Freelancing Isn’t Free: It Could Cost You a Lot (in Damages)

New York City’s local “Freelancing isn’t Free” Act (the “Act”) just took effect this year on May 15, 2017. You can find a copy of the full Act here. The Act is designed to protect theyes! interests of freelance workers in the NYC market, and for certain qualifying freelancers and projects, it requires that the scope of work be reduced to a written contract. The Act also requires payment in full and on time, and creates significant statutory penalties on the hiring party for failure to do so. The Act is the first of its kind and is a progressive step forward in helping protect the rights of NYC’s freelance community.

Here is a (hopefully) user-friendly breakdown of the Act, including who it applies to and the protections it provides.

Who Does the Act Apply To?

To begin, let’s look at two important definitions to figure out who the Act applies to.

Freelance Worker

“Freelance worker” is defined as either: (i) a natural person, or (ii) an organization (whether incorporated or not) that is made up of no more than one natural person. So right off the bat, the Act only applies a solo freelancer, and does not apply to you if you have one or more business partners. For all of you design companies or services providers that have two or more principals (i.e.members/partners/shareholders), the Act is not for you. The following are also excluded from the definition of “freelance worker” (a) sales representatives (as defined in Section 191-A of the New York Labor Laws); (b) lawyers; and (c) medical professionals.

Hiring Party

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The next important definition is “hiring party”, which is “any person who retains a freelance worker to provide any service”, except that the following are not hiring parties: (i) the U.S. government; (ii) the State of New York; (iii) the City of New York; (iv) any other local government, municipality, or county; or (v) any foreign government. In essence, a “hiring party” is any individual or entity that is not the government.

What Does the Act Require?

The act requires a written contract (Lionel Hutz, Springfield’s most refined attorney breaking it down for ya) between the freelance worker and the hiring party if: (i) a hiring party retains the services of a freelance worker, and (ii) the value of that contract is $800 or more (and you must aggregate the value of all work that freelancer performed for that hiring party from the immediately preceding 120 days). The contract must contain the following terms, though it may (and probably should) contain more:

 The name and address of both the hiring party and the freelancer;

 Itemization and value of the services to be performed, including rate and method of compensation; and

 Date by which hiring party will pay the freelancer, or the mechanism to determine such date (e.g. payment is triggered by final delivery of the work product).

The Act directs that each party retain a copy of the contract. Therefore, if you are a freelancer worker and you are not provided a contract, request one—and make sure the request is in writing (email is okay). If there are any disputes over the contract you may need to prove that you requested a copy because if you are the freelance worker and do not request a contract, you may give up certain rights to damages (discussed under “Damages” below). The New York City Department of Consumer Affairs (the “Department”) has provided a model contract on its website here. The model contract is a decent starting place, though be advised that the more complex and more expensive the project becomes, the more likely you should consult an experienced attorney to make sure your interests and rights are protected.

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Payment

One of the key components of the Act is ensuring that freelancers are paid—in full—for their work. Thus, pursuant to the Act, the contract shall be paid either: (i) on or before the due date provided, or (ii) if there is no due date provided, within 30 days after completion of the freelancer’s services. Failure to pay in full and on time can lead to significant damages against the hiring party, which will be discussed under “Damages” below.

Disputes

The Act provides the director of the Department with jurisdiction to resolve disputes involving contracts governed by the Act. Section 20-931 of the Act sets forth certain procedures regarding the dispute resolution process. The procedure is called the navigation program and it is not reviewed in-depth in this article. However, a few important things merit a bullet point:

 First of all, if a dispute arises, you are not required to file a complaint solely with the Department. Nothing within the Act prevents the freelancer or the hiring party from heading straight to the state or federal courts to file a lawsuit over the contract (subject, of course, to applicable jurisdiction qualifications).

 The statute of limitations (i.e. the time-period) to file a complaint with the Department for a violation of the Act is two years from the time the cause of action accrued.

 The statute of limitations to file a lawsuit in the state or federal courts of New York is not impaired by the Act, and in New York the statute of limitations for claims based on contracts is six years (you can review a statute of limitations chart here).

 However, for an action alleging violation of Section 20-928 of the Act (requiring the contract to be in writing) the Act creates a two-year statute of limitations.

The Department has provided a form complaint to file with the Department here, information about initiating a complaint and the process here, and other information on the Department’s site generally, which can be found here.

Damages and Fees

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Section 20-933b is where the Act shows it teeth and offers protections for the freelance worker. In other words, this section sets forth the statutory damages of the Act. And as you will see below, the Act paves the way for potential significant recovery.

Failure to Provide a Contract

If a party prevails on a claim alleging that it was not provided with a contract, the party “shall be awarded statutory damages of $250” as a violation of Section 20-928. If a party prevails on a Section 20-928 claim that it was not provided a contract, and prevails on one or more other claims under the Act, the party shall be awarded statutory damages equal to the value of the underlying contract for the violation of Section 20-928, and any other damages for other violations of the Act.

Failure to Pay Freelancer on Time

If a party prevails on a claim alleging that it was not paid on time (as set out in Section 20-929), the party is entitled to an award of double damages, injunctive relief, and any other remedies afforded by law.

Retaliation

Section 20-930 of the Act prohibits retaliation against the freelance worker. This includes, but is not limited to, actions by the hiring party that “threaten, intimidate, discipline, harass, deny a work opportunity to or discriminate against a freelance worker” or otherwise taking action to deter the freelancer. If a freelancer prevails on a claim for violation of this, the damages are the value of the underlying contract for each violation.

Attorneys’ Fees and Costs

If the foregoing weren’t enough, the cherry on top is that a plaintiff that prevails on a claim for violation of the Act shall be awarded attorneys’ fees and costs. This is a big provision of the Act because typically, recovery of attorneys’ fees follows the “American Rule”, which just means both sides pay their own way.

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The intent here is to help freelance workers gain access to competent representation from an attorney as this helps lower the cost-bar to litigating.

Hiring Parties: Consider On-time Payment Even if Quality of Work is Low.

One thing to watch out for is that the Act is not clear about what to do if there is a dispute over the performance or quality of the work, and the Act does not provide an express mechanism to resolve such dispute. Given that the Act mandates payment (and tacks on significant potential damages for failure to), a hiring party may be well advised to make the contractual payment—even if there is a dispute as to the services provided—and then seek redress after the fact.

 Pro-tip: if you are the hiring party, set clear, detailed benchmarks regarding the quality, performance, expectation, and/or timing for the deliverable, and try to clearly define when those benchmarks are, or are not, met. The more detailed you can be, the clearer it will be if the deliverable complies with the contract or not.

Summary

Wrapping it all together, the Act is a great step forward toward protecting freelancers and their rights, and it will be interesting to see how the Act is interpreted as complaints are filed with the Department and/or filed in state or federal courts. However, just because the Act exists does not mean that your work is done. While the protections afforded by the Act are nice, they should be viewed as a supplement—and not a replacement—to competent legal advice.

______________________
About the Author
Brian C. Bohm is a startup and small business attorney with Moisan Legal P.C., and is based in NYC. Brian can be reached at bcb@moisanlegal.com or (646) 741-5222. Moisan Legal P.C. is happy to discuss your project (both freelancers and hiring parties) and help construct a contract that is protective of your rights and interests.

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