Hiring an Independent Contractor in New York City? Make Sure to Comply with New Legal Obligations
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Effective May 15, 2017, the New York City “Freelance Isn’t Free Act” will apply to those individuals and corporate entities that retain the services of third parties on a “freelance” (i.e., independent contractor) basis in New York City. Under the new law, if the freelancer’s services have a value of $800 or more (either on a one-time basis or in in total over a period of up to 120 days), then:
- Written Contract.
The arrangement must be documented in writing, and the written agreement must include:
- The names and addresses of both parties
- Details regarding the services to be provided by the freelancer
- The value of the services to be provided, and the rate and method of computing the compensation, and
- The date on which the compensation will be paid, or the manner in which such date will be established.
The freelancer must be paid on or before the agreed upon date, as set forth in the written contract between the parties. If that date is not specified (in violation of the law’s requirement), then the freelancer may be entitled to damages as set forth below, and the Company must in any event pay the freelancer within 30 days of the freelancer’s completion of the relevant services.
Under the new law, a freelancer has two years from the time of a violation to file a complaint with the NYC Office of Labor Standards, and six years to file a claim in court for being subjected to unlawful payment practices and/or retaliation for filing an administrative or court claim. Explicitly excluded from the law’s obligations are freelance arrangements made with commissioned salespeople, lawyers engaged in the practice of law, and licensed medical professionals.
A company that fails to comply with the law’s requirements may be required to pay:
- a fine of $250 for failing to have a properly written agreement
- damages equal to the value of the underlying service arrangement
- double damages, attorneys’ fees and costs, and
- a civil penalty of up to $25,000, if the Company is found to have engaged in a pattern or practice of violations
The “Freelance Isn’t Free Act” does not apply retroactively, meaning that any agreements entered into prior to May 15, 2017 need not be revised. However, any agreements entered into as of May 15, 2017, must comply with the written agreement and payment requirements of the new law.
The obligations imposed by the law are far from burdensome. In contrast, the penalties for failure to comply with the law could be substantial. Companies engaging third parties on an independent contractor basis would benefit in any case from acting in accordance with the law, so that the arrangement between the parties is clear and there are no misunderstandings regarding the services to be provided or the payment terms.
For further information regarding the new law’s requirements, and obligations when hiring independent contractors in New York City and other locations, contact Meira Ferziger or Andrea Bernstein. For a review of the factors to consider when classifying individuals as independent contractors, as opposed to employees, see Are “Your “Independent Contractors” Really “Employees”?.