Independent Contractor Misclassification and Compliance News August 2024

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we bring you the latest news stories from around the web.

Freelancer Protection Laws Become Effective this Summer in Illinois and New York

Support for the gig economy and the freelancers who comprise it continues with legislation becoming effective in July and August protecting freelancers. The Illinois Freelance Worker Protection Act and the New York Freelancer Isn’t Free Act became effective this summer—Illinois on July 1 and New York on August 28. These are the first two states that have enacted that protect freelancers. Freelancer protection ordinances started with New York City’s Freelancer Isn’t Free Act (FIFA) in 2017 and have since been adopted in Seattle (2022), Minneapolis (2020), Los Angeles (2023), and Columbus (2023). Illinois and New York are the first two states to pass laws protecting freelancers.

Businesses that engage with freelancers must comply with the specific requirements of the ordinances and laws in the city or state in which they operate, but in general, the laws and ordinances protecting freelancers codify good business practices. They require the parties to enter into a contract, which includes a description of the services and the amounts that will be paid and also includes when the freelancer will be paid. The laws require contracts that typically must include:

1) The name and contact information of both the contracting entity and the freelance worker, including the mailing address of the contracting entity.

(2) An itemization of all products and services to be provided by the freelance worker, the value of the products and services to be provided under the terms of the contract, and the rate and method of compensation.

(3) The date on which the contracting entity must pay the contracted compensation or the mechanism by which such date will be determined.

Businesses should carefully review the particular requirements of the city or state in which they work. For example, Seattle also requires a pre-contract disclosure and a notice of rights, and Illinois requires payment within 30 days of providing services. Companies that contract with freelancers should consult with their attorneys to determine the specific requirements when engaging with freelancers in each of these locations.

New York’s Freelance Isn’t Free Act, effective August 28 is not without its imperfections. Commentators have pointed out issues including that it is not always clear to whom the law applies. While the contract includes the parties’ names and addresses, it’s not clear if the law applies if the business is in New York, the freelancer is in New York, or the services are provided in New York. If the business and freelancer are both in New York, the law applies. But what if the business is in New Jersey and the freelancer, who lives in New York, travels to New Jersey to perform the services? Or if the business is in New York and the freelancer is in Connecticut and provides the services in Connecticut?

Similarly, the Illinois Freelance Worker Protection Act also has flaws. The Illinois law applies to freelancers who are defined as natural persons which is further defined as individual human beings. This language would exclude freelancers who have formed a limited liability company (LLC) or other entity. The language of the statute seemingly applies only to sole proprietors which is just a small subset of freelancers.

The good news is that cities and states are taking action to protect freelancers and support the gig economy. Last month, independent drivers had huge wins in California and Massachusetts. As the gig economy grows, more cities and states will provide protection and support and the imperfections with these new laws will be resolved. For now, if you have contractors in a city or state that have a freelancer law, review the law carefully or engage with a professional to help you comply.

For more information, check out our resources page on misclassification and compliance. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help.