Freelancers Union rally
In 2012 when I started bringing cases under the New York Labor Law and the Federal Fair Labor Standards Act the hot area was "independent contractor misclassification." Employers in the "on-demand" economy were (mis)classifying their employees as independent contractors to avoid paying overtime or, in some cases, the minimum wage. Employers did not have to buy unemployment insurance, workers compensation, or pay the employer portion of payroll tax (FICA). Over the next few years, almost every player in the on-demand economy would be sued for employee misclassification.
Eventually, companies began to figure out they were better off correctly classifying their workers as employees rather than risking large damage awards. We got our clients a fair deal because we had statutes that provided strong protections in the New York Labor Law (NYLL) and Federal Fair Labor Standards Act (FLSA).
During the years I was busy with employee misclassification cases, another type of client kept trying to retain me. They were photographers, consultants, writers, website developers and many other professionals, some operating as freelancers and some with small businesses. They were not covered by the NYLL or FLSA because they were independent contractors, not employees. Yet they were the victims of wage theft, too.
Their debts were sometimes small ($500) and sometimes quite large ($25,000) but the story was always the same: the freelancer or independent contractor worked, was paid about half their fee, and then the client, sometimes giving excuses, other times just disappearing, never paid the rest. The freelancers who sought me out were not an anomaly: The Freelancers Union estimates that about half of the 54 million freelancers in America in 2014 had trouble getting paid, and that 34% of those who had trouble getting paid were never paid a dime of what they were owed.
It became apparent to me that the lack of practical remedies to freelancer wage theft contributed to the problem. Unlike the landlord, utility company, or other vendors who could simply stop service if they were unpaid, freelancers had no real recourse. As a result, they were paid last, and if money ran out, they were the ones left unpaid. Legal action was impracticable because unlike cases brought under the NYLL and the FLSA, there were no additional damages available as a penalty for non-payment, no attorney's fees, and no liability on behalf of the owner of the employer.
Lawsuits for unpaid wages under $5,000 needed to be in the Small Claims Part of the New York City Civil Court as breach of contract matters. Breach of contract cases in the civil court (up to $25,000) and in the Supreme Court (above $25,000) were subject to expensive filing and service fees, not to mention myriad requirements meant to assure procedural fairness. The freelancer also needed to enforce the judgment themselves, a time consuming and potentially expensive process. The amount of the loss rarely justified the huge legal fees required.
One innovative solution was my new company Indepayment, a comprehensive platform for freelancer debt collection. Indepayment aggregates debts owed to freelancers and independent workers to create a steady stream of cases for commercial collection attorneys and debt collectors who work on volume and collect on contingency. Indepayment operates nationally, and has been growing exponentially since we started collecting debts in June 2015. We're also working with the Freelancers Union to educate freelancers about avoiding non-payment.
The New York City Council has put forward another innovative solution, in the form of a bill, Intro. 1017. Sponsored by Council Member Brad Lander and now supported by 28 Council members, it creates a statutory remedy for freelancer wage theft that provides for double damages, attorneys' fees, and civil penalties which mirror the remedies available under FLSA and the NYLL. The bill requires that freelancers have a contract, and makes it a violation not to pay or to pay after 30 days unless otherwise agreed. If passed into law, these would be significant new protections for those in the growing freelance economy.
Causes of action under the new law could be brought in addition to breach of contract matters in Court. In addition, freelancer wage theft matters are treated as violations of the city Administrative Code adjudicated by the Department of Consumer Affairs (DCA). Establishing a DCA administrative process alleviates some of the procedural complexity, delays, and costs associated with bringing cases in Supreme Court and Civil Court.
In addition, because the collectability of court judgments is sometimes difficult, the city's enforcement of violations is an important feature. The administrative process and the provisions of the bill that require reporting to the city of civil actions will allow the city to keep detailed records of wage theft recidivists and understand the scope of the wage theft problem in New York City.
Although the bill could go further – for example the NYLL and FLSA have provisions that make the owners of the employers liable for wage theft – it's a great start. Intro. 1017 deserves our support because our innovative and evolving freelance workforce deserves innovative solutions to guard against wage theft and protect its livelihoods.
Jesse Strauss is an attorney based in New York City and Founder and CEO of Indepayment.