Freelancing Isn’t Free: What Businesses & Freelancers Need To Know

With more people freelancing than ever before, New York City enacted into law enhanced legal protections for freelancers through the Freelance Isn't Free Act.

On May 15, 2017, Local Law 140 of 2016 – the Freelance Isn’t Free Act (FIFA) – went into effect giving freelancers in NYC a number of important protections. FIFA is designed to protect freelancers from clients who might want to take advantage of their skills and either not pay them, or pay them late, thereby potentially putting freelancers in financial difficulties.

Who is protected under the Freelance Isn't Free Act?

In order to benefit from the protections of FIFA in any particular working arrangement, a freelancer’s arrangement with a client needs to fit all the following criteria:

• The freelancer must be paid 1099 taxable income– so not paid as an employee;

• The freelancer must be providing services $800 or more in value (and all services provided by the freelancer to the same client in the past 120 days are added together to determine if this threshold has been met);

• The freelancer is a sole proprietor whose business is either unincorporated (e.g. a sole proprietorship) or is incorporated or organized as an LLC, S-Corp, or C-Corp;

• The freelancer has no employees.

What Protections Does FIFA Provide?

• Mandatory Written Contracts: A client must have a written contract with a freelancer if all the criteria listed above are met. At a minimum, the written contract must include: (i) the name and mailing address of both the client and the freelancer; (ii) an itemization of all services to be provided by the freelancer, (iii) the value of the services to be provided, (iv) the rate and method of compensation, and (v) the date on which the client must pay the contracted compensation or the mechanism by which such date will be determined.

• Mandatory 30-day payment terms. Even if the contract doesn't stipulate the payment date(s), a freelancer must be paid within 30 days of completing the services set out in the contract.

• Payment Protection: Clients cannot ask freelancers to reduce the amount on an invoice in order to receive payment on time from a client.

• Anti-Retaliation Rule. It is a violation of FIFA for a client business to threaten, intimidate, discipline, harass, deny a work opportunity to or discriminate against a freelancer, or take any other action that penalizes a freelancer for exercising any of the freelancer’s rights under this law (for instance, if a freelancer files an official complaint because of a failure by a client to pay for services).

• Government Support. An NYC-government agency - the NYC Department of Consumer and Worker Protection (the DCWP) - is empowered to investigate in the event of late payments by clients, and may try and collect those payments on behalf of a freelancer. The agency can also provide assistance to freelancers in navigating proceedings through the courts.

Under the new law, what can happen in the event of non or late payment?

If a payment is late, not paid, or a client is consistently late in making payments, a freelancer can submit an official complaint form to the DCWP. The form costs nothing to submit and you don’t need an attorney to do so.

Upon submission of the complaint form, the Office of Labor Policy and Standards (OLPS) will investigate and follow up with both the freelancer and the client. If required, the OLPS will send a Notice of Complaint to the client, giving them 20 days to respond in full, in which response the client can explain why a payment is late, respond to any other complaints in the complaint form, or even provide proof that the freelancer has been paid.

If no sufficient response is provided, further action can be taken and the DCWP can assist the freelancer through its Navigation Program, which provides general court information, including lawyer referral resources, information about court forms and court services and other information to help the freelancer file a civil action. A client’s failure to respond creates a presumption of non-payment in a subsequent legal action by the freelancer.

In addition, if the OLPS believes that a client has likely engaged in a pattern of non-payment of freelancers, the City of New York itself can file a lawsuit against the client for violations of FIFA.

Under FIFA, if a payment dispute covered by the law goes to court and a judge rules in the freelancer’s favor, the client can face the following sanctions on top of what’s normally awardable:

•   Double Damages: if a client fails to pay fully and on time, a freelancer who goes to court and wins is entitled to double damages; 

•   Attorneys Fees: if a freelancer wins in court, the client has to, within certain standard NY court limits, pay for the freelancer’s legal fees ; 

•   Statutory Fine: if a freelancer wins in court and the client hadn’t complied with the mandatory written contract requirements, the client may be required to pay the freelancer $250 on top of any other damages; 

•   Fines for Pattern or Practice of Violations: if the freelancer or the City of New York files an action and the judge determines the client has engaged in a pattern or actual practice of violating this law, the judge can, on top of everything else, require the client to pay a fine of up to $25,000 to the City on top of any damages awarded to the freelancer.. 

Who isn't protected under FIFA?

• If you are working for a client as an employee (part-time or full-time) instead of as a contractor;

• If you, as a contractor, are doing that through a business with employees, not just you alone;

• Lawyers, licensed medical professionals or freelance sales consultants;

• Someone providing services to the federal, New York State or New York City governments.

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