On October 27, the New York City Council, long known for pushing the envelope when it comes to employment legislation, passed a first-of-its-kind bill, known as the "Freelance Isn't Free" Act, that requires written agreements between certain independent contractors and the entities that engage them (the Act). The Act also bars wage theft and retaliation against contractors, and imposes substantial penalties on businesses that fail to comply with these and other requirements surrounding the independent contractor relationship. In short, the Act represents a major sea change with the use of independent contractors.
Written Agreement Required
Perhaps most notably, the Act requires that virtually all entities that engage a "freelance worker" for $800 or more in services execute a written agreement with the contractor before the work begins. "Freelance worker" means "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."
The written agreement must include, at a minimum:
- The name and mailing address of both the hiring party and the freelance worker
- An itemization of all services to be provided by the contractor
- The value of the services
- The rate and method of the contractor's compensation
- The date on which the contractor must be paid or the mechanism by which such date will be determined
- Any other terms that the newly created Office of Labor Standards (OLS) designates by rule
The Act directs OLS to make available model contracts, in English and six other languages, on its website for use by the general public. OLS will also be in charge of educating the public – both freelancers and the business community – about the new law, through what the Act calls a "navigation program." Under the navigation program, OLS will, among other things, provide freelancers with general information about classification as an employee or independent contractor.
Unlawful Payment Practices and Retaliation
In addition to requiring a written independent contractor agreement under most circumstances, the Act:
- Requires that all compensation earned by an independent contractor be paid on or before the date such payment is due as specified in the parties' agreement or, if the agreement does not specify, within 30 days following completion of the contractor's services
- Requires that once a freelance worker has begun performing under the contract, the hiring party cannot require as a condition of timely payment that the contractor accept less than the contractually specified compensation
- Bars retaliation – including threats, intimation, discipline, harassment, denying a work opportunity, and discrimination – against contractors who exercise or attempt to exercise their rights under the Act (e.g., opposing a practice prohibited by the Act or filing a complaint or commencing an action alleging a violation of the Act). The Committee Report accompanying the Act also notes that "[e]xamples of retaliation include blacklisting a freelance worker from an industry, discrediting a freelance worker to other potential hiring parties or canceling a multipart contract after the contracted work has begun. Subject to surrounding circumstances, a claim of retaliation might also exist if, having established the terms of a contract for freelance services, the hiring party cancels the agreement in response to a request by the freelance worker to memorialize the agreement in a written contract."
These provisions appear to apply even if the value of the services rendered is less than $800.
Legal Recourse and Available Damages
The Act provides allegedly aggrieved contractors with several avenues of recourse. First, the Act prescribes an extremely nuanced procedure for contractors to file complaints with OLS. Second, separate and apart from the administrative route, contractors may also commence civil actions in court against allegedly non-compliant businesses.
Regardless of the forum in which a contractor pursues his/her claims, violations of the Act can have steep consequences, including:
Failing to Provide a Written Agreement
- If the only violation committed is the hiring party's failure to provide a written agreement as required by the Act, statutory damages of $250 (and only then if the contractor can show that (s)he requested a written contact from the hiring party before work began)
- If, however, the hiring party failed to provide a written agreement and also violated another provision of the Act – by either failing to make timely and proper payment or retaliating against the contractor – statutory damages equal to the value of the contract plus any damages for the additional violation(s), as set forth below
Unlawful Payment Practices
- Double damages and injunctive relief
- Statutory damages equal to the value of the contract
Notably, irrespective of the type of violation committed, a successful plaintiff can also recover reasonable attorneys' fees and costs. For contractors seeking to avail themselves of these remedies, a two-year statute of limitations applies to claims that the hiring party failed to provide a written agreement, while a six-year limitations period applies to all other claims (i.e., unlawful payment practices and retaliation).
Lastly, the Act permits the city's corporation counsel to commence a civil action where reasonable cause exists to believe that a hiring party has engaged in a pattern or practice of violating of the Act. If the court determines that the hiring party has engaged in a pattern or practice of violations, a civil penalty of up to $25,000 may be levied.
In addition to the above, the Act specifies that:
- Any agreement purporting to waive a contractor's rights under the Act will automatically be deemed void as a matter of public policy. The precise scope of this provision – and whether it would bar contractors from entering into settlement agreements resolving their claims under the Act – remains to be seen, and will likely need to be resolved by the courts.
- Failure to comply with the Act will not render any contract between a hiring party and a freelance worker void or voidable, or otherwise impair any obligation, claim, or right related to such contract.
- The Act is not to be construed as providing a determination about the legal classification of any individual as an employee or independent contractor.
- The $800 requirement for a written agreement is satisfied when the contract for freelance services has a value of $800 or more either by itself or when aggregated with contracts made between the same parties in the immediately preceding 120 days.
- Technically, the requirement for a written contract can be satisfied by any writing or writings that meet New York state law requirements for a contract and contain the required terms. For example, an email, a letter, an advertisement or a text message, or some combination of those, that satisfy the state law requirements for a contract and contain the information required by Act, would satisfy the requirement to reduce the contract to a writing.
Undoubtedly, OLS will issue guidance in the coming months expanding upon these and other aspects of the Act.
When Will the Act Take Effect?
After receiving unanimous support from the NYC Council, the Act now moves to Mayor Bill de Blasio's desk to be signed. Although the mayor himself has not explicitly said whether he will sign the bill, his office has signaled that it supports the measure. Once signed, the Act will take effect 180 days later – meaning likely sometime late next spring – and will only apply to contracts entered into on or after the effective date. In the meantime, all NYC businesses that use independent contractors should review and update their independent contractor agreements as appropriate, or speak with counsel about preparing such an agreement, and align their payment practices with the Act.
This article is presented for informational purposes only and is not intended to constitute legal advice.