Recent legislation by the New York City Council and a recent decision by New York’s highest court impact all New York City employers who engage independent contractors.
Freelance Isn’t Free Act
On November 16, 2016, New York City Mayor De Blasio signed the Freelance Isn’t Free Act (“the Act”) into law, which is believed to be the first protection in the United States for freelance workers against nonpayment. The Act is effective on May 15, 2017.
Under the Act, a written contract is required whenever a hiring party retains the services of a freelance worker and the contract between them has a value of $800 or more, either by itself or when aggregated with all contracts for services between the hiring party and freelance worker during the immediately preceding 120 days. The written contract is required to include: (1) the name and mailing address of both the hiring party and the freelance worker; (2) an itemization of all services to be provided by the freelance worker, the value of the services to be provided pursuant to the contract and the rate and method of compensation; and (3) the date on which the hiring party must pay the contracted compensation or the mechanism by which such date will be determined. The Act requires the contracted compensation to be paid on or before the date such compensation is due under the terms of the contract or, if the contract does not specify when the hiring party must pay the contracted compensation, no later than 30 days after completion of the freelance worker’s services under the contract. The Act also prohibits retaliation against freelance workers who exercise their rights under the Act.
The Act defines “freelance worker” as any natural person or any organization composed of no more than one natural person, whether or not incorporated or employing a trade name, that is hired or retained as an independent contractor by a hiring party to provide services in exchange for compensation. The Act excludes sales representatives, attorneys and licensed medical professionals. The Act defines “hiring party” as any person who retains a freelance worker to provide service other than the United States government, the State of New York, the City of New York, any other local government or any foreign government.
The Act allows an aggrieved freelance worker to file a claim with the Office of Labor Standards or to file a complaint in court. A freelance worker who succeeds on a claim for nonpayment or untimely payment under the Act is entitled to double damages and attorneys’ fees. Such claims have a six-year statute of limitations. A hiring party found to have engaged in a pattern or practice of violating the Act is subject to a civil penalty of not more than $25,000.
New York Court of Appeals Outlines Factors Supporting Independent Contractor Status
In In the Matter of Yoga Vida NYC, Inc., 2016 N.Y. LEXIS 3216 (N.Y. Oct. 25, 2016), the New York Court of Appeals reversed the Appellate Division and held the Department of Labor improperly found non-staff yoga instructors were employees of Yoga Vida NYC. Yoga Vida NYC offered classes taught by both staff instructors and non-staff instructors. The Department of Labor issued a determination, upheld by the Appellate Division, that Yoga Vida NYC was liable for additional unemployment contributions for the non-staff instructors because they were improperly classified as independent contractors.
In finding Yoga Vida NYC did not exercise sufficient direction, supervision and control over the instructors to demonstrate an employment relationship, the New York Court of Appeals relied on the following factors:
- Non-staff instructors made their own schedule and chose how they are paid (either hourly or on a percentage basis);
- Unlike staff instructors, non-staff instructors were not paid if no students attended their class;
- Unlike staff instructors, Yoga Vida NYC did not place any restrictions on where the non-staff-instructors could teach and the non-staff instructors could inform students of classes they teach at other locations; and
- Non-staff instructors were not required to attend mandatory trainings and meetings.
The New York Court of Appeals rejected the Unemployment Insurance Appeal Board’s holding that the fact Yoga Vida NYC inquired whether the instructors had proper licenses and provided the space for the studio indicated incidental control. The court additionally found that factors relied upon by the dissent—Yoga Vida NYC generally determined the fee charged and collected the fee directly from students and provided a substitute instructor if the non-staff instructor was unable to teach a class—were not enough to demonstrate sufficient control over the instructors. The court also rejected that receiving feedback about the instructors was an indicia of control, as the court noted “[t]he requirement that the work be done properly is a condition just as readily required of an independent contractor as of an employee and not conclusive as to either.”
What This Means for Employers
New York City employers may want to ensure that an independent contractor agreement, which details payment and otherwise complies with the Act, is agreed to and executed prior to commencing any independent contractor relationship. Employers should also recognize the increased significance of complying with the payment terms of such an agreement, as independent contractors will receive double damages plus attorneys’ fees for nonpayment when the Act becomes effective.
While New York state employers may be encouraged since the Court of Appeals rejected an unreasonable finding of employee status in the Yoga Vida NYC case, employers should be aware that proper independent contractor classification requires a case-by-case analysis. Federal and state agencies and plaintiffs’ counsels have increased their claims of misclassification, and the penalty for noncompliance can be substantial, especially when dealing with a group of employees alleged to be misclassified. Employers should review their independent contractor agreements to ensure proper independent contractor classification.