Question for FilmTVLaw.com:

Assembly Bill AB 5 regarding contractor vs employee classification is geared towards the gig economy especially Uber and Lyft, but it will have effect on independent musicians. Would it have any impact on independent films and television series and how? It would be great to write on this in your next article.

Answer by Brandon Blake, Entertainment Lawyer:

Thanks for a great question about the independent contractor law California AB 5, which has now passed and become the new California Labor Code Section 2750.3, which eliminates much of the independent contractor status in California. If you have not yet, please take a look at my library of entertainment industry articles at https://filmtvlaw.com/entertainment-lawyer-qa.

Unless there are some entertainment industry amendments next year, as of January 1, 2020, California film and television producers will lose the option to hire most production crew as independent contractors. Having now reviewed the new California Labor Code Section 2750.3, I do not see many exemptions available for the film and television industry, and in fact, the film and television industry has been specifically targeted by the new law, removing exemptions otherwise available to the publishing and print advertising industries.

Background of AB 5

The legislation originally known as AB 5 was intended to deal with some abusive labor practices primarily in the California transportation industry, specifically in harbor trucking and for ride sharing apps like Uber and Lyft.

But with arguably some great intentions, one of the most sweeping labor laws in California history has been passed, one that is not limited to the app or gig economy, and one that by its very language specifically targets the film and television industry.

Ironically, both the harbor trucking companies and Uber and Lyft have vowed to continue hiring drivers as independent contractors under some apparent loopholes that will leave the original targets of the law to skate through this without doing much more than increasing costs for their independent contractors.

The New Test for Independent Contractor Status

Here is the new language of the Labor Code Section 2750.3:

2750.3. (a) (1) For purposes of the provisions of this code and the Unemployment Insurance Code, and for the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:

(A) The person 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.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

I think it is safe to say that part 1(A) above is written so broadly that by the nature of the language it would be practically impossible for any producer to claim that a member of a production crew was “free from the control and direction of the hiring entity.”

However, part 1(B) is equally difficult for a film or television producer, given that the crew member would most certainly be performing services within the scope of the business of the production company.

That means that the California entertainment industry could only look to the exemptions for possible ways to continue to hire cast and crew as independent contractors.

Exceptions to AB 5 and Labor Code Section 2750.3

One of the primary exemptions from the new AB 5 comes in defining certain occupations as “professions” which are exempt from the protections of the new Labor Provisions. However, anyone looking for a film and television specific exemption to AB 5 is going to get an unpleasant surprise in Section (a)(2)(B)(ix), where film and television crew are specifically not included in an exemption for photographers:

(ix) Services provided by a still photographer or photojournalist who do not license content submissions to the putative employer more than 35 times per year. This clause is not applicable to an individual who works on motion pictures, which includes, but is not limited to, projects produced for theatrical, television, internet streaming for any device, commercial productions, broadcast news, music videos, and live shows, whether distributed live or recorded for later broadcast, regardless of the distribution platform.

What does that mean? It means that one of the only possible exemptions for film and television professionals was specifically removed by the legislative action, to make clear that film and television crew must now be considered employees and not independent contractors.

No Effect on The Entertainment Industry

As part of the legislative history, the legislature stated that they relied on film and television industry executives, as well as entertainment attorneys, who testified that there would be “no effect on the entertainment industry” by the passage of AB 5.

I am very surprised that was the opinion of the entertainment industry members that they asked about AB 5. However, I can only guess that the reason might be because many studio and network projects are produced in New Mexico, Georgia, Louisiana and Canada, and hence will not be affected by the new California Labor Code provision, and if only larger productions were considered, it is true that most of the crew is already on payroll. Unfortunately, it seems the independent film and television community has been overlooked.

Contract Solutions and Loan-Outs

There may be certain other provisions of the new Labor Code Section 2750.3 that will provide an independent contractor option for certain members of the crew, specifically writers and producers.

Moreover, some additional members of the crew might also be extended independent contractor status, but not without the imposition of new costs on these crew members.

For the above-the-line cast and crew, this would seem to strike at the heart of the loan-out company, taking away one of the last ways that business costs and expenses can be deducted, given that the Tax Cuts and Jobs Act took away business deductions for employees.

It’s imperative that anyone planning a production in 2020 hire an entertainment law firm like ours to provide pre-production and production legal for the project. Using any crew or employment contract drafted before January 2020 for a California production in 2020 and beyond will potentially subject producers to substantial tax penalties and lawsuits by both cities and the State of California, because AB 5 creates separate causes of action for California cities where the work is performed. That means if you hire an independent contractor in certain cities, the city itself can file a lawsuit against you personally. All it takes to get the ball rolling is for one contractor to sign up for unemployment benefits after the shoot.

Please feel free to contact our firm about film and television production legal for your next film or television project. As with all complex entertainment matters, please seek experienced entertainment legal counsel before making legal and financial decisions. This article is for informational purposes only and does not represent legal, accounting or tax advice. Do not act on this article without hiring legal representation.

- By Brandon Blake, Entertainment Lawyer