Hiring parties should review their current independent contractor agreements to ensure compliance with the adopted rules.

The New York City Department of Consumer Affairs (DCA) has adopted Final Rules (the Rules), effective July 24, implementing the Freelance Isn’t Free Act (the Act). The DCA states that the Rules are intended to “clarify” provisions in the Act, implement the goals of the Act, and provide guidance to hiring parties and freelance workers—though they appear to go further.

The Act, which went into effect on May 15, 2017, imposes a number of requirements that must be embodied in covered contracts and provides new causes of action for aggrieved contractors. The Rules have provided more specific requirements for covered contracts, most notably a sweeping prohibition on waivers of rights in contracts. Companies and individuals should review any contracts with independent contractors in New York City to assess compliance with the Rules in advance of their effective date.

Expansive Interpretation of the Act Under the Adopted Rules

• The Act expressly prohibits hiring parties from retaliating against freelance workers for exercising their rights under the Act, including through the denial of future work opportunities. The Rules broaden the definition of retaliation to include actions taken by the “actual or apparent agent” of a hiring party, as well as “any other person acting directly or indirectly on behalf of a hiring party.”

• The Rules clarify that the Act applies regardless of a freelance worker’s immigration status, and any adverse action based on immigration status is included in the definition of retaliation.

• The Rules also allow a freelance worker to establish that the “cause” element of a retaliation claim was an exercise of rights under the Act that was “a motivating factor” for the adverse action, even if it was not the sole factor.

• The Rules include the reasonable value of services, reasonable cost of supplies, and any other reasonable costs incurred by the freelance worker in the “value” of a contract for purposes of determining jurisdiction and damages. The Act applies only to contracts valued at $800 or more, whether a single contract or all contracts between the hiring party and the freelance worker in the preceding 120 days.

Waiver of Rights

Perhaps most critically, the Rules purport to greatly limit which rights a freelance worker can effectively waive in a contract. The Act provides that any provision in a contract waiving rights under the Act would be void. The Rules have gone significantly further, adopting the position that the following waivers will be considered void:

• A prospective waiver or limitation of rights under the Act

• A waiver of class or collective actions or representative proceedings

• A waiver of “any other procedural right normally afforded to a party in a civil or administrative action”

• Any nondisclosure provision that would prevent a freelance worker from disclosing the terms of his or her contract to the director of the DCA

With respect to the waiver of class actions and the apparent bar on arbitration provisions, there are serious questions regarding whether the DCA is authorized to promulgate those provisions of the Rules, as they are not specifically authorized by the Act and, to the extent they purport to void arbitration provisions, may be preempted by the Federal Arbitration Act.

Recommended Action

In advance of the July 24, 2017 effective date, hiring parties should take a proactive approach in reviewing their existing agreements and policies for compliance with the Rules. In particular, hiring parties should scrutinize any class action waivers or mandatory arbitration provisions, as well as any other provisions purporting to waive procedural rights.

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, in order to reduce concerns that the hiring party is directing and controlling the services in question.