As the controversy over the use of independent contractor classification increases, contingent workforce managers must now contend with new legislation from states as well as cities when sourcing talent.
New York recently became the second state behind Illinois to enact a law providing protections for freelance workers to ensure they are treated fairly and compensated in a timely manner — although the Empire State’s law goes into effect first.
The requirements of the Freelance Isn’t Free Act, which goes into effect on May 20, will be familiar to businesses operating in New York City, which passed a similar law (Local Law 140 of 2016) in 2017. That law provided a blueprint for other cities — including Seattle, Los Angeles and Minneapolis — but it has taken a while for the states to catch up.
Freelance Isn’t Free Act
Definitions. The New York state law defines a “freelance worker” as any individual hired as an independent contractor to provide services for compensation. The individual may perform the work under a corporate or trade name, or under their own individual legal name. A “hiring party” will be any person — including individuals or companies but excluding federal, state and local governments — who retains a freelance worker to provide any service. Attorneys, licensed medical professionals, certain sales representatives and construction contractors (as defined under the act) are not considered freelance workers for the purposes of the act.
Requirements. The law requires a business that retains the services of a freelance worker to put the terms of the relationship in a written contract if the value of the services amounts to $800 or more. The $800 threshold requirement can be met by either a single contract for services or the aggregate of all contracts between the hiring party and the freelance worker in the preceding 120 days. The contract must be provided to the freelance worker and retained by the hiring party for at least six years. The New York State Department of Labor intends to publish model contracts which may be used by businesses retaining the services of freelance workers.
The hiring party is also required to make payment of compensation to freelance workers on or before the date specified in the contract, or no later than 30 days after the completion of the freelance worker’s services.
Enforcement. The law will be enforced through civil actions brought by aggrieved freelancers or through administrative actions brought by the New York State Department of Labor.
Although Illinois passed its law in August 2023, the Freelance Worker Protection Act will not take effect until July 1 and applies only to contracts taking effect after that date. The provisions are very similar to New York’s except that the compensation threshold for the requirement of a written contract is $500.
In the laws of both states, contracting entities are prohibited from engaging in any discriminatory, retaliatory or harassing behavior toward contracted freelance workers.
For untimely payments, freelance workers in both New York state and Illinois are entitled to recover double the amount of any underpayment, injunctive relief, costs of suit, and all reasonable attorneys’ fees.
Trendsetters
As is often the case with employment-related laws, where one state legislates, others follow. Kansas (HB2399) and Missouri (HB1331) have introduced similar freelance worker protection bills in the last year, though neither has passed.
As the trend for engaging independent contractors shows no signs of abating, this indicates a different approach to states’ attempts to curtail the use of independent contractors. Challenging the employment status of independent contractors under federal and state laws is a notoriously uncertain and costly practice with separate rules and standards for the purposes of wage and hour, workers’ compensation, unemployment insurance and taxation under Internal Revenue Service rules. Meanwhile, the US Department of Labor’s long-anticipated final rule revising the standard for determining whether a worker is an employee or independent contractor under the Fair Labor Standards Act has just gone into effect. Business groups have argued the new rule only adds confusion and will result in workers improperly designated as employees when they instead are operating as independent contractors.
As a result, we may see more states permitting the use of legitimate independent contractors but imposing certain safeguards to ensure the IC relationship is documented and implemented fairly.
