United States: New York Employers Should Take Advantage Of The "Freelance Isn't Free Act" Requirements To Reexamine Independent Contractor Relationships

Nearly six months after it was passed — with overwhelming support — by the New York Legislature, Governor Kathy Hochul recently signed Assembly Bill A6040, or the Freelance Isn't Free Act (the "Act"). With an effective date of May 20, 2024, New York employers engaging freelance workers must prepare to enter written contracts if work to be performed by such workers is valued at $800 or greater (which includes total renumeration for services over a 120-day period).

The written contract must, at a minimum, specify:

• the parties' names and mailing addresses;
• 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;
• the date on which the hiring party must pay the contracted compensation or the mechanism by which such date will be determined; and
• the date by which a freelance worker must submit a list of services rendered to the hiring party in order to meet any internal processing deadlines for the purposes of timely compensation by the agreed-upon date.

Under this law, a freelance worker is defined, in part, as an independent contractor. This definition begs the question whether the worker has been properly classified as an independent contractor in the first instance.

The Act requires the state's Commissioner of Labor to publish model contracts on its website, but, given the fact-intensive nature of independent contractor inquiries under state and federal law, employers should ensure they include robust provisions in which the parties agree to and delineate the nature of the freelancer's independent contractor status and define the relationship or services to be rendered to correspond to factors in applicable state and federal independent contractor tests.

The agreement should include the following factors:

• The freelancer's obligations regarding their tax liabilities, payments, and withholdings.
• The company's right not to provide unemployment insurance or worker's compensation coverage,
• The freelancer's ineligibility for benefits (e.g., retirement plan contributions, vacation or sick time, etc.).
• The freelancer's right to enter into contracts and perform services for other companies.
• The freelancer's right to control the means, manner, and method of providing services.
• The freelancer's right to hire assistants, subcontractors, or employees for the purpose of providing the services at issue in the agreement.
• The freelancer's responsibilities for their own continuing or recurring business liabilities, such as securing insurance coverage or covering the cost of professional fees.
• The freelancer's control over the place and hours work is performed.
• The freelancer's inability to bind the company, its subsidiaries, or its affiliates.

If an employer cannot include most of the factors listed above because they are inapplicable to the freelance worker relationship, then the Act likely doesn't apply because the worker is not an independent contractor. However, a new can of worms might be open — has the employer been misclassifying the worker all along? If yes, the employer should move quickly to mitigate risk by reclassifying — and paying — the worker as a statutory employee under state and federal law. More information on the various risks and considerations surrounding worker misclassification can be found here, here, and here.