How New AB-5 Law Affects the Entertainment Industry in California
The state’s attempts to regulate gig workers like Uber and Lyft drivers have had unintended consequences
Hello, everyone!
Today, we will discuss new AB-5 law. It is new because after the Supreme Court declined to review the case, AB5 is now officially in effect in California, retroactively from January 1, 2020.
The state’s attempts to regulate gig drivers working for companies like Uber and Lyft have had unintended consequences, particularly impacting the independent film industry. While the legislation was designed to address issues surrounding worker classification and ensure fair treatment for gig economy workers, its broad scope has inadvertently ensnared freelance professionals in other sectors, including filmmaking.
One of the primary challenges arises from the reclassification of workers under laws like AB-5, which imposes stricter criteria for determining whether individuals should be classified as employees rather than independent contractors. In the case of the independent film industry, where freelance professionals often play integral roles in production, such as actors, directors, writers, and crew members, the reclassification mandate has introduced complexities and uncertainties.
For independent filmmakers, who typically operate on tight budgets and rely heavily on freelance talent, the prospect of having to treat these individuals as employees brings significant financial burdens. It not only increases production costs but also introduces administrative overhead, such as payroll taxes, workers’ compensation, and other benefits mandated for employees.
Moreover, the freelance nature of filmmaking often requires flexibility and agility in assembling teams for specific projects. Requiring these professionals to be treated as employees may limit their availability or willingness to participate in independent productions, as they may prefer the autonomy and flexibility that comes with freelance status.
Additionally, the enforcement of regulations intended for gig economy companies may disproportionately affect smaller independent filmmakers who lack the resources and infrastructure to navigate complex employment laws. This could potentially stifle creativity and innovation within the industry, as filmmakers may be forced to scale back projects or seek alternative means of production to avoid compliance challenges.
In essence, while regulations aimed at protecting workers’ rights in the gig economy are important, policymakers must consider the diverse landscape of freelance work and its implications for industries beyond ride-sharing. Striking a balance between ensuring fair treatment for workers and preserving the vitality of sectors like independent filmmaking is essential to fostering a thriving and sustainable creative ecosystem.
What is California AB-5 law about?
State attempts regulate gig drivers working for Uber and Lyft. However, it affects independent film industry.
AB-5, a pivotal legislation enacted in California, revolutionized the framework for worker classification in the state. Traditionally, California relied on the Borello Test for determining the employment status of workers. However, with the advent of AB-5, the state adopted the ABC Test, marking a significant shift in labor classification methodology.
Under AB-5, there is a presumption that all workers are employees unless the employer can satisfy the criteria outlined in the ABC Test, emphasizing the degree of control exerted by the hiring entity, the nature of the work performed, and the worker’s autonomy in their trade or profession.
Initially anticipated to reclassify approximately 2,500,000 workers previously deemed independent contractors as employees, AB-5 aimed to rectify widespread misclassification practices. While the legislation initially targeted prominent gig economy players like Uber and Lyft, the passage of Proposition 22, a ballot measure, exempted certain app-based transportation and delivery companies from AB-5’s scope.
However, despite legislative efforts, achieving universal compliance with the reclassification mandate proved challenging. Misclassification persists due to various reasons, including employer ignorance of labor classification protocols or reluctance to assume the financial burdens associated with employee status, such as payroll taxes and benefits provision.
For workers, misclassification translates into adverse consequences. They face elevated tax burdens and are deprived of fundamental employment protections, including overtime compensation, workers’ compensation coverage, paid sick leave, and other benefits crucial for financial stability and well-being.
Employers found guilty of misclassifying employees as contractors face stringent scrutiny from California authorities and may incur substantial fines as penalties. Thus, adherence to AB-5’s provisions is not merely a legal obligation but a crucial measure to safeguard workers’ rights and uphold fair labor practices within the state.
Who is a contractor under AB-5?
Under AB-5, a worker is considered a contractor if they meet all three criteria outlined in the ABC Test:
- Control: The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact. This means the worker has control over how the work is performed and isn’t subject to micromanagement from the employer.
- Course of Business: The work performed by the worker is outside the usual course of the hiring entity’s business. In other words, the services provided by the worker are not central to the hiring entity’s core business activities. For example, if a company hires a plumber to fix a leak in their office, and the company’s primary business is software development, the plumber would likely be considered a contractor because plumbing services are not part of the company’s core business.
- Independent Trade or Business: The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. This means the worker has their own independent business or profession separate from the specific work they’re performing for the hiring entity. They may have their own clients, advertise their services, and operate as a separate entity from the hiring entity.
