The Freelance Isn’t Free Act, New York’s newest attempt to regulate the use of independent contractors, was recently signed into law.  The law applies to contracts and timely payments for individual independent contractors, whether or not operating as a business organization, and thus is highly relevant to the last mile industry, where sole proprietors and single-person LLCs are extremely common, even as master contractors.  Its penalties include damages for the full value of underlying contracts for some types of claims, and the full value of master contractor agreements in our industry can be quite large.  Payment disputes around lost or damaged cargo are common with brokers using penalty clauses or to withhold money from owner/operators to reimburse customers and maintain their goodwill; under this new law, doing so may leave brokers open to massive liabilities.

The Freelance Isn’t Free Act requires written contracts and timely payment of compensation in connection with engaging independent contractors.  This follows the local acts passed in New York City, Minneapolis, and Seattle, and statewide in Illinois.  This article will help with the basics and offer some guidance, but brokers would do well to understand these laws and how to comply with them to protect themselves from unforeseen liability.

The Act applies to “freelance workers”.  This term is not defined well, but it covers sole proprietors and any organization made up of only one person who will be paid eight hundred dollars or more, either in one contract or when aggregated with all contracts between the same parties over the previous 120 days (other versions of the law also have minimum dollar values, but the exact amounts vary by jurisdiction).  The Act does not specify whether one or both parties must work or reside within the state, or whether the contract must be performed wholly or partially within the state; until this issue is clarified by legislative amendments or caselaw, it would be best to take a cautious approach and proceed as if the law applied whenever there is a work-related connection to New York State.

A freelance worker must be furnished with a written contract by the “hiring party”, defined to include any person who retains a freelance worker to provide any service.  This definition is broad and open-ended; brokers shouldn’t believe they fall outside the definition of “hiring party” because they engage master contractors.  The contract should include both parties’ names and mailing addresses, an itemization of services to be provided with the rate and method of compensation, the date on which the compensation must be paid or a mechanism for determining such date, and the date by which a freelance worker must submit a list of services rendered to ensure timely payment. Compensation must be paid before or on the date set forth in the contract, or if the contract fails to set forth such a date or a mechanism for determining it, then no later than thirty days after the completion of the freelance worker’s services.  Additionally, retaliation against a freelance worker for exercising rights under this law is also a violation.

A plaintiff prevailing on a claim for untimely payment may be awarded double damages, plus costs and attorney’s fees; on a claim for retaliation, the full value of the underlying contract; and on a claim for failure to provide a written contract, statutory damages of $250.00.  Furthermore, a plaintiff prevailing on any Freelance Isn’t Free Act claim and any other claim in Article 6 of the Labor Code (concerning payment of wages) is also entitled to damages equal to the full value of the underlying contract.

Here’s how SCI recommends its broker clients proceed to protect themselves:

  • SCI has long been an advocate of having a Negotiated Rate agreement in place that would include the essential terms needed to fulfill the Act’s requirements. Check with SCI to have a Negotiated Rate agreement drafted for your particular situation.
  • For those who haven’t taken the step to put in place a Negotiated Rate agreement, you should:
    • Verify status.  If you contract with any business that you believe is made of more than one person, have a representative from that business verify that fact in writing, and save that document.  Likewise, check with every LLC or other business organization you hire, especially those of which you are unsure, as to whether they comprise more than one person.
    • Define “completion”.  The Act requires payment after “completion” of services.  Your contracts with owner/operators should specify that services are only to be considered “completed” when cargo is delivered to the correct location and in an undamaged condition, and that if deliveries are not adequately completed, then no payment shall become due.
    • Specify invoicing requirements and procedures.  Ensure your contracts state that payment will not become due until after the owner/operator submits an invoice for their work and set forth a procedure for submitting said invoices that won’t go ignored by you or any others at your business that may receive them.  Set forth a time after the proper submission of an invoice by which a payment will be made; it may be wise to make this somewhat longer than your actual practice to give you leeway in case of unexpected problems causing small delays.
    • Seek alternative resolutions.  Most brokers already feel that withholding pay from an owner/operator to satisfy a customer’s demands should be a last resort, but more than ever other solutions must be sought first.  Cargo insurance that can cover the cost of replacing lost or damaged goods without additional withholdings should be strongly considered; SCI’s beneficial programs for owner/operators include affordable cargo insurance programs, so you may want to alter your contracts to include a minimum insurance coverage requirement.
  • Final thought: the best method to avoid violating a law like this is to have a Third-Party Administrator like SCI that will ensure you are compliant by processing timely and accurate payments to the independent contractors.  Visit https://sciadmin.com/ for continued guidance in navigating the evolving legislation affecting businesses across the country.

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