As 2016 came to a close, New York City became the first in the nation to enact a law establishing payment protections and remedies for freelance workers.  On November 16, 2016, Mayor de Blasio signed into law the Freelance Isn’t Free Act, which will go into effect on May 15, 2017.  This new law imposes several significant requirements on freelance work arrangements, which we discuss below.

The Law Applies Broadly to Freelance Arrangements Entered into on or After May 15, 2017

The Act applies prospectively – only to those contracts entered into on or after the May 15, 2017 effective date.  It also applies broadly to any “hiring party,” which it defines as “any person who retains a freelance worker to provide any service” other than federal, state, and local governments and any foreign government.

Even more expansive is the definition of ‘freelance worker,” which the Act provides is “any natural person or any organization composed of no more than one natural person, whether or not incorporated or employing a trade name, that is hired or retained as an independent contractor by a hiring party to provide services in exchange for compensation.”  It excludes however, certain sales representatives, lawyers, and licensed medical professionals.

These definitions raise several questions regarding the Act’s applicability, such as whether it applies to workers who reside in New York City but perform services outside the city, or reside outside the city but provide services to a company in New York City; how employers might verify that an individual fits the Act’s definition; and the potential interplay between the Act and other state and federal laws governing independent contractors (such as the sales representatives referenced above).

At its Core, the Law Requires a Hiring Party and Freelancer to Enter Into a Written Contract

The Act requires that any contract (or multiple contracts aggregated over the preceding 120 days) with a dollar value of $800 or more must be in writing and must contain the following:

1. the names and mailing addresses of the parties;
2. an itemized listing of all services contracted for;
3. the value of the services to be provided;
4. the rate and method of compensation; and
5. the date on which the hiring party must pay the contracted amount of compensation or the mechanism by which such date will be determined.

The Director of the recently-established Office of Labor Standards (OLS), which is part of the NYC Department of Consumer Affairs, has the right to issue a rule providing for additional terms that the parties must provide in the agreement.

The Act Aims to Ensure Timely and Fully Payment to Freelancers

The Act requires that the hiring party pay the compensation to the freelancer on or before the date the payment is due under the terms of the contract.  If the contract does not contain a payment date or a mechanism for determining a payment date (even though it is required to include one), the hiring party must pay the compensation no later than 30 days after the completion of the contracted-for services.  Once the freelancer has commenced performance under the contract, the hiring party cannot require that the freelancer to accept less compensation as a condition of a timely payment.

The Act Protects Freelancers Against Retaliation

The Act prohibits a hiring party from threatening, intimidating, disciplining, harassing, denying a work opportunity or discriminating against a freelance worker, or taking any action that penalizes or is reasonably likely to deter a freelancer from exercising or attempting to exercise any of the rights provided for in the Act.

The Act Permits Freelancers to Pursue Relief with the OLS or by a Private Right of Action

There are three types of violations under the Act: (1) violation of the written contract requirement; (2) violation of the payment requirements; and (3) violation of the anti-retaliation provision.

Freelancers alleging violations of the Act may file an administrative complaint with the OLS or may they proceed directly to court.  The administrative compliant option is not available however, if either party has already initiated a court or an administrative proceeding with another agency regarding a breach of the contract.  Further, a freelancer cannot successfully assert a violation of the written contract requirement unless he or she or it can show a request for a written contract prior to the commencement of the contracted-for services.

An action alleging a violation of the written contract requirement must be brought within two years while an action alleging a violation of the payment requirements or the anti-retaliation provisions must be brought within six years.

The Act Provides for the Possibility of Significant Damages

Violations of the Act could be costly to employers.  A hiring party that refused to provide a written contract would be liable for damages of $250, but if the hiring party also violated other provisions of the law — like a late payment — those damages could be increased to equal the total value of the contract. A hiring party that fails to pay timely would be liable for double damages (akin to the liquidated damages available under other wage protection statutes), and a hiring party that retaliates against a freelance worker would also be liable for the full value of the contract.  All awards of damages would also include attorney’s fees and costs.The law does not address the assessment of damages in the event that partial payment has been made, however.

Additionally, the Act provides a right of action on behalf of the City against a hiring party who is engaged in a “pattern or practice” of violations which could result in a civil penalty of up to $25,000.

Takeaways

• Employers should assess their relationships with their independent contractors to ensure that starting in mid-May any new arrangements are put in a written agreement that appropriately describe the terms of their engagement and that they are otherwise in compliance with this new law.
• Employers should particularly be aware of the need to revise template agreements that do not clearly itemize the services being rendered or provide payment dates or payment mechanisms and clearly define when the services have been completed.
• OLS will be developing and posting model contracts on its website, and we will update this site with more information once those samples become available.