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New State Law Protecting Independent Contractors in Fee Disputes Can Lead To Hefty Damages

In a recent legislative development, Illinois has emerged as a pioneer by enacting the Freelance Worker Protection Act, aimed at safeguarding freelance independent contractors (ICs) from non-payment of fees. This groundbreaking legislation carries both advantages and significant drawbacks for businesses engaging ICs. This article examines key aspects of Illinois’ new law, the changing landscape of similar legislation across different regions, and its potential implications for businesses.

Legislative Developments: Freelance Worker Protection Act

Effective Date and Scope

The Freelance Worker Protection Act is scheduled to take effect on July 1, 2024, positioning Illinois at the forefront of freelance contractor protection. However, its primary coverage is limited to sole proprietors and may not extend to corporations or single-member LLCs.

Contractual Requirements

Under the new law, companies engaging freelance independent contractors are required to provide a detailed contract that includes specific elements such as the nature of services, compensation terms, contract value, and contact information. Crucially, this contract must specify a payment date, typically within 30 days after service completion. However, this strict 30-day payment requirement may present challenges for businesses with different accounts payable processes, and any payment delays beyond this timeframe trigger severe consequences.

Penalties and Damages

The Illinois law introduces two significant categories of damages for non-compliance. Firstly, exceeding the 30-day payment limit, regardless of the reason, triggers an automatic civil penalty, doubling the amount of underpayments. This provision allows little room for businesses to dispute payments, even when legitimate concerns about service quality arise. Secondly, failure to provide a written contract upon request or omitting required information can entitle the freelancer to statutory damages, either equivalent to the underlying contract’s value or a minimum of $500, along with other remedies. These punitive provisions create a high-stakes environment for companies engaging independent contractors in Illinois.

Non-Discrimination and Non-Retaliation Provisions

The new law also encompasses provisions related to non-discrimination and non-retaliation. Violations of these provisions can result in damages equivalent to the underlying contract’s value, along with legal costs and attorney fees. The law permits freelancers to file complaints with the Illinois Department of Labor or initiate court actions, including class actions.

Implications for Businesses

The Freelance Worker Protection Act presents challenges for businesses using independent contractors in Illinois. The stringent payment deadlines, coupled with the potential for substantial damages and penalties, establish a complex compliance landscape. Companies must carefully review and adjust their accounts payable procedures to align with the 30-day payment requirement. Furthermore, they must ensure the provision of written contracts containing all necessary information to avoid exposure to statutory damages.

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