California's freelance event professionals are facing uncertainty and potential chaos as California Assembly Bill AB-5 makes its way through the State Senate. This ground-breaking, proposed amendment to the California Labor Code, passed by the Assembly in May, is certain to have an unpredictable impact on the industry and possibly devastating most freelancer's business. Sadly, most of the industry isn't even aware of it. While other industries are bracing for the broad-sweeping, new legislation by educating stakeholders, meeting with local representatives and working on compliance strategies, the freelancers (stagehands, technicians, engineers, event producers, event planners, florists, photographers, chefs, parking attendants, etc) and the employers hiring them are mostly apathetic and in denial.
A Brief Look At AB-5
A brief look at AB-5As independent contractors, freelancers do not have the rights and privileges reserved for employees. Unlike popular belief, clients are not required by law to pay freelancers or independent contractors for overtime, provide meals, reimbursement for travel or provide break periods. These perks are simply negotiated into an agreement between freelancer and employer, whether intentionally or not, and is simply an incentive for freelancers to take work from one client over another. AB5 means to change that. The bill expands on last year's groundbreaking California Supreme Court decision last year known as Dynamex. The ruling and the bill instruct businesses to use the so-called “ABC Test” to determine whether a worker is an independent contractor or an employee. To hire an independent contractor, businesses must prove that the worker:
(A) is free from the company’s control,
(B) is doing work that isn’t central to the company’s business, and
(C) has an independent business in that industry.
If they don’t meet all three of those conditions, then they have to be classified as employees.
Failing The ABC Test
Last year's decision requires all employers with freelancers that fail any ABC Test criteria to treat those freelancers like employees, complying with the applicable EDD Wage Order. The court's decision does not require companies to convert them into true employees, just provide the same rights as employees in related Wage Orders - including OT after 8 hours, meals by the 5th hour and OT after 40 hours of work in any workweek, travel reimbursements, etc. However, they employers are still not required to pay employer taxes, withhold income taxes or provide workers compensation insurance for contractors that have their own policy in effect.
Should this law go into affect in January, all freelance workers failing the ABC Test may only be hired, whether full-time, part-time or seasonal, by employers willing to invest into making them employees. Employers wanting to hire a couple more video utilities or scenic carpenters will be required to make employees out of their previously contingent workforce, providing insurance, indemnifying them from liability, paying employer taxes and providing benefits, as required by local employment laws. Good news is, all previously freelance workers will have all the same labor protections, wage guarantees, and benefits that all employees get, including unemployment insurance, health care subsidies, paid parental leave, overtime pay, workers’ compensation, and a guaranteed $12 minimum hourly wage. Bad news is, jobs for full-time technicians and stagehands are scarce due to the dynamics of the event calendar.
Impact On Employers
Most freelancers easily pass part A of the test. Many noteable freelancers will pass part C. But part B is so broad and relies on the business structure of the employer, scope of work of any given job and compliance by the freelancer, that it's virtually impossible to circumvent. Currently, employers are only required to pay freelancers based on the applicable Wage Order, but they may continue to classify them as contingent workforce. When it goes into effect in January, the new law will have a direct and indirect impact on companies typically accustomed to hiring freelancers.
Many event services companies have office staff and limited technical staff - to maintain the sales support, business operation and pre-production operations. Since the production of an event may have larger staff requirements, but run only days or weeks, most companies manage the event's dynamic staffing needs by hiring from a community of independent contractors and consultants. Otherwise, these companies could see their headcount requirement pendulum back and forth from tens to hundreds and back to tens from one week to the next. Although California is a Right To Work state, hiring and laying off and rehiring hundreds of people from one week or month to the next would be an HR nightmare. Companies dependent on scalable workforces simply can't afford to keep an overhire employees on payroll until their next large event.
Impact On Freelancers
Since the anchoring force is the broad scope of the "ABC Test," unless lawmakers provide the same exclusion for event professionals, such as has been done for medical clinicians, hairdressers, and real estate agents, then even the most professional, compliant and legally-organized freelancer will be affected.
It won't matter if a freelancer is organized as an LLC or C-Corp, has its own Workers Comp Policy, has an office space and company-issued American Express Platinum Card. If “the freelancer that performs a job in the same line of business of the hiring company,” means that the skills and duties of the freelancer are in-line with the business-type of the hiring company therefore the freelancer must be classified as an employee.
