Newly Adopted 'Freelance Isn't Free' Rules Rife With Preemption Issues Under FAA

Seyfarth Synopsis: Regulatory rules issued in connection with New York City's Freelance Isn't Free Act seek to prohibit arbitration of claims under the Act and class action waivers in contracts covered by the law. U.S. Supreme Court precedent strongly suggests this rule is preempted by the Federal Arbitration Act.

Earlier this month, the New York City Department of Consumer Affairs ("DCA") issued Rules implementing the Freelance Isn't Free Act. Among other notable provisions, the Rules prohibit arbitration and the use of class action waivers in contracts governed by the Act.

As noted in our previous alerts (available here and here), the Freelance Isn't Free Act, which took effect on May 15, 2017, grants various protections for freelancers in New York City.

Key Provisions in the Rules

Coverage

The Rules make clear that a "freelance worker is entitled to the protections of the [Act] regardless of immigration status." The Rules also expand the definition of retaliation to include "any adverse action relating to perceived immigration status or work authorization."

Adverse Action

The definition of "adverse action" under the law for purposes of retaliation was expanded beyond the act or action by a hiring party, to include any action by a hiring party, its actual or apparent agent, or any other person acting directly or indirectly on behalf of a hiring party.

Further, the anti-retaliation provisions extend to a hiring party that takes any action reasonably likely to deter a freelance worker from exercising or attempting to exercise any right under the Act, regardless of whether that hiring person previously has been a party to a contract with the freelance worker, or was the subject of a complaint by the freelance worker.

Contract Value

The Rules also clarify that for purposes of determining whether a contract falls under the scope of the Act, its value includes the "reasonable value of all or actual anticipated services, costs for supplies and any other expenses under the contract."

When determining civil penalties, the value of the underlying contract "shall include the reasonable value of all services performed and/or anticipated, and reasonable costs for supplies and any other expenses reasonably incurred by the freelancer worker."

Prohibition Against Arbitration?

The Rules provide that any contract entered into by a hiring party and a freelance worker may not include any waiver or limitation of rights under the Act. The FAQs issued by the...