On November 16, 2016, Mayor de Blasio of New York City signed into law the Freelance Isn’t Free Act (the “Act”). The Act is important legislation and has far reaching implications for anyone who uses freelancers in New York City. Freelancers are independent contractors under the Act.
The Act gives freelancers the right to sue for double damages if the hiring party does not give them (i) a written agreement that contains certain required provisions; and (ii) they are not paid by the date stated in the agreement. If no payment date is stated in the agreement, then the freelancer must be paid within thirty (30) days after they complete the services.
If you use freelancers who live or work in New York City, the Act applies to you, even if you are headquartered outside of New York.
Who is covered by the Act?
The Act defines a “freelance worker” as any single person who is hired as an independent contractor to provide services for compensation. A freelancer is only a single person. This is true even if the freelancer does business as a limited liability corporation (“LLC”). The LLC must be a single member LLC. If it has more than one member, it is not a freelancer under the Act. There are three exclusions from the Act: sales representatives, lawyers and medical professionals.
What provisions must the contract include?
The Act covers any contract between a freelancer and a hiring party that has a value of $800 or more. If the Act applies then it requires that the contract must be in writing. The contract must include the following provisions:
1. the names and mailing addresses of the parties;
2 a list of services to be provided;
3. the “value of services to be provided;”
4. the rate and method of compensation; and
5. the date when the “hiring party” must pay the compensation or the “mechanism by which such date will be determined.”
It is common in the freelance community that the understanding between the hiring party and the freelancer is documented by emails or oral statements.
In view of the requirements of the Act, email “agreements” should no longer be used. Formal independent contractor agreements that comply with the Act must be used. The City will be posting free examples of agreements that comply with the Act.
What are the payment obligations under the Act?
The Act provides that compensation shall be paid to the freelancer on the date payment is due under the contract. Payment must be made no later than 30 days after completion of the freelancer’s services under the contract if the contract is silent on a payment date.
Disputes frequently arise as to when the freelancers services are deemed to be complete. The freelancer may think that the services are complete and that the specifications in the agreement have been met. The hiring party may think that the services did not meet the specifications or were delivered late. Sometimes the late delivery will harm the hiring party.
All independent contractor agreements must clearly define when services are deemed to be “complete.” If there are quality specifications and delivery requirements, they should be clearly spelled out in the agreement.
The Act does not include a provison that the hiring party can refuse payment or offer partial payment if the worker has not satisfactorily performed all of the services under the agreement.
No intimidation of freelancers
The Act also provides that, once a freelancer has commenced performance under the contract, “the hiring party shall not require as a condition of timely payment that the freelance worker accept less compensation than the amount of the contracted compensation.” Put simply, this means that the hiring party cannot intimidate the freelancer into accepting less money to receive any money at all under the agreement. Hiring parties may not harass or discriminate against freelancers.
Freelancers have the right to file complaints under the Act against hiring parties. There are procedural sections in the Act which describe the process to be followed.
What are the penalties for non-payment, partial payment, or late payment by the hiring party?
The Act allows a freelancer to bring a civil action for damages if he or she is not paid the full amount due under the contract or is not paid in the time required under the Act. If the freelancer wins, he or she will be awarded damages and reasonable attorney’s fees and costs.
If the freelancer wins, then he or she is entitled to receive twice what they are owed. This is true even if there is a legitimate dispute as to whether the services where completed on time, in a satisfactory manner or even at all.
What happens if no written agreement is provided upon request?
If the hiring party fails to enter into a written agreement upon request and that meets the requirements of the Act, the freelancer is entitled to receive statuatory damages in the amount of $250.
Some problems with the Act
Even though the Act was written to protect freelancers from abuse, it has problems. The most important is that the contractor may be awarded double damages for failure of the hiring party to pay for services on a timely basis even if there is a good faith belief that the services were not performed in a satisfactory manner or if the agreement is breached by the freelancer. It appears that the hiring party does not have a defense to the double damage penalty even if he can prove a good faith reason that he was not obligated to pay the money in question.
What should you do if you hire freelancers in New York?
Here are the key things that you need to know:
1. You must understand and comply with the Act. The Act was written to protect freelancers and contains penalties that you must pay if you violate the Act.
2. You must have a written independent contractor agreement. It must have the five items required by the Act.
3. You should pay the freelancer the compensation that is due under the agreement when it is due. It is a good practice for the agreement to provide that the freelancer must provide the hiring party with an invoice when it has completed the services. This will clarify when the obligation to pay is triggered. The contract should provide that the hiring party must pay the invoice within a certain number of days, such as 30 or 45 days.
4. To protect the hiring party, the contract should provide that the hiring party is not required to pay the freelancer until he or she has fully performed the services required under the agreement, and the hiring party has actually accepted the services. There should be a procedure whereby the hiring party can reject the services and the freelancer must resubmit the services until they conform to the contract.
5. Hiring parties may be subjected to double damages (as well as statuatory damages, civil penalties and attorney fees) if they violate the Act.
Resources
Here is the link to the Act:
Commentaries on the Act: