New York City has become the first jurisdiction nationally to extend wage theft protections to independent contractors. On November 16, 2016, Mayor Bill de Blasio signed into law the "Freelance Isn't Free Act." FIFA imposes strict obligations on companies using independent contractors and harsh penalties for failing to comply with the Act, which will certainly impact how many companies conduct business with contractors.

Whenever a company retains services of an independent contractor valued at a minimum of $800 (including multiple smaller projects aggregated over a 120-day period), the parties are required to reduce the terms to a written contract. The written contract must include the following terms:

  1. the name and mailing address of both the hiring party and the independent contractor;
  2. an itemization of all services to be provided by the contractor, the value of the services to be provided 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.

If the written contract does not state when the contractor will be paid, the company must make payment within 30 days after the services are completed. Once a contractor has commenced performance of the services under the contract, the hiring party shall not require as a condition of timely payment that the contractor accept less compensation than the amount of the contracted compensation.

The Act expressly prohibits hiring parties from retaliating against contractors who file complaints or seek to enforce their rights under the Act.

Contractors alleging violations of the Act may bring a civil action or seek assistance from the N.Y.C. Department of Consumer Affairs, which has been empowered to help contractors resolve disputes. However, DCA's authority does not extend to adjudicating claims and enforcing awards. When an aggrieved contractor files a complaint with the DCA, the agency notifies the company accused of failing to pay. If the company fails to respond to the complaint, a rebuttable presumption is created that the hiring party committed the alleged violations and the burden will be on the hiring company to prove that it should not have to pay the contractor. However, this rebuttable presumption may only be used in a civil lawsuit that the contractor later commences, since the DCA has no enforcement power. If the hiring party fails to respond or responds by denying the allegations, DCA will then simply notify and inform the contractor of his or her rights to file a civil action. Along with helping to resolve disputes, DCA is also required to issue model contracts in English and six other languages the parties may use.

Independent contractors who bring successful lawsuits under FIFA will be entitled to recover damages based on the type of violation, as well as reasonable attorneys’ fees and costs. A contractor who brings and prevails on a claim alleging solely the failure to have a written contract may recover statutory damages of $250.00. But if the contractor brings a claim for failure to have a written contract and another claim under the Act, such as failure to pay or retaliation, the contractor may be awarded statutory damages equal to the value of the contract, in addition to any other available relief. A contractor who brings a claim for failure to pay may be awarded the unpaid compensation, as well as double damages. Lastly, a contractor who prevails on a claim for retaliation may receive statutory damages equal to the value of the contract.

In addition to lawsuits by contractors, FIFA also empowers the City of New York to commence a civil action against a hiring company where reasonable cause exists to believe the company is engaging in a pattern or practice of violating its obligations under the act. A civil penalty may be imposed of not more than $25,000 for such violations, along with all other available relief.

FIFA will take effect May 15, 2017 and will only apply to contracts entered into on or after the effective date.

Accordingly, given the new obligations and consequences established under FIFA, companies who use independent contractors will need to ensure their general vendor policies and practices are in line with the Act.