Hollywood faces ‘devastating’ costs of state bill targeting Uber – The Hollywood Reporter
This fall, Hollywood studio executives might be shocked when it comes to their budgets. A bill running through the California legislature that targets gig-powered businesses like Uber and Postmates could upend long-standing showbiz practices by reclassifying dozens of independent contractors as employees, and could render corporations useless. tax-lucrative loans.
The bill, AB 5, which the state assembly passed on May 29, is designed to protect workers from being falsely classified as independent contractors and therefore negate employee protections such as the minimum wage , overtime and workers’ compensation. It aims to codify and extend the 2018 California Supreme Court Dynamex decision, and would assume that every worker is an employee – with a few exceptions for people like barbers and realtors – unless a company can prove that the worker meets three criteria of the so-called ABC test. The requirement that makes Hollywood nervous is that the independent contractor must perform tasks outside the normal course of business. “This test will necessarily prevent talent from being an independent contractor if it is successful in its current form,” said specialist lawyer Rick Genow, whose clients include Debra Messing, Anthony Anderson and Henry Golding. “The economic impact would be somewhat devastating for talent and studios.”
An apocalyptic scenario for Hollywood would look like this: a law is enacted with no exemptions for entertainment workers; companies choose to treat everyone like employees for all intents and purposes to avoid complications; and loans are effectively dead in the water. The last step would be particularly painful, as Trump’s tax cuts in 2017 killed trade deductions for employees.
Tax rules are independent of Workforce rules and are not directly covered by the legislation, which means that the status quo could remain for workers in this regard. But Hollywood Commercial Director Bob Jason of NKSFB wonders if many companies would choose to treat someone as an employee for one purpose (work) and an independent contractor for another (tax) – especially when one misclassification results in financial penalties. “Studios, like everyone else, act in their own best interests,” says Jason. “If they feel like they are exposed, they will undoubtedly take action to protect themselves, and that would be by treating many more people like employees.”
Frankfurt Kurnit entertainment lawyer Tricia Legittino says a star is unlikely to file a misclassification complaint for being labeled an independent contractor, but that doesn’t mean studios should roll the dice against ambiguity. Government officials could choose to register at any time. “You never know when and where they’re going to do audits,” she says. “This is really going to completely change the structure of the entertainment industry from a labor law perspective.”
It is often financially beneficial for talent to start their own business and then that business lends its services to other employers instead of those employers who hire them directly. Sales manager Harley Neuman, who represents Ellen DeGeneres and Scarlett Johansson, adds, “It would be catastrophic for our business if the loans were to disappear. Neuman used to recommend that anyone making at least $ 250,000 a year from multiple sources take out a loan for tax benefits. Now he sets that bar at $ 100,000 – largely because it allows the person to deduct commissions paid to agents, managers and other representatives. “It would be a double whammy to lose the employee business deduction and lose the ability to use a loan,” Neuman said.
It’s unclear how much this bill would cost the entertainment industry in total, but the state of California estimates that it loses $ 7 billion in tax revenue each year due to alleged misclassification across industries. Economist Chris Thornberg of Beacon Economics says the bill aims to solve a problem that has been overblown. “The California economy has the lowest unemployment rate it has ever seen,” he says. “People have options, and they always choose to drive Uber or Lyft. The idea that these people are exploited and need help does not hold water. He expects film and television productions to leave the state or find ways to cut costs. “The reaction is usually a lower base salary,” says Thornberg. “For the industry to get rid of it, people are going to end up getting more benefits, more comfort, and less take-home pay.”
In California as a whole, and particularly in the ridesharing and delivery industries, it is often assumed that companies are the ones looking to classify workers as independent contractors. But the entertainment is unique, and lawyer Ivy Kagan Bierman, who represents Hollywood companies on labor, says it’s incorrect to make that assumption in the industry. “In fact, in a lot of these situations, it’s the talent and its representatives that push for status,” says Kagan Bierman. “Many times a client called me and said, ‘We are under a lot of pressure to classify this person as an independent contractor.’ ”
She says the entertainment industry has carefully scrutinized the classification of workers for decades, and her clients will refuse to designate someone as an independent contractor if that is not appropriate. “Even if someone only works one day, they might still be an employee,” she says. “For my clients, it’s not about the length of employment. The question is whether they pass the test.
Economist Kevin Klowden of the Milken Institute has identified a subset of Hollywood workers who might see an advantage in this particular test: people who do not work enough in California to qualify for benefits through a guild or union. . Under this bill, they could be entitled to health benefits if they work full time. But, nothing prevents a company from laying off its “employees” at the end of any production.
Meanwhile, Thornberg says it is “the lawyers” who would benefit the most from AB 5. “I think it’s obvious,” he said, adding, “Hollywood has worked in a very specific way for a long time. I find it hard to assume that they were wrong.
The wording of the bill is not final, so some of the potential negative impacts could be avoided through amendments. The deadline for passing legislation before sending it to Gov. Gavin Newsom’s office is September 13. The California Chamber of Commerce is pushing lawmakers to add an exemption for B2B contracts – a potential liferaft for loans – and one that would allow people to outsource for short-term projects. CalChamber suggests broader exemptions for people who want to set their own schedule and calls in videographers, freelance writers and musicians.
On June 12, the Writers Guild of America sent a letter to the author of the AB 5 bill, expressing concern that misclassification could lead to unfair competition for responsible employers. (Under the WGA collective agreement, writers who use loans are already guaranteed to be treated at least as well as employees.) IATSE Local 80 Commercial Officer Thom Davis, says the 3,600 members of his union are already being treated as employees and won’t be affected, and SAG-AFTRA declined to comment.
Many lawyers, business leaders and economists who spoke with THR say the industry could suffer collateral damage in tackling employee misclassification if the law is passed in its current form. “It’s always easier to set course rather than trying to undo something that has already been done,” says Genow. Singer Burke’s tax director, Greg Zbylut, adds, “I don’t think anyone in Hollywood should ignore this. They say bad facts make bad law, and here we have something nightmarish. “
A version of this story first appeared in the June 19 issue of The Hollywood Reporter magazine. To receive the magazine, Click here to subscribe.