On May 1, 2017, the New York City Department of Consumer Affairs (the “DCA”) promulgated rules which purport to “clarify” the Freelance Isn’t Free Act (the “Act”). Those rules (available here, and referred to as the “Rules”) impose more extensive limitations on businesses which contract with freelancers than those set forth in the plain text of the Act, and may extend liability under the Act to businesses using third-party staffing agencies. The Rules become effective on July 21, 2017, and businesses should ensure that any agreements entered into with freelancers on and after that date meet the newly-announced requirements.

Summary of the Act’s Key Provisions

As summarized in our prior client alerts (available here and here), the Act requires businesses to enter into written agreements with freelancers operating in New York City if the services to be provided have a value of $800 or more. A written agreement is likewise required by the Act if multiple contracts with the same freelancer over a 120-day period total $800 or more. The Act also prohibits businesses from retaliating against freelancers for “exercising or attempting to exercise any right guaranteed under this chapter.”

Additional Obligations Imposed by the Rules

The newly-issued Rules protect significantly more than “right[s] guaranteed under [the Act],” and instead prohibit businesses from including in their agreements with freelancers the following:

  • Waivers of the right to participate in class or collective actions (Rules, § 12-05(b));
  • Waivers of “any other procedural right normally afforded to a party in a civil or administrative action … [which] include[s] but [is] not limited to procedural rights of parties to a civil action established by the New York Civil Practice Law and Rules, the Federal Rules of Evidence, and the Federal Rules of Civil Procedure” (Rules, § 12-05(c)); and
  • Confidentiality provisions which preclude the disclosure of the contents of the agreement to the Director of the New York City Office of Labor Standards (the “Director”) (Rules, § 12-05(d)).

With these Rules, the DCA has made it unlawful for parties to a freelance agreement to agree to (i) resolve disputes on an individual basis rather than on a class-wide basis; (ii) use alternative dispute resolution methods such as mandatory arbitration instead of litigation in the event of a dispute between the parties; or (iii) use general confidentiality provisions which cover all non-public aspects of the freelance relationship. The Rules impose these constraints on freelance agreements notwithstanding that the Act itself says nothing about class action waivers, agreements to arbitrate, or confidentiality provisions.

The Rules also broaden the definition of who may be held responsible for an act of retaliation, by including within the scope of the Act “a hiring party, their actual or apparent agent, or any other person acting directly or indirectly on behalf of a hiring party.” Rules, § 12-01(b). This is of particular relevance to businesses that engage freelancers indirectly, through outside staffing agencies.

Finally, while the Act itself is silent on the subject of a freelancer’s immigration status, the Rules expressly state that freelancers are protected by the provisions of the Act, regardless of their immigration status (Rules, § 12-02), and expand the definition of “retaliation” to include “any adverse action relating to perceived immigration status or work authorization” (Rules, § 12-04(a)).

Practical Advice

Businesses that use New York City-based freelancers and outside staffing agencies should review their agreements with those freelancers and agencies to ensure compliance with the Act and the Rules. Agreements with freelancers should no longer include class action waivers, agreements to arbitrate, or confidentiality provisions that would bar the freelancer from disclosing the terms of the agreement to the Director. Agreements with staffing agencies should include representations and warranties that the staffing agency is in compliance with the Act and the Rules, as well as indemnification provisions specifically addressing liability which may arise under the Act.