consultant make them a contractor?

No. Section 2775(b)(1) treats a person providing labor or services for remuneration as an employee unless the hiring entity demonstrates all three ABC conditions, and the title is not one of them. The hardest condition is subdivision (B), that the work is outside the usual course of your business, and it is a fact about your company rather than about your paperwork.

What is the penalty if I get it wrong?

Section 226.8(b) sets a civil penalty of not less than $5,000 and not more than $15,000 for each violation on a finding of willful misclassification, and section 226.8(c) raises it to not less than $10,000 and not more than $25,000 for each violation where there is a pattern or practice. Section 226.8(i)(4) defines willful misclassification as avoiding employee status by voluntarily and knowingly misclassifying the individual. Those figures sit on top of unpaid wages, overtime, taxes, and expense reimbursement.

My consultant has an LLC. Does that solve it?

By itself, no. Section 2776 requires twelve conditions before the relationship moves to the Borello test, and forming an entity satisfies none of them on its own. Section 2776(b) also keeps the individual behind that entity governed by section 2775. An LLC is one useful fact in a twelve-part showing, not a shortcut around it.

Can I keep a non-compete if the consultant is out of state?

Section 16600.5(a) says a contract void under the chapter is unenforceable regardless of where and when it was signed, and subdivision (b) forbids attempting to enforce one even where the contract was signed and the employment maintained outside California. Subdivision (e) gives the restrained person a private action with a one-way attorney’s fee award. A narrow non-solicitation of your employees and a real confidentiality clause do the work people hope a non-compete will do.

Can I just use the free generator below?

For a genuine arms-length engagement with a real outside business, a generated agreement plus a careful read is a defensible starting point, and I built the generator so that it would be. Where I would not rely on it alone: when the consultant does work that looks like what you sell, when several people are engaged on the same paper, when the deliverable is core intellectual property, or when the person previously worked for you as an employee.

Free consulting agreement generator: a starting draft, not a signable contractFill the form and the document builds in place with live preview. Word, PDF, and print export. Use it to control the paper before the other side sends theirs.

Read this before you use the output. This generator assembles a standard consulting agreement from your form inputs. It does not know what your company sells, how many people you engage on the same terms, or whether an exemption route is available to you. It is not legal advice, and using it does not make me your attorney.

You now have a draft I have never read. It is a sound starting point and a poor finished contract, because it was assembled from your form inputs, not from your engagement. If a real person will sign this, the $750 flat fee covers me redlining exactly what you just generated, up to three revision rounds by email.

Send me this draft: $750

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If one agreement is all you need, buy the one agreement. I will tell you when your engagement needs less than you think, and when the classification underneath it needs more.

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Consulting agreement, drafted or redlined

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A master services agreement with statements of work, or a contractor program covering several people
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One narrow question answered in writing: the classification, the non-compete, the IP clause
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Every engagement starts with a conflict check and written confirmation of scope. Overflow beyond the flat fee is billed at $300 per hour by invoice, and I tell you before that happens. No free consultations, case evaluations, or document review.

Disclaimer. This page is general legal information, not legal advice. Using the generator, reading this page, or emailing me does not create an attorney-client relationship; that requires a conflict check and a written engagement agreement. Generated documents are starting drafts. Statutes change; every citation on this page was verified against the primary source at leginfo.legislature.ca.gov on 2 August 2026, including the amending statutes noted in each section. I am licensed in California. I do not carry professional liability (malpractice) insurance, and I give you that disclosure in writing with every engagement agreement.

Sergei Tokmakov, Esq. · California Bar #279869 · owner@terms.law