The Real Cost of Circumventing
Written by @justdontcallmeeddie
Circumvention: No, it's NOT a tradition practiced on male infants NOR is it a witty name for an adult film convention.
Circumvention [Circumventing] is the act of bypassing your client and going direct to his end-client; and allowing that end-client to hire you directly, thereby "circumventing the individual or company that originally made the connection for you to begin with.
so what does that mean?
When a stagehand is introduced to the employer by a labor company, who then purposefully and deceptively solicits the employer, with the intention of soliciting jobs unknown to the labor company; or
When the employer or hiring company uses contact info provided by the labor company or solicits the stagehand directly, with the purposeful and deceitful intention of offering the stagehand to work as a freelancer without the labor company's knowledge,
We’ve noticed that this trend has grown recently and it actually has a negative impact for all stakeholders involved. We wanted to share a little insight about how and why this behavior has a long term negative influence.
so what's wrong with that?
It's widely accepted as unethical (although some companies see no malpractice). And certainly there are reasons to go around or go direct some times. But those legitimate reasons are specific and do not lend to the negative impact on morale or quality of service that direct circumvention can have - and I'm faced with two cases of it right now.
For the most part, the overall stagehand community, and the companies that hire crew through crewing companies, understand and respect the industry ethics surrounding their relationship with each other and their union brothers. Sadly, sometimes an innocent stagehand can be adversely affected if the hiring company puts pressure on them, while they are trying to be noble. The crewperson may actually run the risk of losing the client either way [thru the labor company and direct].
In short, it’s understood that stagehands are expected to protect the relationship between the end-client [the hiring company known as employers] and the stagehand's actual client [the labor company, labor broker or independent labor coordinator]. The end client is not the stagehands client to begin with.
still don't get it?
Imagine when we were kids, and we're all out on the playground, and you just happen to be an amazing friend that was generous ands selfless in giving. You liked to see your friends happy, so ever day you brought some brand new toy, never been touched, nothing broken off, everything perfect. And there was this one kid that every day, he would take the toy, push you down, and walk away laughing. But you being the amazing you that you are, keep bringing a new toy, every day, believing that he must have learned his lesson by now. He must see the folly of his ways now. This time, maybe he'll bring some of his toys, and we'll build a toy empire...
But every day is much like the last one. The new toy is stripped away, you are pushed to the ground, your friends won't help you out and instead just laugh at you while astonishingly enough, asking if they can play with your toys, but with the other kid. You think this sounds far fetched or not aligned. Well consider, just our company spent thousands on recruiting and double that on marketing last year. All that investment into marketing, the time, the resources, the money - and we earned the right to monetize them. So how fair is it if Jeff started hiring me just long enough for me to put on other hands, in essence, strangling myself. Just another story of a school yard bully.
it can't all be bad?
No, but not all direct hires should be considered circumvention. On occasion, the chemistry between a technician and hiring company is so strong that the hiring company may desire to add them to their regular staff. At that point, the etiquette generally is that the hiring company will approach the crewing company and announce their intention to hire the technician as a regular employee, an action the crewing company does not discourage. In fact, it’s always an honor, as it’s a reflection of the respect that the hiring company has for its crew. For us, it’s always a happy moment when we get to call the crew member and tell them about the offer.
So why do we discourage the practice of going directly to our clients or allowing our clients to solicit our crew members directly? It's only fair to explain why this affects us.
the negative effect on crewing companies
Every year, crewing companies invest a great deal of time and resources into the overall commercial operations of the company. A significant portion of our revenue is paid out directly to the crew members working on the jobs. However the balance of that revenue is used to support marketing costs, recruiting efforts, sales expenses, our operational budget and insurance premiums. Add to that the rising costs associated with regulatory compliance and various taxes and permits. The net profit from furnishing freelance or temporary employees as a service is not as much as some might believe. That doesn't include mistakes in payables or receivables or the cost of service recovery when a tech fails to deliver and we have to refund a client yet still bear the cost of labor.
Therefore, we depend on the revenue that we earn from our clients, to cover the projected expenses and manage the cash flow. For each technician or engineer we have on our roster, there is a cost associated with their marketing and soliciting them, and we expect to be able to recoup that investment.
Even moreso when our investment is what provided that crew member to hone their skills to begin with. Many times, well get a stagehand when they are still green. By the time their learned enough and have the experience to charge higher rates, we've invested quite a bit into them and looking forward to reaping the reward with them.
These are among the main reasons how circumvention impacts us. However, you'll read below that we also share some other negative impacts with those wayward stagehands as well.
the net effect...
As discussed, the cost of recruiting, operations, sales, marketing, accounting and compliance are fixed costs and a large percentage of the annual earnings. Therefore, when we sales are impacted and we lose revenue, our only recourse is to raise prices, but not necessarily in line with increased service. When prices exceed the equilibrium point of what the market will bear, we start to lose more sales and the price to value ratio tips beyond our ability to stabilize the business. End of story.
Okay, same scenario, but we don't want to give up without a fight. Since we can't raise prices, but we're still not profitable, our only other recourse is to cut costs. Since prices are still at the top of its equilibrium point, we can't cut services without kickback from the client, so we have to cut crew rates, the single largest line item in the budget. Now we're offering lower rates, with cranky and untrusting clients. And we're back to poor morale - and evenually.,.. yes, you guessed it... End of story.
But long before those two scenarios play through, the first thing you'll feel is less jobs and the jobs you are offered aren't the premium ones. Now, you might say, "hey, don't punish me. I stayed loyal.' Yes, perhaps that's true, but it's not personal. You're getting crappier jobs and less of them because there just aren't any jobs to offer you. Your client stealing colleagues tied those up. At this point, who cares about Karma and the fact that you did it all right. You're broke, you're having a hard time finding legitimate work and not it's End of story for you.
what does it all mean?
Okay, admittedly those are extreme scenarios, but don't be fooled. They are very realistic. But I know what you're thinking, "Maybe crewing companies are a thing of the past and this is darwinism eating up the weak?"
Yeah...not quite. What we haven't discussed yet is the legality of what these wayward colleagues are doing. Right now, in the US, and especially in California, legal battles are being fought that will change the face of how we crew shows. Regardless of the direction these battles fall, the process is already in motion as a regulating and revenue agencies all try to assert their standards and muddy the waters.
In the end, no matter how we are classified, legislation is going through that will make crewing companies more important that ever. Frankly, many of our California production company brothers are breaking the law every day with their hiring practices and payments to stagehands.
Don't believe me, research for yourself about independent contractor compliance and you'll be shocked to find out that even the most legitimate independent contractor, the high value V1's, L1s and A1s cannot be hired in California legally without following California's Wage Order #4 addressing the length of your workday, overtime, meals and breaks and even reimbursable expenses. They also don't realize that if they hire an IC that doesn't have workers comp insurance, even if they are sole proprietors and exempt from having to cover themselves, the employer must list them on their policy and pay the appropriate percentage of their earnings for Workers Comp.
Confusing? Yes. But this is what we do and why you might not think we earn our paychecks, sitting in our soft chairs in the air conditioning with a nice clean shirt on. But us labor coordinators and crewing specialists have a hard job - that's getting you guys work, form clients that prefer not to pay legit rates, while you guys bitch and whine and we have to hear it from both sides. But hey, we love you guys, and that's why we do it. Cuz as I hope you realize now... We certainly ain't getting rich from it.
I hope you'll have a better understanding of why we make you sign Non-Circumvent Agreements and why we're forced to enforce them. We're not trying to be dicks. We're just trying to keep everyone happy and well fed.
Thanks for following along.
additional resources for self-research