New York Enacts Sweeping Changes to Independent Contractor Arrangements

From JDSupra, Matthew Capobianco, Paul Piccigallo, and Rick Reyes provide an overview of New York’s Freelance Isn’t Free Act that goes into effect in May, 2024. Matthew, Paul and Rick write:

  • New York’s Freelance Isn’t Free Act imposes contract, payment, recordkeeping, and anti-discrimination requirements on companies that hire freelancers.
  • The law defines “freelance worker” very broadly.
  • New obligations apply to contracts with freelancers entered into on or after May 20, 2024.

The nation continues to move to less-traditional employment relationships. As a consequence, the importance and impact of freelance workers (i.e., “independent contractors” or those compensated on an IRS 1099 Form) should not be understated. More and more individuals are breaking away from the traditional employer-employee model, and legislatures throughout the nation have been attempting to adapt to these ever-evolving work arrangements. The State of New York has followed, enacting the Freelance Isn’t Free Act (A.6040/S.5026) (the “Act”). While New York City has had a similar law in effect since 2017 (NYC’s Freelance Isn’t Free Act), New York State’s version is broader in scope and aims to protect freelance workers outside the City.

Designed to expand protections to freelance workers, the Act—which goes into effect on May 20, 2024—imposes several requirements on individuals and companies that hire freelance workers. Given its broad scope, individuals and businesses engaging such workers need to familiarize themselves with these new obligations, the implications for their business and the potential risks of non-compliance.

Who is a “freelance worker” under the Act?

The Act was enacted specifically to create rights and protections to “freelance workers.” Under the Act, a freelance worker is (1) any person or organization (of no more than one person), (2) that is hired or retained as an independent contractor,1 (3) to provide services valued at $800 or more. Put simply: any independent contractor hired for services of $800 or more is a freelance worker under the Act.

It is important to note that the $800 threshold requirement can be met by either a single contract for services or the aggregate of all contracts between the hiring party (as defined below) and the freelance worker in the preceding 120 days. In other words, the Act would apply between a hiring party and a freelance worker for a single contract in which the freelance worker is being paid $800 or more for services rendered. Alternatively, if within the last 120 days, the hiring party and freelance worker have entered into multiple contracts—where no single contract meets the $800 threshold but aggregated reach this $800 threshold, the Act will apply.

Which freelance workers are exempt under the Act?

The Act has only four narrow exemptions to the definition of freelance worker. The following individuals are not considered freelance workers for purposes of the Act: (1) attorneys, (2) licensed medical professionals, (3) sales representatives (as defined by law), and (4) construction contractors (as defined under the Act).

Which companies are subject to the requirements of Act?

Almost all. Indeed, the Act is rather broad in its scope. Specifically, “hiring party” is defined as any person who retains a freelance worker to provide any service. Under this definition, all natural persons and companies (including sole proprietorships, corporations, LLCs, etc.) are covered under the Act. Because the Act does not set forth any employer-size threshold, it seems to apply to small, medium, and large companies.

The Act does not apply to the federal, state, and local governments.

What does the Act require?

The focus of the Act can be summarized to four key areas: (1) written contract requirements, (2) payment of compensation to freelance workers, (3) recordkeeping requirements, and (4) anti-discrimination.

Written Contract

The law will require that the hiring party and freelance worker’s contract for services must be reduced to writing, and that the hiring party provide a physical or electronic copy of the contract to the freelance worker. In the past, it was highly recommended that parties enter into written contracts with their freelance workers; under the new law, such written contracts are explicitly required under the Act.

At a minimum, and as of the date of this publication (absent additional requirements imposed by the State Department of Labor’s commissioner), the written contract must include the following information once the law becomes effective May 20, 2024:

  • The parties’ name and mailing address;
  • An itemization of all services the freelance worker will provide to the hiring party;
  • The value of those services;
  • The rate and method of compensation for the services;
  • The date on which the hiring party will issue payment to the freelance worker or the mechanism by which such date will be determined; and
  • The date by which the freelance worker must submit to the hiring party a list of services rendered under the contract (for purposes of timely compensation).

