Hiring parties should review their current contracts with freelance workers in New York City to ensure compliance with the new bill.

The New York City Council has passed, and Mayor Bill de Blasio has signed, a bill with specific requirements for contracts with independent contractors in New York City. The New York City Council’s Committee on Consumer Affairs voted unanimously in favor of the Freelance Isn’t Free Act (the Act) on October 27, which Mayor de Blasio signed into law on November 16. The Act will regulate contracts with the estimated 1.3 million independent contractors in New York City.

The Act, which takes effect on May 15, 2017, has a number of requirements that must be contained in covered contracts and provides new causes of action for aggrieved contractors, as well as potential recovery of double damages and attorney fees to prevailing plaintiffs. Companies and individuals should review any contracts with independent contractors in New York City to ensure compliance with the Act in advance of its effective date.

Overview of Changes

A “freelance worker” is defined broadly as any person, whether or not incorporated or using a trade name, who is retained as an independent contractor to provide services in exchange for compensation. A “hiring party” refers to anyone who engages a freelance worker, with the exception of the federal, state, and local government. The Act provides specific requirements for contracts between a freelance worker and a hiring party and applies to contracts more than $800, whether by the contract itself or aggregated with all contracts between the same parties during the preceding 120 days. Covered contracts must include the following:

• The name and address of both the hiring party and the independent contractor.

• An itemization of all services that the independent contractor will perform, as well as the value of those services.

• The independent contractor’s rate and method of compensation.

• The date on which the hiring party must pay the independent contractor, or the mechanism for determining the date. If the payment date is not provided, the independent contractor must be paid within 30 days of completing the work.

The Act also requires the newly created NYC Office of Labor Standards to create educational resources for both freelancers and hiring parties, which will contain sample contracts in at least six different languages.

Potential Liability

The Act creates new causes of action for aggrieved independent contractors. For instance, contractors who are not provided with contracts, or who otherwise allege a violation of the statute (e.g., failure to specify payment date and/or timely make payment), may submit a complaint to the Office of Labor Standards or bring an action in a New York court within two years of the alleged violation. The Act also contains an antiretaliation provision that prohibits hiring parties from penalizing contractors for exercising their rights under the Act, including from denying them future work opportunities.

Potential damages for successful claims include the following:

• A $250 penalty for failure to provide a written contract in compliance with the Act

• Double damages for failure to provide full and timely payment, in addition to injunctive relief and other remedies as deemed appropriate

• Statutory damages equal to the value of the underlying contract for violations of more than one provision of the Act and/or for each illegal act of retaliation

• An award of reasonable attorney fees and costs for any violation of the Act

• A civil penalty of up to $25,000 for hiring parties who engage in a “pattern and practice” of violating the statute

Given these new potential damages available to prevailing plaintiffs—including, in particular, double and statutory damages and attorney fees—there will likely be an increase in complaints and lawsuits brought by contractors against hiring parties in New York City.

Recommended Action

In advance of the effective date, hiring parties should take a proactive approach in reviewing their existing agreements and policies for compliance with these new requirements. In particular, hiring parties should pay attention to form agreements that may not adequately itemize and value the services to be performed, as well as agreements that do not clearly provide payment dates or specify what happens in the event of a breach of the agreement (e.g., partial payment, forfeiture, etc.).

In reviewing contracts for compliance with the Act, contracting parties must also be careful to balance the countervailing tension of employee classification laws. For instance, in specifying the required itemization of services to be performed, the contract should address the results of the services to be performed rather than the manner and means by which the services will be performed to reduce concerns of directing and controlling the services in question.