Updated March 18, 2024

The nation continues to move to less-traditional employment relationships. As a consequence, the importance and impact of freelance workers (i.e., “independent contractors” or those compensated on an IRS 1099 Form) should not be understated. More and more individuals are breaking away from the traditional employer-employee model, and legislatures throughout the nation have been attempting to adapt to these ever-evolving work arrangements. The State of New York has followed, enacting the Freelance Isn’t Free Act (A.6040/S.5026) ("FIFA"), codified under the New York State General Business Law. While New York City has had a similar law in effect since 2017 (NYC’s Freelance Isn't Free Act), New York State’s version is broader in scope and aims to protect freelance workers outside the City. 

Designed to expand protections to freelance workers, the FIFA—which goes into effect on August 28, 2024—imposes several requirements on individuals and companies that hire freelance workers. Given its broad scope, individuals and businesses engaging such workers need to familiarize themselves with these new obligations, the implications for their business and the potential risks of non-compliance.

Who is a “freelance worker” under the FIFA?

The FIFA was enacted specifically to create rights and protections to “freelance workers.” Under theFIFA, a freelance worker is (1) any person or organization (of no more than one person), (2) that is hired or retained as an independent contractor,¹ (3) to provide services valued at $800 or more. Put simply: any independent contractor hired for services of $800 or more is a freelance worker under the FIFA.

It is important to note that the $800 threshold requirement can be met by either a single contract for services or the aggregate of all contracts between the hiring party (as defined below) and the freelance worker in the preceding 120 days. In other words, the FIFA would apply between a hiring party and a freelance worker for a single contract in which the freelance worker is being paid $800 or more for services rendered. Alternatively, if within the last 120 days, the hiring party and freelance worker have entered into multiple contracts—where no single contract meets the $800 threshold but aggregated reach this $800 threshold, the FIFA will apply. 

Which freelance workers are exempt under the FIFA?

The FIFA has only four narrow exemptions to the definition of freelance worker. The following individuals are not considered freelance workers for purposes of the FIFA: (1) attorneys, (2) licensed medical professionals, (3) sales representatives (as defined by law), and (4) construction contractors (as defined under the FIFA). 

Which companies are subject to the requirements of FIFA?

Almost all.  Indeed, the FIFA is rather broad in its scope. Specifically, “hiring party” is defined as any person who retains a freelance worker to provide any service. Under this definition, all natural persons and companies (including sole proprietorships, corporations, LLCs, etc.) are covered under the FIFA. Because the FIFA does not set forth any employer-size threshold, it seems to apply to small, medium, and large companies.

The FIFA does not apply to the federal, state, and local governments. 

What does the FIFA require?

The focus of the FIFA can be summarized to four key areas: (1) written contract requirements, (2) payment of compensation to freelance workers, (3) recordkeeping requirements, and (4) anti-discrimination.

Written Contract

The law will require that the hiring party and freelance worker’s contract for services must be reduced to writing, and that the hiring party provide a physical or electronic copy of the contract to the freelance worker. In the past, it was highly recommended that parties enter into written contracts with their freelance workers; under the new law, such written contracts are explicitly required under the FIFA.

At a minimum, and as of the date of this publication (absent additional requirements imposed by the State Department of Labor’s commissioner), the written contract must include the following information once the law becomes effective August 28, 2024:

• The parties’ name and mailing address;
• An itemization of all services the freelance worker will provide to the hiring party;
• The value of those services;
• The rate and method of compensation for the services;
• The date on which the hiring party will issue payment to the freelance worker or the mechanism by which such date will be determined; and
• The date by which the freelance worker must submit to the hiring party a list of services rendered under the contract (for purposes of timely compensation).

Note that the FIFA vests discretion on the State Department of Labor’s commissioner to require inclusion of additional terms under the written contract. Similarly, the FIFA directs the commissioner to prepare “model contracts” that the public may use to ensure compliance with the law. As of the date of this publication, the commissioner has not yet promulgated any model contracts.

Any provision or term in a contract attempting to waive a freelance worker’s rights under the FIFA is void as a violation of public policy, rendering such provision or term unenforceable.

Timing and Manner of Compensation to Freelance Workers

One of the key underpinnings of the FIFA was to ensure that freelance workers are properly compensated for their services. For that reason, the FIFA contains a specific provision requiring that the hiring party must pay freelance workers on or before the date specified in the contract (as discussed above) or—if the contract does not specify the timing of payment or the mechanism by which such date will be determined—no later than 30 days after the completion of the freelance worker’s services.  

The FIFA prohibits the hiring party from requiring, as a condition of timely payment, that the freelance worker accept less compensation than the amount in the contract.

Recordkeeping

All written contracts entered into with freelance workers must be maintained for a minimum of six years. A hiring party’s failure to maintain these documents creates a presumption that the terms the freelance worker presents as true and accurate are in fact the agreed-upon terms between the parties.

Anti-Discrimination/Retaliation Provision

The FIFA prohibits any hiring party from harassing, discriminating, threatening, intimidating, disciplining, or denying work opportunities to a freelance worker for exercising, or attempting to exercise, any rights under the FIFA.

How is the FIFA enforced?

The FIFA will be enforced through civil actions brought by aggrieved freelancers (and their attorneys) or through actions initiated by the New York attorney general. The FIFA specifically prescribes an aggrieved freelancer both a private right of action in court and certain remedies through the attorney general.

What are the potential risks for non-compliance?

For freelancers in civil litigation, the FIFA permits recovery of double damages (i.e., 200% of the underpayment), injunctive relief, attorneys’ fees and costs, and other remedies as may be appropriate, for violations of Section 1411 (which requires payment by the agreed-upon date in the written contract or within 30 days of completing the agreed upon services); $250 in statutory damages for violations of Section 1412 (which requires the existence of a written contract); and statutory damages equal to the contract price for violating the FIFA, in addition to the remedies specified in Sections 1411 and 1412 of the FIFA. 

Civil actions for non-payment of the contract or for discrimination (Section 1413) are subject to a six-year statute of limitations period and actions for failure to provide written contracts are subject to a two-year statute of limitations period.

The New York attorney general is responsible for investigating complaints regarding a violation of the FIFA.  Article 63 of the Civil Practice Law and Rules (CPLR) permits the attorney general to bring an action on behalf of the “People of the State of New York” to enjoin the purported violations by the hiring party. The attorney general is also empowered to access civil penalties in an amount not to exceed $1,000 for a first violation, $2,000 for a second violation, and $3,000 for a third or subsequent violation.

For freelancers who file a civil action, the FIFA permits a civil penalty in an amount not to exceed $25,000 for a finding that the hiring party has “engaged in a pattern or practice” of violating the FIFA. Such civil penalty shall be paid to the “general fund.” 

When does the FIFA go into effect?

The FIFA was previously scheduled to go into effect on May 20, 2024 (180 days after enactment).  However, the state has now postponed the effective date to August 28, 2024.

Does the FIFA apply retroactively?

No. The FIFA explicitly provides that it applies only prospectively to contracts entered into on or after August 28, 2024, the new effective date.

Conclusion

At some point, most persons engaging in business in New York have or will have procured the services of freelance workers for their businesses. Consequently, the FIFA will have legal implications across all industries throughout the state. The FIFA has now changed the legal landscape state-wide and virtually anyone doing business in the State of New York will have to ensure compliance with the FIFA.  It is recommended that businesses engage legal counsel to discuss the legal implications to their particular business and ensure timely compliance with the Act. 

The full text of the FIFA can be accessed here.