California Assembly Bill 5
As you may already be aware, California Assembly Bill 5 (“AB 5”) is making its way through the California legislature and seeks to change the way that workers are classified and paid in California. The bill was passed by the California Assembly in late May and has now been referred to the Senate for review. The Senate has until Sept. 13, 2019 to pass the bill.
The bill stems from the 2018 California Supreme Court ruling in Dynamex Operations West, Inc. v. Superior Court (see our post on the decision here ). The Dynamex decision significantly altered the analysis applied to determine whether a worker is classified as an employee or an independent contractor. The new analysis makes it more difficult for employers to classify a worker as an independent contractor. The Court in Dynamex adopted the so-called “ABC Test” to determine the appropriate classification of a worker as an employee or an independent contractor. Under the ABC Test, a worker is presumed to be an employee rather than an independent contractor, unless the hiring entity can establish:
- That 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;
- That the worker performs work that is outside the usual course of the hiring entity’s business; and
- That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Aimed at ensuring that workers receive protections like minimum wage, healthcare and workers’ compensation benefits typically only afforded to employees and not independent contractors, as well as at pursuing incremental tax collection, the decision is disruptive to employment models often utilized by the gig economy and the entertainment industry.
Now, the California legislature is seeking to codify the Dynamex decision with AB 5. If passed, AB 5 would apply the ABC Test to all workers in California, creating the presumption that workers – including seasonal workers, freelancers and potentially loaned-out workers – are employees rather than independent contractors. The law’s passage could have a significant impact on the entertainment industry. Failure to pay such individuals as employees could expose production companies to subsequent collection of employer payroll taxes and penalties.
Cast & Crew is tracking the bill closely and will continue to inform customers of changes as they may occur. You can also visit our Labor Compliance Blog for regular updates to changes in the law that impact the entertainment industry.
If you have any questions, please email Compliance@castandcrew.com.