Freelance Isn’t Free: The Potential Business Consequences of New York City’s Newest Independent Contractor Law

New York City’s newest independent contractor law could have an enormous impact on businesses that use ICs. On November 16, 2016, Mayor de Blasio officially signed the Freelance Isn’t Free Act, and the law could have serious consequences for businesses that use ICs in New York City.

The Freelance Isn’t Free Act

Under the new Freelance Isn’t Free Act, any independent contractor has the right to sue for double damages, provided that:

  • they are not paid by the date indicated in the contract, or
  • they are not paid within 30 days of completion of contract services; AND
  • they are not given a written contract with specified terms.

Further provisions of the law indicate:

  • The law covers any single contract valued at $800 or more.
  • The law covers any accumulation of contracts that cover $800 or more over 120 days.
  • The law requires all contracts to include both parties’ names and addresses, itemization of services, value of services, rate and method of compensation, and date of payment or how the date of payment will be determined.
  • Under the law, if an IC prevails in court, the IC is entitled to damages, double damages, AND reasonable attorney’s fees and costs.
  • The law imposes a $250 statutory damages fee if a business fails to enter a written contract as requested by the IC.

There are additional provisions under this law that can be read in detail here. The Freelance Isn’t Free Act will apply to all freelance contracts that begin on or after May 15, 2017.

Important Takeaways for Businesses

Businesses who have some connection to New York City or who work with independent contractors who are connected to New York City could be affected by the Freelance Isn’t Free Act. These businesses should carefully consider the following important takeaways from this new legal development:

  • Freelance workers, as defined by this law, include single-person operations. Some businesses may not even be aware that some of their ICs are single entities.
  • The law does not require ICs to submit a final invoice before claiming non-payment, which means that both parties may not be in agreement on when the services were completed.
  • The law disregards the issue of failure to pay for services that were not completed as agreed or services that were not completed in a timely manner. It also does not account for situations in which there is a legitimate reason payment is not due.
  • No “good faith” defense measure is included in the provision for double damages.
  • The law prohibits any retaliation against ICs for exercising lawful rights, including refusal to engage in services because of a belief that previously rendered services were not satisfactory.

Conceivably, under the Freelance Isn’t Free Act, the costs for your business could be quite a large sum if your IC were to prevail in a claim. However, this does not mean that you must abandon the use of independent contractors or only select ICs who have a mailing address outside of NYC.

Taking Precautions

With this new law, businesses can continue to work with independent contractors in New York City, provided that business owners are familiar with the details of the law and carefully comply. To protect themselves, companies should clearly specify in written documentation the key terms of all their agreements with independent contractors, including proper names, mailing addresses, detailed itemization of services, the amount payable, method of payment, completion date, and payment date (or how the completion and payment dates will be determined).

As an extra protection, businesses should also include in their contracts:

  • a requirement that contractors submit a formal final invoice in order to receive payment;
  • a clause stating when payment will be made after receiving the invoice (such as “within 60 days”);
  • a requirement for contractors to indicate whether they operate as a sole enterprise or have additional employees, partners, or helpers;
  • notification that no payment will be made if the contractor has not satisfactorily or fully performed all services in the contract; and
  • a notice that neither party is obligated to continue the business relationship in any fashion after completion of the current engagement.

In addition to all these contractual terms, businesses should also take special care to structure and implement their IC relationships in full compliance with all federal, state, and city laws. Doing so will guard against many potential issues related to independent contractors and employee misclassification.

Consultech preferred IC consultants can help your business draft legally compliant IC contracts and produce all necessary documentation. We can also help you structure a practical and sustainable compliant business relationship to ensure that you are not caught on the wrong side of the Freelance Isn’t Free Act or any other law. Our experts have 30 years of experience helping businesses who use independent contractors forestall claims. We are also prepared to legally represent you, should you find yourself in need of assistance with an independent contractor claim.

Call: (800) 769-2994

Email: pgapp@consel.com

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