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Hospitality's New Guest: Embracing New York's "Freelance Isn't Free" Act

By Lee Jacobs Partner, Barclay Damon LLP | June 2024

On May 20, freelance workers in New York state experienced a landmark moment when the “Freelance Isn’t Free” Act (FIFA) fully went into effect. Building upon the protections established by New York City’s 2017 Freelance Isn’t Free Act, this new statewide law extends similar safeguards to freelancers across New York by bolstering their rights, ensuring fair compensation, and providing robust legal protections. As the restaurant, hospitality, and cannabis industries heavily rely on freelance labor, understanding the nuances and implications of this law is critical.

Defining Freelancers and Independent Contractors

Freelancers, often referred to as independent contractors, are individuals who provide services to businesses on a flexible or project basis, rather than as permanent employees. They typically operate under their own names or trade names, or through small entities like single-member LLCs. Unlike traditional employees, freelancers control their work process, set their schedules, and work for multiple clients. Their income is reported on IRS Form 1099 instead of W-2. Freelancers are also ineligible to receive employee benefits, such as health insurance, paid leave, and access to retirement plans.

The distinction between freelancers and independent contractors can be nuanced. Both terms often overlap, but “freelancer” generally implies a more casual, project-based relationship, while “independent contractor” may encompass more formal, ongoing business arrangements. Proper classification is essential as misclassifying a traditional W-2 employee as an independent contractor can lead to significant legal and financial repercussions. To be clear, regardless of what term a business uses - freelancer, independent contractor, or anything else - if the employee is paid via an IRS Form 1099, FIFA applies to them. Exceptions are sales representatives, attorneys, licensed medical professionals, and construction contractors, which the act specifically excludes.

Requirements for Freelance Agreements

New York’s “Freelance Isn’t Free” Act specifies that all freelance work agreements valued at $800 or more (or in the aggregate over a period of 120 days) must:

  • Include the names and addresses of both parties involved.
  • Provide an itemization of services to be performed.
  • State the value and method of compensation.
  • Specify the payment due date or the mechanism for determining it.
  • Set a deadline for submitting a list of services rendered.

Additionally, the act dictates pay frequency, requiring that freelance workers be compensated on or before the date when compensation is due according to the written contract but no later than 30 days after the completion of services. These contracts may be in hard copy or electronic form and must be retained by the hiring party for at least six years.

The New York State Department of Labor (NYS DOL) has indicated that it will publish model contracts on its website in the near future, which businesses may use in retaining freelance workers.

Specific Penalties for Noncompliance

FIFA imposes stringent penalties on businesses that fail to comply with its requirements. Freelancers may file complaints with the NYS DOL, and the department can investigate and award relief, including civil and criminal penalties. Businesses found to be in violation may face:

  • Double damages in addition to the amounts owed under the contract.
  • Injunctive relief and reasonable attorney’s fees.
  • Statutory damages of $250 for failing to provide a written contract and up to $25,000 for patterns or practices of violations.

In addition to making a complaint to the NYS DOL, aggrieved freelancers also have a private right of action that allows them to institute a civil lawsuit for damages or retaliation without going to the DOL. (New York City employees also may file a complaint with the city’s Department of Consumer and Worker Protection.) This penalty is even before any assessment is made to determine if the freelancer was correctly classified and properly paid. The potential damages become staggering, especially if these same errors occur across an entire employee population.

Importance of Proper Classification

Aside from FIFA’s requirements to provide written agreements to freelancers, businesses must ensure that their freelancers are, in fact, freelancers. Failing to do so could result in severe penalties, including unpaid wages, back taxes, fines, and legal disputes. A classification analysis begins and ends at the employee’s functional job duties and responsibilities. Their title is practically irrelevant.

Case Study: “Gourmet Restaurant”

In the bustling restaurant industry, freelance roles are indispensable. Chefs, for instance, are often brought in for special events or to introduce new culinary concepts. Take the case of “Gourmet Restaurant,” a popular location in Buffalo that frequently hires freelance chefs for its pop-up dinner events. To comply with FIFA, Gourmet Restaurant must draft comprehensive contracts that include:

  • Names and addresses of the restaurant and the freelance chef.
  • An itemized list of the culinary services to be provided, such as menu design, event execution, sourcing ingredients, and staff training sessions.
  • The agreed-upon rate and method of compensation, whether per event or per hour.
  • The payment due date, which could be upon completion of the event or within a specified number of days.
  • A deadline for the chef to submit a list of services rendered to ensure timely payment.

Failure to maintain these documents can result in significant penalties for Gourmet Bites. Imagine an all too true-scenario, (which occurred even prior to FIFA’s enactment), where Gourmet Bites hires a freelance chef for a series of pop-up events. The chef’s contract, however, specifies working hours, direct supervision, and other employee-like conditions. Upon review, it becomes evident that the chef should have been classified as an employee rather than a freelancer. This misclassification exposes Gourmet Bites to severe consequences.