If a worker meets all three criteria, they are typically classified as an independent contractor under AB-5. If they do not meet all three criteria, they are generally considered an employee, and the hiring entity is responsible for providing them with employee benefits and protections as mandated by labor laws.
Thus, already used by the U.S. Department of Labor, the ABC Test assumes a worker is an employee unless the employer can prove that:
A) There is an absence of control.
B) The worker’s business is unusual compared to the employer’s.
C) The worker is customarily engaged in a similar trade with other business entities.
No changes for union productions
Unionized productions already adhere to strict labor standards, with approximately 95% of their workers classified as employees rather than contractors. Consequently, the unions have asserted that they anticipate minimal impact from the legislation on their members.
Due to the longstanding collective bargaining agreements between unions and production companies, many of the workers in unionized productions already receive employee benefits and protections, including healthcare, retirement plans, and paid time off. These agreements have long established the employment status of workers in unionized environments, aligning with the objectives of legislation such as AB-5.
Therefore, while AB-5 introduces significant changes in the classification of workers across various industries, unionized productions largely remain unaffected. The existing frameworks and agreements in place ensure that union members continue to enjoy the benefits and protections associated with employee status, reflecting a longstanding commitment to fair labor practices within the entertainment industry
Changes for non-union projects
The implementation of AB-5 has triggered significant concerns and adjustments within non-union projects, casting a wide net of uncertainty over their operations.
The stringent criteria outlined in the California ABC Test have raised alarm bells for non-union endeavors. With the test’s emphasis on the degree of control exerted by production entities, the vast majority of cast and crew members are now subject to scrutiny as potential employees rather than independent contractors.
For instance, seemingly innocuous elements of production management, such as establishing call times, can inadvertently signal a level of control that aligns with employee status under AB-5. Moreover, the very act of working as an actor, writer, or crew member can be interpreted as integral to the core business operations of a production company, further blurring the lines between contractor and employee classifications.
Additionally, the dynamics of collaboration within non-union projects pose challenges in light of AB-5. Continuously working with the same team members on a regular or ongoing basis might be construed as dependency on a single job, reinforcing the argument for employee classification.
To navigate these complexities, production companies operating within the non-union sphere are urged to explore alternative approaches to workforce management. One viable solution involves partnering with film payroll companies equipped to streamline the onboarding process for short-term employees. These specialized entities can act as the employer of record, assuming the responsibilities of payroll management and compliance, thereby alleviating the administrative burdens associated with AB-5 compliance for non-union projects.
Who is exempt from AB-5?
AB-5, however, has carved out exemptions for specific types of professions. Notably, physicians with licenses, dentists, psychologists, veterinarians, lawyers, architects, engineers, accountants, securities broker-dealers, investment advisers, real estate licensees, and private investigators are among those excluded. Additionally, certain marketing and human resources professionals, as well as licensed manicurists and barbers who meet specific conditions, such as setting their own rates, fall outside the scope of AB-5’s regulations.
Furthermore, AB-5 provides exemptions for business-to-business contractors that satisfy 12 specified criteria and referral agencies meeting 10 particular requirements. Nevertheless, achieving compliance with these exemptions necessitates a meticulously crafted strategy to navigate the intricacies of each requirement.
Conclusion
In essence, AB-5 provides straightforward guidelines for determining worker classification through the implementation of the ABC Test. This test delineates clear parameters, stipulating that workers are presumed to be employees unless the employer can demonstrate three key factors: the absence of control over the worker’s activities, the delineation of the worker’s trade as outside the employer’s core business operations, and the engagement of the worker in similar trades with other hiring entities.
In practical terms, if an employer fails to satisfy any of these criteria, the presumption shifts towards classifying the worker as an employee rather than an independent contractor. This approach ensures a standardized method for assessing employment relationships, promoting fairness and consistency across various industries and sectors.
Furthermore, the ABC Test serves as a protective measure for workers, safeguarding their rights and entitlements under labor laws. By emphasizing factors such as control and the nature of the work performed, the test aims to prevent misclassification practices that could result in the exploitation of workers and the circumvention of labor regulations.
Ultimately, AB-5 and the ABC Test represent a concerted effort to address issues of worker misclassification and ensure equitable treatment within the labor market. By establishing clear guidelines and standards, the legislation seeks to foster transparency, accountability, and fairness in employment practices, benefiting both workers and employers alike.
Note: This post is a general overview and does not constitute legal advice. For specific legal concerns, it’s always recommended to consult with a qualified attorney.
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