Freelance Isn’t Free: Employers Need To Understand The Gig Economy

By Mark F. Kluger and William H. Healey

Nearly two thirds of the HR professionals surveyed in Randstad Sourceright’s international 2017 Talent Trends Report are using freelancers as a regular part of their workforces. SHRM recently sited another survey showing that U.S. employers reported that an average of 22% of their workforces are freelance workers. This trend toward a more agile workforce includes not only use of independent contractors, but also temporary employees hired to work on a project basis. The new “gig economy,” as it has been named no doubt by some Hipster, is likely a response to a combination of what many companies feel is a talent shortage (thus the demand for H-1B visas) and the insistence on flexibility among young workers who are often more interested in having a life and being happy than a steady job, health insurance and a big fat 401(k) for retirement. Although this trend has economic advantages for employers, it also presents some new legal challenges.

Those challenges include some of the same issues regarding proper classification of independent contractors vs. employees–and also some new ones. For example, on May 15, 2017, the New York City Freelance Isn’t Free Act becomes effective. This new ordinance applies to any company, no matter where located, that retains an independent contractor who lives or works in New York City (including one that is incorporated or an LLC) and imposes burdensome requirements on the engagement. The law, which applies to any contract for services in excess of $800, requires a written contract. Failure to provide a written contract will result in a $250 penalty. The contract must include, among other terms, the rate of payment and a date by which the freelancer will be paid or the method by which that date will be determined. If it does not include those terms, the law requires that the independent contractor to be paid no later than 30 days after completion of the work. Here’s the kicker: if the hiring entity does not pay the full amount or on time, the freelancer can bring a civil suit and, if successful, will be entitled to double damages and attorney’s fees. And more bad news: there is no good faith defense available. So if the company does not pay the full amount of the contract because the work was poor, late or incomplete, it will still be liable for twice the agreed upon fee.

If all this makes you not want to hire a freelancer who lives in New York City, be sure to keep the reasons to yourself. Denying a “work opportunity” or “future work” to an independent contractor who has asserted their rights under the city ordinance gives the worker a claim for retaliation, the damages for which will be the value of the contract that they did not receive.

Keep in mind that the contract required by the New York City law does not address the myriad of other factors examined by state and federal Departments of Labor to determine whether a worker is an independent contractor or employee. With 55 million Americans currently freelancing and companies more consistently using them, a close examination independent contractor relationships and the documentation supporting the engagement is important (even if you don’t hire a New Yorker).