Gourmet Bites could be liable for unpaid wages, overtime, attorney’s fees, fines and other damages. Additionally, the restaurant may face back tax, assessments and other and penalties from state agencies, such as Workers’ Compensation, Unemployment Insurance, and the Department of Financial Services. The financial burdens from these liabilities can be substantial, especially for a business that relies heavily on freelance labor.

In essence, a freelancer agreement will not turn a W-2 employee into a freelancer. Rather, in Gourmet Restaurant’s efforts to comply with this law, it created the documentation that exposes it to even greater penalties and fines. Proper classification and comprehensive contracts are essential to avoid significant legal and financial repercussions and maintain a compliant and fair working environment.

Case Study: Hotel Luxury

Hotels and event planning services are also affected by this law. Consider “Hotel Luxury,” a boutique hotel in the heart of the Adirondack Mountains that frequently employs freelance photographers and event planners. These freelancers play a crucial role in enhancing the hotel’s brand image and guest experience. To comply with the new law, Hotel Luxe must ensure that any contract with a freelancer includes:

  • The names and contact information of both the hotel and the freelancer.
  • Detailed descriptions of the services to be provided, such as planning and coordinating events, setting up and decorating event spaces, capturing high-quality photographs, editing images, and providing digital copies to the hotel.
  • The agreed-upon compensation rate and method of payment, such as a fixed fee per event or an hourly rate for planning and photography services.
  • Clear deadlines for payment - for instance, ensuring that the freelancers is compensated within 15 days of delivering the final edited photographs or within 30 days after the completion of an event planning project.

Hotel Luxury, like Gourmet Bites, must retain these contracts for at least six years. But unlike Gourmet Restaurant, Hotel Luxury’s workers are true freelancers. The hotel provides a contract outlining the project scope, payment terms, and deadlines. However, it fails to meet the strict requirements of the law and does not include the required elements, such as the freelancer’s address and itemized services. This simple administrative error will be costly. Sadly, there is no partial credit under FIFA - it demands strict compliance.

This error will allow the freelancer to file a successful complaint with the NYS DOL or initiate a private lawsuit. The freelancer would most likely recover at least a $250 penalty for each instance of noncompliance plus attorney’s fees. If the investigation reveals that this conduct was part of a broader pattern or practice, Hotel Luxe could face up to $25,000 in additional penalties.

Case Study: Cannabis Startup

The cannabis industry, still in its formative years, relies heavily on freelancers for roles such as marketing specialists and compliance consultants. Consider “Cannabis Startup,” a growing cannabis business in Rochester that frequently hires freelance marketers to create promotional campaigns and others that ensure regulatory compliance. To comply with FIFA, Cannabis Collective must ensure that any contracts with a freelancer includes:

  • The names and contact information of both the business and the freelancer.
  • Detailed descriptions of the services to be provided, such as designing and implementing marketing campaigns, conducting market research, developing promotional materials, ensuring adherence to state and federal regulations, and providing compliance training for staff.
  • The agreed-upon compensation rate and the method of payment, such as a fixed fee per project or an hourly rate for ongoing consulting services.
  • Clear deadlines for payment, ensuring that the freelancer is compensated within 15 days of submitting their final deliverables or within 30 days after the completion of a compliance consulting project.
  • Requirements for freelancers to submit their work or a list of services rendered, aiding in tracking and processing payments accurately.
  • Like the restaurant and hotel, Cannabis Startup must retain these contracts for at least six years.

Imagine a scenario where a freelance compliance consultant at Cannabis Startup requests a written contract in accordance with FIFA. The business initially resists, but the consultant insists, knowing their rights under the law. After much deliberation, the business decides to terminate its relationship with the consultant. This action exposes Cannabis Startup to significant legal risks.

This termination can be seen as retaliation against the consultant for asserting their legal rights—a clear violation of FIFA. The consultant was engaging in protected activity by demanding an agreement that the law entitles them to, and terminating them for this reason is illegal. This could lead to significant penalties for wrongful termination and retaliation.

The business could face an investigation by the NYS DOL or a private lawsuit for wrongful termination and retaliation. Under FIFA, damages could include double the unpaid wages, reasonable attorney’s fees, and statutory damages of $250 per instance. If this conduct is found to be part of a broader pattern or practice, the business could face additional penalties up to $25,000. Moreover, if it turns out the consultant was wrongfully classified as a freelancer when they should have been a W2 employee, the business could be liable for unpaid minimum wages, overtime, and other employee benefits. The business would also face back premiums, taxes, and penalties from state agencies such as Workers’ Compensation, Unemployment Insurance, Paid Family Leave, Disability, and the Department of Financial Services.

