Governor Kathy Hochul recently signed into law the “Freelance Isn’t Free” Act (the Act), which aims to provide freelance workers certain protections across the state.
New York employers who use freelancers or independent contractors need to act quickly to become familiar with the Act’s requirements and dedicate necessary resources to comply with its strict provisions. The law, which was signed Nov. 22, 2023, takes effect on May 20, 2024.
The Act’s requirements are not new to New York City employers. As explained in a previous alert, the City passed its own law of the same name in October 2016, which took effect in May 2017. The statewide act mirrors the protections set forth in the City’s law. As such, all employers in New York State must soon comply with these requirements.
Definition of ‘Freelance Worker’
The Act defines a “freelance worker” as “any natural person or 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.
In other words, the Act applies to situations where a business retains the services of an individual to perform certain work for the business. It does not matter if the individual performs the work under a corporate or trade name, or under their own individual legal name.
A Written Contract is Required
The Act requires a business that retains the services of a freelance worker to memorialize the terms of the relationship in a written contract if (i) the cost of a single project is equal to or exceeds $800, or (ii) the freelance worker has provided multiple services to the business within a 120-day period that equals or exceeds $800 in the aggregate. The contract must be provided to the freelance worker and retained by the hiring party for at least six years. The contract must include:
- The names and mailing addresses of the freelance worker and the hiring party
- An itemized accounting of the services to be performed
- The rate of pay
- The payment date
- The date by which the freelancer worker must submit to the hiring party a list of services rendered under the contract to enable the hiring party to meet any internal processing deadlines to ensure timely payment.
The Act also sets forth rules concerning pay frequency. Freelance workers must be compensated on or before the date when compensation is due under the terms of the written contract, but no later than 30 days after the completion of the freelancer’s services.
The New York State Department of Labor (DOL) stated that it will publish model contracts on its website prior to the Act taking effect, which may be used by businesses retaining the services of freelance workers.
Violations Under the Act
A business that retains the services of a freelance worker may not threaten, intimidate, discipline, harass, deny a work opportunity to, or discriminate against a freelance worker, or take any other action that “penalizes [the] freelance worker for, or is reasonably likely to deter [the] freelance worker from, exercising or attempting to exercise any right guaranteed under the Act, or from obtaining any future work opportunity because the freelance worker has done so.” In other words, the Act prohibits hiring parties from retaliating against a freelance worker for exercising their rights under the Act.
Freelance workers who believe that a hiring party has committed violations under the Act may file a complaint with the DOL. The DOL will investigate such complaints and, if appropriate, award relief, including civil and criminal penalties. Notably, the DOL can join in a single action any number of wage claims against the same hiring party.
Alternatively, a freelance worker alleging a violation of the Act may file a civil action for damages, including for non-payment or retaliation. Freelance workers must bring such lawsuits within six years of the alleged non-payment or retaliatory act.
A freelance worker who successfully proves non-payment under a contract may be entitled to the amount owed to the worker, double damages, injunctive relief, attorneys’ fees and costs and “other such remedies as may be appropriate.” A freelance worker who brings a successful claim of retaliation under the Act may be entitled to statutory damages “equal to the value of the underlying contract” for each violation of the Act’s anti-retaliation provision.
Lastly, if reasonable cause exists to believe that the hiring party has engaged in a pattern or practice of violations of the Act, the New York State Attorney General may commence a civil action on behalf of the State and seek fines of up to $25,000, injunctive relief and “any other appropriate relief.”
Employers Must Ensure Proper Classification of Workers
Regardless of the above, the Act does not permit employers to mischaracterize their workers’ employment relationship as “freelance” or as an independent contractor. Passage of the Act serves as a good reminder for employers to ensure that they are properly categorizing their workers as either employees or independent contractors. A finding that a worker is improperly classified as an independent contractor can result in expensive penalties, such as unpaid overtime and minimum wage, liquidated damages, and attorneys’ fees and costs. The U.S. Internal Revenue Service (IRS) can levy additional penalties for misclassification – including criminal charges – if the IRS suspects an employer intentionally misclassified its employees.
Accordingly, employers should take precautions that each time they hire a new worker to ensure that the worker is properly categorized as either an employee or an independent contractor. Employers should also conduct routine checks to ensure that workers hired as independent contractors have not become employees over time due to a shift in the nature of their work. Employers should also recognize that it is not a defense to a misclassification claim that a worker requested to be treated as an independent contractor.
Proper classification of workers can be confusing. Therefore, employers should seek legal assistance to confirm they are complying with all federal and state rules to avoid costly penalties.
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