Hello, everyone!

Today we will talk about how to make film production compliant with California’s AB-5 law.

While AB-5 became law in 2020 and made headlines for its impact on industries like entertainment, it’s important to note that AB-5 isn’t entirely new. Its foundation comes from longstanding case law, specifically the 2018 California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court, and federal labor principles. AB-5 codified the ABC Test, which was established in Dynamex, into state law, applying it to most industries, including film production. This law reflects federal labor guidelines designed to prevent misclassification of workers and protect employees’ rights.

For filmmakers in California, AB-5 has created specific challenges in classifying workers like directors, screenwriters, and crew members as independent contractors instead of employees. Understanding how to navigate these requirements can make your film production both legally compliant and financially viable.

The ABC Test: AB-5’s Cornerstone

Under AB-5, workers are presumed to be employees unless they meet all three criteria of the ABC Test:

1. Control: The worker must be free from the control and direction of the hiring entity in how the work is performed, both under the contract and in actual practice.
2. Course of Business: The worker’s services must be outside the usual course of the hiring entity’s business.
3. Independent Trade or Business: The worker must be customarily engaged in an independently established business or trade of the same nature as the work being performed.

Failing to meet any of these criteria requires the worker to be classified as an employee, granting them protections like minimum wage, overtime pay, and benefits.

Film Production and the Course of Business Prong

The Course of Business prong of the ABC Test can be particularly tricky for film productions. By their nature, films require collaboration from a wide range of professionals whose work is integral to the production. However, structuring your film production as a project-specific LLC may offer a solution.

How a Project-Specific LLC Can Help

If you form an LLC specifically for producing a single film and intend to dissolve it after the project is complete, you may have a stronger argument that your workers are independent contractors. Here’s why:

1. Temporary Nature of the LLC
   A project-specific LLC is formed for a limited purpose—producing one film—and will cease to exist once the project concludes. Workers engaged by the LLC are thus not performing ongoing work for a business but are instead hired for a one-time project.
2. Film Production as Project-Based Work
   By framing the film production as a unique project rather than an ongoing operation, the LLC can argue that the workers’ services are not part of the usual course of its business. For example, the LLC is not hiring crew and directors for a slate of films or continuous operations but is focusing solely on completing a single production.
3. Aligning with Independent Work Patterns
   Many directors, screenwriters, and crew members already work as freelancers or independent contractors for multiple projects and companies. Highlighting their existing independent trade or business relationships strengthens the argument that their work for the LLC fits the independent contractor model.

Control and Independent Trade

While the Course of Business prong is often the most challenging in film production, filmmakers must also ensure they satisfy the Control and Independent Trade or Business criteria:

• Control: Workers must have autonomy in how they perform their roles. For instance, directors should have creative freedom, and crew members should operate with minimal supervision regarding the methods and tools they use.
• Independent Trade or Business: Workers should have other clients, advertise their services, or operate as a separate business entity. This demonstrates that they are not economically dependent on your LLC.

Why AB-5 Applies Regardless of Choice of Law

Some filmmakers may consider including a provision in contracts stating that another state’s laws, such as New York’s, apply to their agreements. While New York uses the common law of agency rather than the ABC Test, this approach is unlikely to shield your production from AB-5 if the work is performed in California. California labor law will typically override contractual provisions that seek to apply another state’s law.

Practical Steps to Comply

To ensure compliance with AB-5 while retaining flexibility in your film production:

1. Structure the LLC as Project-Specific: Form an LLC specifically for the single film, and dissolve it after production is complete.
2. Draft Clear Contracts: Specify that workers have creative autonomy and are responsible for determining how to execute their tasks.
3. Hire Independent Professionals: Work with individuals who have their own businesses, advertise their services, or take on other projects simultaneously.
4. Avoid Employee-Like Control: Do not set fixed hours or dictate how tasks should be performed. Provide workers with the freedom to use their own tools and expertise.

Conclusion

California’s AB-5 law may have introduced stricter requirements for classifying workers, but its principles are rooted in case law and federal labor protections. For filmmakers, forming a project-specific LLC and hiring professionals on a temporary, project-based basis can help satisfy the ABC Test while maintaining flexibility. However, it’s essential to meet all prongs of the test—Control, Course of Business, and Independent Trade or Business—and ensure that your contracts align with AB-5’s requirements.

Legal compliance under AB-5 is crucial for avoiding costly misclassification claims. Consulting with an attorney experienced in entertainment and labor law is the best way to ensure your film production is both legally sound and efficient.