The combined financial impact from these fines and damages could be devastating for any business, not just a cannabis startup. The penalties for wrongful classification, termination, and retaliation, alongside the fines under FIFA, could potentially spell the end for the business if not addressed proactively and comprehensively. This scenario underscores the importance of providing compliant freelance agreements and ensuring that freelancers are correctly classified. Proper documentation and adherence to the law are crucial to avoiding severe legal and financial repercussions and maintaining a fair and compliant working environment.

Conclusion

Ensuring that freelancers are compensated fairly and promptly encourages more professionals to consider freelance work as a viable and secure career option. This shift could lead to a more vibrant and diverse workforce, driving innovation and creativity across various industries. In the meantime, FIFA requires all New York businesses to treat their employees and freelancers legally and to pay them properly. Now included among that already complex, byzantine structure is the requirement that all freelancers receive a written contract outlining their jobs and payment structures consistent with the FIFA.

No business should be caught in the same pitfalls as Gourmet Restaurant, Hotel Luxury or Cannabis Startup. Understanding and adhering to the "Freelance Isn’t Free" Act is not merely about compliance - it’s about safeguarding a business from the significant financial and legal risks discussed. The only effective defense against the stringent penalties associated with this law is to prevent problems before they arise.

By knowing the rules, properly classifying workers, and ensuring that all freelance agreements meet the law’s requirements, costly mistakes can be avoided. Investing time in understanding FIFA’s mandates and implementing thorough, compliant contracts will not only help avoid fines and lawsuits, but it will also foster a trustworthy and reliable relationship with all employees, not just freelancers. This proactive approach ensures mutual growth and success, positioning any business as a fair and compliant player in New York’s dynamic market.

With the right guidance and help, especially in the hospitality, cannabis, and hotel sectors, any business can navigate these regulations confidently, treat and pay its employees properly, and secure a stable future for all.

Mr. Jacobs

Lee Jacobs has over 16 years of legal experience and focuses his practice on representing a diverse range of individual and corporate clients in complex matters in both state and federal courts. With a niche in the restaurant, hospitality, and cannabis industries, Mr. Jacobs provides invaluable counsel to clients within these sectors. A significant part of his practice is devoted to assisting clients in day-to-day employment practices counseling, ensuring they stay compliant with ever-changing labor laws and regulations. Mr. Jacobs also conducts in-person training sessions on a variety of critical topics, such as sexual harassment prevention; diversity, equity, and inclusion (DEI); and effective management techniques. As an adjunct professor of law at Brooklyn Law School, Mr. Jacobs teaches an advanced course focused on trial advocacy, evidence, and procedure. He also serves as a faculty advisor to the school's Moot Court Honor Society's Trial Advocacy Division, where he passionately coaches students and teams, guiding them to local, regional, and national championships.

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10. APPLICABLE LAWS, VENUE, JURISDICTION & MANDATORY ARBITRATION

If any provision(s) of this Agreement is held by a court of competent jurisdiction to be contrary to law, then such provision(s) shall be construed, as nearly as possible, to reflect the intentions of the parties with the other provisions remaining in full force and effect. HotelExecutive's failure to exercise or enforce any right or provision of this Agreement shall not constitute a waiver of such right or provision unless acknowledged and agreed to by HotelExecutive in writing. The section titles in this Agreement are solely used for the convenience of the parties and have no legal or contractual significance. This Agreement may be assigned in whole or in part by HotelExecutive. This Agreement may not be assigned in any manner by you without the express, prior written permission of HotelExecutive.

Any and all disputes or controversies of any kind, including but not limited to any performance, duty, obligation or liability arising under or related to this Agreement which are not first resolved informally, shall be determined by binding arbitration in San Francisco, California, in accordance with the rules of the American Arbitration Association. The final award in any such arbitration proceeding shall be subject to entry as a judgment by any court or competent jurisdiction, provided that such judgment does not conflict with the terms and provisions hereof. The jurisdiction of the arbiter (or arbiters) with respect to legal matters shall be limited only by the statutory and common law of the State of California and the United States.

Notwithstanding the foregoing, any and all disputes, which the parties cannot informally resolve, regarding the scope of issues or matter with the jurisdiction of the arbitrator, shall be resolved by a separate dispute resolution process whereby HotelExecutive, in its sole discretion shall elect the dispute to be resolved by either (1) a court of competent jurisdiction in the State of California or (2) a panel of three new arbitrators.

