Since the onset of the COVID-19 pandemic in 2020, the number of workers performing services as independent contractors in the United States has risen. In response, some states have stepped up efforts to reign in potential abuses of these arrangements by employers. New York is no exception. In November 2023, Governor Kathy Hochul signed new legislation S.5026/A.6040, known as the “Freelance Isn’t Free Act” (“the Act”), which establishes new protections for independent contractors, as well as means for the Attorney General, the Department of Labor, and individual independent contractors to enforce its provisions.
The Act, which will take effect on August 28, 2024 (originally planned for May 20, 2024), amends the New York Labor Law by adding Section 191-d, which governs the relationship between a “hiring party” and “freelance worker.” A hiring party is any person, other than a governmental entity, who retains the services of a freelance worker. A freelance worker is “any natural person or organization composed of no more than one person . . . that is hired or retained as an independent contractor to provide services in exchange for an amount equal to or greater than $800, either by itself or when aggregated with all contracts between the hiring party and [independent contractor] during the immediately preceding one hundred twenty days.” The Act exempts four categories of workers: (1) sales representatives, (2) lawyers in good standing engaged in the practice of law, (3) licensed medical professionals, and (4) “construction contractors” as defined in § 191-d (a).
Importantly for employers, Section 191-d contains three new mandates that an employer must heed. When hiring a freelance worker, New York employers must now: (1) enter a written contract containing certain provisions, (2) timely pay the agreed-upon wages, and (3) abstain from retaliating against an independent contractor who exercises his or her rights. A failure to follow any of these mandates could be an expensive mistake.
The Act provides that an independent contractor may bring a cause of action in any New York Court based upon a violation of Section 191-d’s provisions. Thus, the new law increases the potential that an employer who retains an independent contractor will be subject to litigation and its attendant expenses. Further, in the event the independent contractor prevails in that litigation, the employer may be liable to pay statutory damages and attorneys’ fees. To avoid costly litigation and an expensive damages award, employers must take note of the Act’s new requirements.
Necessity of a Written Contract
New Labor Law Section 191-d (3)(a) provides that a hiring party must enter into a written contract with the independent contractor. The Act further mandates that those contracts contain four provisions: (1) the names and addresses of the hiring party and independent contractor, (2) an itemization of all services to be provided, the value of those services, and the method for calculating the independent contractor’s compensation, (3) the date on which the independent contractor will be paid, or the mechanism for determining that date, and (4) the date by which the independent contractor must provide a list of services rendered to the hiring party. There may be more required contractual clauses coming soon, as the Act authorizes the Department of Labor to adopt rules requiring additional mandatory terms. Thankfully for employers, the new law requires the Department of Labor to provide model contracts for use by the public at no cost. The model contracts will be published on the Department of Labor’s website when available.
If the employer fails to offer a written contract or include the necessary terms, it will be liable to pay a $250 statutory penalty. If a violation of subsection three is the only violation alleged by an independent contractor, such worker must prove that he or she requested a written contract. However, any violation of subsection three and any other provision of Article 6 of the Labor Law may subject the employer to damages equal to the amount of the underlying contract.
Wages Must Be Paid on Time
Perhaps the most important new requirement of the Act for employers is the mandate that hiring parties pay independent contractors in a timely manner. “Timely” means that an employer pays the wages due on the date specified in the written contract or, if the contract does not specify such a date, “no later than thirty days after the completion of the freelancer’s services under the contract.”
It is critical that employers pay independent contractors pursuant to the contract’s terms because the penalties for failing to do so may be severe. A hiring party who fails to pay an independent contractor in a timely manner is subject to a statutory damage award of double damages, i.e., double the amount owed to the worker, plus the attorneys’ fees incurred by the independent contractor. Given the expense of litigation, the employer could be liable for tens of thousands of dollars in damages if it does not pay an independent contractor’s wages when due.
Discrimination and Retaliation Prohibited
The Act also extends protections to independent contractors who exercise, or attempt to exercise, any of their rights under its provisions. Specifically, the Act forbids a hiring party from taking any action that penalizes an independent contractor for, or is reasonably likely to deter an independent contractor from, taking advantage of his or her rights under the Act. A violation of that section will expose the hiring party to a statutory damages award “equal to the value of the underlying contract for each violation.”
Repeat Violations
Finally, the new Act establishes penalties for hiring parties who repeatedly flaunt its provisions. The law empowers the New York Attorney General to commence a civil action against a hiring party where there is reasonable cause to believe that the hiring party has engaged in a “pattern or practice of violations” of Section 191-d. If the trier of fact in such proceeding determines that a pattern and practice of violations has been proved, it may fine the offending hiring party up to $25,000. Such a fine may be imposed in addition to any damages that may be awarded to the independent contractor in a civil action based on the same facts.
Accordingly, New York State employers who hire independent contractors should familiarize themselves with the provisions of the new “Freelance Isn’t Free Act” before they take effect in August 2024. The failure to do could be a costly mistake.
Matthew M. Simmonds is Senior Counsel in Underberg & Kessler LLP’s Litigation Practice Group. A former Appellate Court attorney in the New York State Supreme Court, Fourth Judicial Department, and the Florida First District Court of Appeal, Matt has handled thousands of cases in nearly every area of civil and criminal law. He can be reached at msimmonds@underbergkessler.com.
Reprinted with permission from The Daily Record and available as a PDF file here.