Note that the Act vests discretion on the State Department of Labor’s commissioner to require inclusion of additional terms under the written contract. Similarly, the Act directs the commissioner to prepare “model contracts” that the public may use to ensure compliance with the law. As of the date of this publication, the commissioner has not yet promulgated any model contracts.

Any provision or term in a contract attempting to waive a freelance worker’s rights under the Act is void as a violation of public policy, rendering such provision or term unenforceable.

Timing and Manner of Compensation to Freelance Workers

One of the key underpinnings of the Act was to ensure that freelance workers are properly compensated for their services. For that reason, the Act contains a specific provision requiring that the hiring party must pay freelance workers on or before the date specified in the contract (as discussed above) or—if the contract does not specify the timing of payment or the mechanism by which such date will be determined—no later than 30 days after the completion of the freelance worker’s services.

The Act prohibits the hiring party from requiring, as a condition of timely payment, that the freelance worker accept less compensation than the amount in the contract.

Recordkeeping

All written contracts entered into with freelance workers must be maintained for a minimum of six years. A hiring party’s failure to maintain these documents creates a presumption that the terms the freelance worker presents as true and accurate are in fact the agreed-upon terms between the parties.

Anti-Discrimination/Retaliation Provision

The Act prohibits any hiring party from harassing, discriminating, threatening, intimidating, disciplining, or denying work opportunities to a freelance worker for exercising, or attempting to exercise, any rights under the Act.

How is the Act enforced?

The Act will be enforced through civil actions brought by aggrieved freelancers (and their attorneys) or through administrative actions by the New York State Department of Labor. The Act specifically prescribes an aggrieved freelancer both a private right of action in court and remedies at the Department of Labor.

What are the potential risks for non-compliance?

For freelancers in civil litigation, the Act permits them to recover double damages (i.e., 200% of the underpayment), injunctive relief, attorneys’ fees and costs, and other remedies as may be appropriate, for violations of Section 2 (which requires payment by the agreed-upon date in the written contract or within 30 days of completing the agreed upon services); $250 in statutory damages for violations of Section 3 (which requires the existence of a written contract); and statutory damages equal to the contract price for each violation of Section 4 (which prohibits retaliation).

Civil actions for non-payment of the contract or for retaliation are subject to a six-year statute of limitations period and actions for failure to provide written contracts are subject to a two-year statute of limitations period.

For freelancers who file a complaint with the NY Department of Labor, the Act permits recovery of both civil and criminal penalties. Additionally, if there is reasonable cause to believe a hiring party has engaged in a pattern or practice of violating the Act, the New York attorney general is empowered to commence a civil action on behalf of New York State and seek fines of up to $25,000, and other relief, against the hiring party.

When does the Act go into effect?

The Act takes effect on May 20, 2024 (180 days after enactment).

Does the Act apply retroactively?

No. The Act explicitly provides that it applies only prospectively to contracts entered into on or after May 20, 2024, the effective date.

Conclusion

At some point, most persons engaging in business in New York have or will have procured the services of freelance workers for their businesses. Consequently, the Act will have legal implications across all industries throughout the state. The Act has now changed the legal landscape state-wide and virtually anyone doing business in the State of New York will have to ensure compliance with the Act. It is recommended that businesses engage legal counsel to discuss the legal implications to their particular business and ensure timely compliance with the Act.

The full text of the Act can be accessed here.

Footnotes

​1 The Act does not address the factors that would be relevant to the proper classification of a worker as an employee or as an independent contractor. This determination is made solely by the hiring party, but if the classification is not accurate, there may be many other issues and concerns that would arise. Therefore, it is recommended that companies consult with legal counsel to properly classify their workers. Compliance with the Act does address or cover the question of whether a worker has been properly classified as an independent contractor rather than as an employee.

Source: New York Enacts Sweeping Changes to Independent Contractor Arrangements | Littler – JDSupra

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