This Agreement shall be governed by and construed in accordance with the laws of the State of California notwithstanding any conflict of laws provisions. You and HotelExecutive agree that the venue for all legal disputes, controversies, actions of any kind arising under or related to this Agreement shall be San Francisco, California. You and HotelExecutive further agree that in case of any litigation regarding this Agreement, you irrevocably and unconditionally (i) consent to submit to the exclusive jurisdiction of the state and federal courts in the County of San Francisco, California for any litigation or dispute arising out of or relating to this Agreement, (ii) agree not to commence any litigation arising out of or relating to this Agreement except in the California Courts, (iii) agree not to plead or claim that such litigation brought therein has been brought in an inconvenient forum, and (iv) agree the California Courts represent the exclusive jurisdiction for all litigation relating to this Agreement.

11. MEMBERSHIP FEES

Hotel Business Review Subscriptions

If you choose to purchase a subscription, member subscription payments can be made in U.S. Dollars, as well as a variety of international currencies. Membership terms are Annual Recurring, and Monthly Recurring. The Annual Recurring subscription is an annual commitment and subscribers will be charged each consecutive billing cycle. Annual Recurring subscriptions can be cancelled after the first billing cycle and within 30-days of the billing date for a full refund. Monthly Recurring subscriptions are ongoing and subscribers will be charged each consecutive monthly billing cycle. Monthly Recurring subscriptions can be cancelled after the first month and within 7 days of the monthly billing cycle for a full refund.

12. PAYMENT AUTHORIZATION

Payment for the services provided to you in, at, through or in association with HotelExecutive may be made by automatic credit card, debit card, direct debit, bankwire or Paypal and other approved payment means offered in, at, through or in association with HotelExecutive, and you hereby authorize HotelExecutive and its agents to transact such payments on your behalf.

You hereby authorize HotelExecutive's Internet Payment Service Provider to charge your credit card to pay for your membership to HotelExecutive. You further authorize HotelExecutive's Internet Payment Service Provider to charge your credit card for any and all purchases of products, services in association with HotelExecutive. You agree to be personally liable for all charges incurred by you in association with your access or other use of any content provided by HotelExecutive or any third party in association with HotelExecutive. You acknowledge and agree that your liability for all such charges shall continue after termination of your access or any type of membership arrangement with HotelExecutive.

In the event that you have chosen to have your membership automatically rebilled, unless and until you notify HotelExecutive that you wish to cancel or terminate your membership to HotelExecutive, you hereby agree and authorize HotelExecutive's Internet Payment Service Provider to automatically renew your membership to HotelExecutive on a continuing basis and to charge your credit card (or other payment means you have selected) to pay for the ongoing cost of your membership. You hereby further authorize HotelExecutive's Internet Payment Service Provider to charge your credit card (or other approved payment means you have selected) for any and all purchases of products, services and entertainment provided to in, at, through or in association with HotelExecutive.

13. PRIVACY POLICY

The following is the Privacy Policy for HotelExecutive

We can be reached via telephone, email, or online at our contact page. When you visit our site we do not log any information regarding your domain or email address. Information Sharing: We do not share user information with any third parties other than via press release distribution as described below.

Hotel Newswire is a newswire service that distributes press releases on behalf of our users. If you decide to submit a press release for distribution through our system we will transmit your entire press release including any personal information therein contained to our media contacts and online distribution points including search engines. This is the only redistribution of your information that we engage in. Your submission of press releases through our system indicates consent with this policy. The information we collect during your registration process is used to notify users about updates to our service and inform users of any special events hosted by Hotel Newswire. This information is not shared with other organizations for commercial or non-commercial purposes.

Cookies: Our system requires the use of cookies to enable the user to log back into our website to access information from the newswire, without having to log in each time using the required username and password.

If you do not want to receive email from us in the future, please let us know by following instructions included in our communication with you. Users who supply us with telephone numbers online may receive telephone contact from us regarding their account, or informing them of new products and services available on the HotelExecutive website. If you do not wish to receive such telephone calls, please edit your account and remove your phone number from your account profile. This can be done from your user account menu.

Ad Servers: We do not partner with or have any relationship with any ad server companies. From time to time, we may use customer information for new uses not previously disclosed in our privacy notice. If our information practices change at any time, we will post the policy changes to our website to notify you of these changes and provide you with the ability to opt out of these new uses. If you are concerned about how your information is used, you should check back at our website periodically.

Upon request we provide site visitors with access to all information (including proprietary information) that we maintain about them. Users can access this information by logging in to their account.

Security: We always use industry-standard encryption technologies while transferring and receiving user data exchanged with our site. We have appropriate security measures in place in our physical facilities to protect against the loss, misuse, or alteration of information that we have collected from you on our site. We do not store credit card information in our systems.

If you feel that this site is not following its stated information policy, you may contact us.

Cindy Staley
Kirsten Dixon
Jacques-Olivier Chauvin
Mark Johnson
Jill Rigsbee
Jeremy Gall
Ruby Gurrola
Sarah Bassett
Nora Minichino
Allison Kronberg
Darren Koch
Coming up in March 1970...