An important law went into effect in New York City on May 15, 2017, regarding the retention of independent contractors or freelancers who are based in New York City.
The new law, called the “Freelance Isn’t Free Act,” gives independent contractors/freelancers a right to sue for double damages (and potentially triple damages in certain cases) if they are not provided with a written contract containing specified terms and are not paid by the date provided in the agreement or, if not stated in the agreement, within 30 days after completion of services under the contract. The law applies to any independent contractor with a mailing address in New York City if they are an individual or if they are a LLC/Corporation and there is only one person or owner of the LLC/Corporation. The law is unclear if it applies to the contractor/freelancer even if the work is not done in New York City.
The difficulty with the new law is how to determine if a contractor who’s an LLC or a corporation is just one person. An independent contractor agreement can include a statement that the contractor is only one person, but it is a question that may need to be asked during the vetting process.
The law has some requirements for the written contracts with independent contractor/consultants. The contract must be written and must include the following terms (at a minimum):
- Parties’ names and mailing addresses
- Itemization of services to be provided
- The “value of services to be provided pursuant to the contract”
- Rate and method of compensation
- Date when the “hiring party” must pay the contracted compensation or the “mechanism by which such date will be determined”
While many contracts can be drafted to include these terms, there are other terms that should be included in any contract that are not stated here. This list is the absolute minimum requirements.
But the big problems with the law are these:
The law contains very steep penalties for late payment or non-payment. Complicating matters is the lack of a “good faith defense” for the hiring party. The law does not allow a hiring party to assert a good faith defense even if there is a legitimate dispute as to whether the work was completed at all or if the work was completed unsatisfactorily. In some cases, the penalties could be as much as twice the unpaid amount or late paid amount, plus interest, attorney’s fees, and court costs. This absence of a good faith defense is potentially expensive (and, I must note, runs counter to most employment law provisions, including in New York, for employees who make a wage claim where the employer has a good faith belief that wages are not owed).
There are penalties for not having a written contract. While this is easily addressed, the penalties are for not having a written contract are modest. The killer is if the freelancer can show not only was there no written contract but also that the freelancer was not paid or paid late. There is a potential for triple damages, plus interest, attorney’s fees, and court costs.
The law prohibits retaliation against freelance workers to exercise their rights under the law. For example, you make a mistake and failed to pay a contractor on time and they sue. Under the law, you cannot deny the freelancer a “work opportunity” or “future work” even if their work was mediocre or incomplete. Under this provision, you would have to carefully document why you are not choosing that freelancer again. In addition to a lawsuit by the contractor/freelancer, the Corporation Counsel of New York City could bring an action to enforce this provision and the penalty could be as much as $25,000 to New York City, in addition to any damages that would be paid to the contractor/freelancer.
If any member is planning to hire a freelancer/contractor in New York City, or currently has an active contract with a New York City contractor or freelancer, they should contact counsel on how to proceed to ensure compliance and avoid very hefty penalties for non-compliance.
About Matt Johnston
Matt Johnston operates his own law firm in Frederick with a focus on small business counseling, copyright and trademark law, and dispute resolution. Many of Matt’s clients are in the creative industries whose concerns overlap Matt’s practice areas. Matt focuses on providing practical legal advice to prevent legal questions from becoming legal problems. Matt has been described as an approachable lawyer and is always willing to listen and address client concerns tailored to the client’s way of doing business.
DISCLAIMER - The preceding article is intended for educational and informational purposes only. The article should not be construed as legal advice applicable in all situations. No attorney-client relationship is created through this article. If you need confidential legal advice, Matt is available for confidential and privileged consultations by calling 240-351-9944 or emailing firstname.lastname@example.org.