Of course, if a hiring company that hires “the freelancer to do a job that is different from the hiring company’s line of business,” means that the freelancer is hired to do a job in his/her specialty and is not in-line with the hiring company’s type of business,” then the freelancer passes the ABC Test and can be truly classified as an independent contractor.
If this Bill is signed into law, it's unclear how companies will react. Expect this law to have the most impact on companies reliant on contingent workforce such as Production Companies, Scenic Shops, Rental Houses, AV Companies, Lighting Companies and Video Production Houses. Certainly, the way companies will meet their waxing and waning headcount needs depends on the type of company, the type of worker, the availability of scalable options and certainly the enforcement of the law. Most certainly the passage of AB-5 will result in the expansion or creation of an enforcement agency and the hiring of investigators and auditors.
There is still time to pound on your representative's door to demand they push for an exclusion for event professionals, but if the law goes into effect in its current form, the most likely reaction will be among the following:
Reliance on Labor & Staffing Companies
California already has a vast number of local labor providers compliant with current and proposed Labor Code regulations. Companies such as Labor Resource Management and Rhino Staging offer employers the ability to hire event technicians, engineers and stagehands like temp employees similar to agencies like Apple One or Robert Half. The workers on their roster are still free to take work from other employers and neither entity attempts to control the calendar of the employees on their roster, so the availability of the same crew is unpredictable, but compliance is guaranteed. Whether other small labor providers or national providers, doing business in California, reorganize to comply by the time the law goes into effect is a matter of continued debate.
Exclusive Use of Labor Unions
The safest option would be for companies to sign Term Agreements with Labor Unions such as IATSE, IBEW and the Teamsters. They have an exclusive and well-established labor pool, coverage in every key market in California, support from state agencies and local municipalities and being a signatory of their Collective Bargaining Agreement assures companies access to qualified and experienced personnel, and guaranteed regulatory and legal compliance.
Assignment of Employer of Record to Temp Agencies & Payroll Agencies
Some payroll agencies offer clients dynamic and scalable workforce solutions from a roster of which the Agency is listed as the Employer of Record. Similar to Labor Unions, the Agency pays the mandated employer tax and holds the workers' comp insurance, and the companies simply hire their contingent workforce from the Agency. Some agencies may allow companies to place its workers on their roster, subject to Agency guidelines and approval, but the varying levels of coverage in markets outside their jurisdiction can be a drawback.
Reorganizing Existing Workforce Compliance
Some companies may reorganize how they conduct business to accommodate the staffing requirement. This would impact whom they hire and for what roles, or may result in them abandoning some parts of their business altogether to comply with Part B of the ABC Test. We might expect to see production companies no longer employ Video Engineer, for example, as employees so that they may continue to hire video engineers as freelancers. It will be interesting to watch how that affects the overall quality of field leadership when companies cannot depend on a reliable and consistent field leadership structure.
New Associations and Workforce Solutions
There's an opportunity to form altogether new solutions for a reliable workforce statewide or possibly nationally. The creation of associations or strategic partnerships with smaller labor providers or the companies themselves could give rise to workforce solutions similar to the structure of the Ad Specialty and Promotional Products Industries. Such an organization, hiring its workforce as employees and offering them on loan-out to companies would ensure adequate coverage, availability of qualified personnel and access to higher discounts through collective bargaining with insurance carriers, financial institutions, and other employee benefit solutions.
California employers are experienced with the complex and ever-changing labor and tax code and their industry advocates are already petitioning lawmakers to add exclusions for their industry when they return to chambers in September. Since there hasn't been much response to the bill from associations or advocacy groups representing event professionals, freelancers should contact their local representatives directly, before they return to Sacramento. Deadline to influence their decision is Sept 13.
Fact is, for decades the entertainment industry has been exempt from similar workforce regulations and challenges because of its unique organizational structure, widely-accepted industry standards, and exclusive relevance of trade protocols. There continues to be a posture of “We don't follow those rules because those rules can't be applied to us.” Admittedly, things haven't changes much in the last 50 years, but it's uncertain if that will stay true for another 50 years. This may be the beginning of a new way of doing things.