United States: New York City's New Rules Governing Freelance Agreements; Preparing For New York State's Paid Family Leave Program

The Freelance Isn't Free Act

The landscape has changed for freelancers and their employers in New York City. As of May 15, 2017, the Freelance Isn't Free Act ("FIFA") is effective, and governs the relationship between freelancers and employers in New York City. Accordingly, both freelancers and the businesses that use freelancers would be well advised to ensure that their current policies are compliant with FIFA.

Who is Covered by FIFA?

FIFA applies to both freelancers and employers who hire freelancers in New York City. Principally, FIFA requires the hiring party and the freelancer to enter into a written contract if the value of the services provided is $800 or more over a period of 120 days. Put differently, if an employer hires a freelancer for multiple projects over a 120-day period, and the value of those projects is over $800, each agreement must be in writing.

Under FIFA, a freelance employee is defined as a natural person or organization comprised of no more than one person who is retained as an independent contractor to perform services for compensation. Salespersons, practicing lawyers and licensed medical professionals working as independent contractors, are excluded from FIFA's definition of a freelance employee. Further, freelancers hired by federal, state, local or foreign governments are also not covered by FIFA.

What Qualifies as a Written Contract?

Preliminarily, a draft model contract provided by New York City can be found here. Otherwise, FIFA sets out a few basic requirements for written contracts between employers and freelance employees. The requirements include: (1) the name and mailing address of the hiring party and freelancer; (2) an itemization of services to be provided by the freelancer; (3) the value of the services to be provided pursuant to the agreement along with the rate and method of compensation; and (4) the date on which either payment will be made or the mechanism by which the date of payment will be determined. Note that both the employer and the freelancer must retain a copy of the written agreement.

Rights Under the Written Agreement

FIFA prohibits employers from failing to pay freelances by the date specified in the written agreement. If the agreement does not specify a date for payment, then the employer must make payment within 30 days of completion of the agreement. Further, once the freelancer has begun performing under the agreement, an employer is prohibited from conditioning timely payment under the agreement on the freelancer accepting a lesser amount than that specified in the contract. In addition, FIFA prohibits employers from retaliating against freelancers who exercise their rights under FIFA.

FIFA Does Not Govern Who Is and Who Is Not an Independent Contractor

Whether a particular individual is properly characterized as an employee or an independent contractor is not governed by FIFA but rather by the Federal Labor Standards Act ("FSLA") and the New York Labor Law §§190 et seq. In other words, if a person should be deemed an employee under either of those statutes, then complying with FIFA would not legitimize the individual's status as an independent contractor. Accordingly, the initial analysis with regard to compliance with FIFA would first be to determine whether the individual is in fact properly an independent contractor under the FLSA and NY Labor Law.

Penalties for Violating FIFA

Failure to comply with FIFA can subject employers to a host of damages. These damages can range from $250 (for failure to enter into a written agreement), to double damages (for failure to pay the agreement on the date payment is due), to the value of the contract (for failing to enter into a written agreement and otherwise violating FIFA). In addition, employers are prohibited from retaliating against freelancers, and are liable for the value of the contract for each retaliation violation. Note also that under any of the above circumstances, a freelancer bringing a claim under FIFA is also entitled to attorneys' fees and costs.

Further, the New York City Corporation Counsel is empowered to bring civil actions against businesses that violate FIFA on multiple occasions. In such cases, the City may seek statutory damages up to $25,000, along with injunctive and other relief.

Additional Considerations

Generally speaking, FIFA only covers freelance workers performing services in New York City. However, the New York City Consumer Affairs Office has indicated that FIFA may also apply where: freelance workers perform some of the work in New York City; the freelance worker is hired or retained in New York City, or the employer has "significant operations" in New York City, among other factors.

The New York State Paid Family Leave Program

As you may know, as of January 1, 2018, all New York employers must provide a paid family leave insurance policy to all employees. This requirement applies even if you only have a single employee who is covered by the New York State Paid Family Leave Program ("PFLP"). Further, the family leave policy is funded through employee contributions, and employees are not allowed to opt out of making such payments.

Importantly, while the PFLP does not formally take effect until January 1, 2018, the payroll deductions required to fund PFLP-compliant policies go into effect July 1, 2017.

Accordingly, employers should: (1) reach out to their disability insurance carriers immediately to secure a quote for a PFLP-compliant policy; and (2) contact their payroll service to ensure that timely and accurate employee deductions are in place as of July 1, 2017. All disability insurance carriers doing business in New York must carry PFLP policies, and the PFLP deduction can be made in conjunction with an employer's existing disability coverage deductions.

In addition, employers should be aware of the following details concerning the PFLP and its implementation:

  1. Employees are eligible for coverage under the PFLP after 26 weeks of full-time employment or 175 days of part-time employment;
  2. In January 2018, the benefit provided under the PFLP is equal to 50% of an employee's average weekly wages, and it will incrementally increase to 67% by 2021;
  3. In January 2018, the benefit must be provided for 8 weeks, and the benefit term will be increased to 12 weeks by 2021; and
  4. PFLP policies cover family care, child birth, adoption and fostering, and active military duty.

In the meantime, employers should take steps to ensure that their employment manuals are up-to-date and comply with the PFLP's requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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