Brokers Beware: ‘Freelance Isn’t Free Act’ Goes into Effect on Aug. 28
ALBANY—The New York State Association of Realtors issued a “Broker Flash Update” to its members earlier today warning them that a new law enacting new requirements in the independent contractor relationship between the real estate broker and associated licensees goes into effect on Aug. 28, 2024.
The following is the full text of NYSAR’s Legal Update distributed this morning:
“Dear Broker,
Effective August 28, 2024, a new law impacting the independent contractor relationship between a broker and associated licensees will go into effect. This new law is NOT part of the NAR lawsuit settlement. The new law is called the “Freelance Isn’t Free Act” (FIFA) and was modeled after a law that has been in effect in New York City. The new law can be found under Article 44-A of the General Business Law. The purpose of the law is to expand protections for independent contractors (referred to as “Freelance Worker” in the law) as well as additional requires for those individuals or entities that utilize independent contractors as part of their business (such as real estate brokers). This article will focus on how FIFA impacts real estate brokers that utilize independent contractors in NY.
One requirement of the law mandating the use of written contracts for compensation will impact NYS brokers significantly. According to FIFA, a broker is required to have a written contract between the broker and the independent contractor. The broker must furnish a copy of such written contract, either physically or electronically, to the independent contractor and each party to the written contract shall retain a copy thereof. The broker is required to keep a copy of the contract for a period of six years and make the contract available to the NYS Attorney General upon request.
The written contract must contain the following:
a) Name and address of broker and independent contractor.
b) Itemization of all services to be provided by the independent contractor pursuant to the contract and the rate and method of compensation.
c) The date on which the broker must pay the contracted compensation or the mechanism by which such date will be determined.
d) The date the independent contractor must submit a list of services rendered under the contract to the broker in order to meet any internal processing deadlines of the broker for the purposes of compensation being timely rendered by the agreed upon date required under (c) (above).
NYSAR has developed a new independent contractor agreement that includes the requirements of the law (other than the broker being required to have a separate written agreement for compensation). The new independent contractor agreement can be used throughout New York State and New York City (as compared to the current requirement of using a different form for NYC).
NYSAR has included spaces for the names and addresses of the broker and independent contractor (referred to as “sales associate” in the independent contractor agreement). In order to list the itemization of services (required under (b) above), NYSAR has reproduced the language found in Real Property Law §440 that sets forth what is considered a licensed real estate activity (paragraph 14 of the NYSAR independent contractor agreement). Real estate brokers that require their independent contractors to perform services outside of those listed in Real Property Law §440 would need to add those services to the independent contractor agreement.
In paragraph 15 of the independent contractor agreement, NYSAR has included language that the independent contractor shall be paid a commission on sales without deduction for taxes. NYSAR also included language that any such commission shall be paid when the sales associate is the “procuring cause” of a transaction that closes. Brokers will need to develop a separate written agreement setting forth how much the independent contractor will be compensated (commonly referred to as the “split”). Furthermore, FIFA requires the independent contractor to be paid within 30 days of the receipt of the full commission paid to the broker or under a different time frame contained in the separate written agreement between the broker and independent contractor. For instance, a broker may have a policy where all independent contractors are paid on the last day of the month that immediately follows the closing. If the broker has a policy that differs from the 30-day requirement, they need to include that in the separate written agreement. It is recommended that brokers have their attorney review the separate written agreement for compliance with the law.
The FIFA law also includes anti-retaliatory language to protect independent contractors who exercise their rights under the FIFA law. NYSAR has included such language in paragraph 16 of the independent contractor agreement “Broker shall not threaten, intimidate, discipline, harass, deny a work opportunity to or discriminate against a Sales Associate, or take any other action that penalizes a Sales Associate for, or is reasonably likely to deter a Sales Associate from, exercising or attempting to exercise any right guaranteed under the law, or from obtaining future work opportunity because the Sales Associate has done so.”
Brokers will need to use the new independent contractor agreement and develop a separate written agreement for all licensees currently associated with the broker as an independent contractor (this includes existing and new independent contractors) on or before August 28, 2024.
The sample NYSAR independent contractor agreement can be found here: https://www.nysar.com/legal/forms/
NYSAR members with questions about the law and compliance may contact NYSAR’s legal hotline. The legal hotline is available Monday-Friday from 9:00 am-4:00 pm at 518-436-9727.”
