Freelancers to Enjoy Fee Payment Protections in New York City, But Bill Passed by City Council Has Major Defects

Reprinted with permission from the November 3, 2016 edition of the New York Law Journal, article entitled “Defects in NYC’s Freelance Bill.” ©2016 ALM Media Properties, LLC.  All rights reserved. Further duplication without permission is prohibited. For information, contact ALMReprints.com, 877.257.3382 or reprints@alm.com.

On October 27, 2016, the New York City Council passed a bill, commonly referred to as the Freelance Isn’t Free Act (No. 1017-2015), which is likely to be signed by the Mayor shortly. It seeks to ensure that independent contractors providing services as individuals are offered a written contract and are paid on a timely basis. While there are laudable purposes for the bill, it regrettably has serious defects. The Mayor should send it back to the City Council to cure its flaws, which would otherwise lead to adverse consequences to both independent contractors and those companies to whom they provide services.

The Main Features of the Bill and Its Principal Defects

Who is covered?

The Freelance Isn’t Free 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.” See Section 20-927 of the Administrative Code of the City of New York.

While some independent contractors hold themselves out as individuals, many individuals operating as limited liability companies (LLCs) or under trade names do not disclose that they are actually only single-individual operations. Without a requirement that the freelancer disclose that he/she is a one-person operation, many companies that retain the services of such individual freelancers operating as LLCs or under trade names may have no idea they are or may be covered by this bill, should it become law. The bill should have required that an individual is only a “freelance worker” under this law if he/she makes this disclosure.

Another defect is that the bill does not make clear if a freelance worker who has one or more employees or helpers, or uses subcontractors, is considered an “organization of no more than one natural person.”

There is no language in the bill as to whether it covers freelance workers who reside in New York City but provide or deliver services to a service recipient outside the City; whether it covers work performed in New York City by a contractor using a business or mailing address outside of the City; or if it covers contracts where the only connection to the City is that the services are used or deployed in New York City in whole or in part.

What must the contract provide?

The bill covers any contract between freelance workers and a non-governmental “hiring party” that has a value of $800 or more, by itself or when aggregated with all contracts between the parties over the prior 120 days. The bill requires the parties’ contract to be “reduced to writing” and the “written contract” to include:

  • the parties’ names and mailing addresses,
  • an itemization of services to be provided,
  • the “value of services to be provided,”
  • the rate and method of compensation, and
  • the date when the “hiring party” must pay the contracted compensation or the “mechanism by which such date will be determined.”

See Section 20-928. Frequently, such terms are negotiated these days in a series of emails or other electronic communications that can collectively constitute a legally binding contract. Another defect is that there is no clarity in the bill whether a collection of such electronic communications will suffice as a “written contract.”

What are the payment obligations?

The bill provides that the contracted compensation shall be paid to the freelance worker either by the date such payment is due under the terms of the contract or, “if the contract does not specify when the hiring party must pay the contracted compensation or the mechanism by which such date will be determined,” no later than 30 days after completion of the freelance worker’s services under the contract, “[e]xcept as otherwise provided by law.” See Section 20-929.a. It is not uncommon, however, that questions arise as to when a service provider’s services are “complete.”

That type of question can be averted if the bill provided that there is no violation of the law unless and until the freelance worker (a) notifies the “hiring party” that the contracted services have been completed, and (b) submits a final invoice for work. If these commercially common requirements were in the bill, there would likely be far fewer questions about whether and when payment is due.

What are the penalties for non-payment, partial payment, or late payment?

The bill affords a freelance worker the right to bring a civil action in court “for damages” if he/she is not paid the full amount due under the contract or not paid such amount in the time required under the law, if enacted. See Section 20-933.a. If the freelancer prevails, he/she shall not only be awarded damages but also reasonable attorney’s fees and costs. See Section 20-933.b.1.

In addition, under the bill, a freelance worker who prevails on a claim for late payment or non-payment “is entitled to an award of double damages, injunctive relief and other such remedies as may be appropriate.” See Section 20-933.b.3. (emphasis added).  This bill does not provide any defense to double damages, in contrast to the New York Labor Law that covers employees (but not freelance workers). Under Section 198.1-a. of the Labor Law, a good faith belief that payment was not due negates any right to double damages for employees under the Labor Law. The failure to include a good faith defense to double damages in this bill is a serious oversight.

What are the penalties for failure to enter into a “written contract” upon request?

If the “hiring party” fails to enter into a “written contract,” the bill imposes a modest amount of “statutory damages” – a mere $250. See Section 20-933.b.2(a).  A freelance worker can only prevail on that claim, though, if he/she “requested a written contract before the work began.” See Section 20-933.a.5.

The bill, however, seems to include a potentially crushing amount of statutory damages if the independent contractor can prove that he/she did not receive a written contract upon request and he/she was not paid the fees earned on a timely basis. Under Section 20-933.b.2(b), a freelance worker “shall be awarded statutory damages equal to the value of the underlying contract” for the failure to provide a written contract “in addition to the remedies specified in the [law]” for a late, partial, or non-payment of fees. Thus, as drafted, an argument might be made in such circumstances that the freelancer is entitled to up to three times the value of the contract if no contract was provided upon request and no fees had been paid, even if there was a good faith dispute over whether payment was due.  The drafting of the bill is, regrettably, less than clear on this point and, as a result, needless litigation will likely ensue.

Are there any other penalties in the bill? 

The bill also includes a provision prohibiting retaliation against a freelance worker exercising his/her rights under this law including denying a freelancer “a work opportunity” or “future work.” See Section 20-930.  Statutory damages for such retaliation shall be “equal to the value of the underlying contract for each violation arising under this [law].” See Section 20-933.b.4. If a “hiring party” chooses not to engage a particular independent contractor another time because of a legitimate dispute over whether the services were satisfactorily performed, that business may arguably be subject to a sizeable award against it. The bill should have included a  good faith defense to a retaliation claim as well.

Conclusion – An Opportunity for the Mayor to Cure the Defects

The defects in this bill noted above can be cured if Mayor Bill de Blasio sends the bill back to the City Council for needed repairs, especially the inclusion of a good faith defense, a requirement for a freelance worker to present an invoice or demand to the “hiring party” before commencing a lawsuit, and a clarification of the jurisdictional scope of the law and the definition of a “freelance worker.”

If instead the Mayor signs the bill in the form passed by the City Council on October 27, at least three undesirable consequences will result: (1) independent contractors will have fewer work opportunities because many companies will be understandably reluctant to retain freelancers with New York City mailing addresses; (2) businesses, especially those operating in New York, that use independent contractors will be plagued by lawsuits from freelancers seeking a windfall from double damage awards, even where there is a legitimate dispute as to whether the work met the contract specifications; and (3) courts, already over-burdened, will become inundated with lawsuits, many of which would never be brought if the bill was carefully drafted to promote payment protections for freelancers without prompting needless lawsuits.

Written by Richard Reibstein

 

Published by Richard Reibstein, Lisa Petkun and Andrew Rudolph.

 

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