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California’s New Employment Law and Its Effect On The Entertainment Business

California’s New Employment Law and Its Effect On The Entertainment and Music Business
By Justin M. Jacobson, Esq.

In response to a wave of misclassification by employers, in 2019, California introduced new legislation.  In particular, this legislation was passed in order to protect California citizens by reducing worker misclassification.  Prior to this legislation, there were a lot of issues on the classification of individuals by companies across a variety of service-driven industries.  In fact, many of these businesses wrongfully classified their workers as “independent contractors” rather than as “employees.”  This misclassification caused these “independent contractors” (who might have actually been “employees”) to not be entitled to earn traditional “employee” benefits such as the standard minimum wage, paid sick days, health insurance, paid parental leave, unemployment insurance as well as scheduled paid rest breaks during their workday.

Specifically, this new legislation attempted to narrow the language for those who are considered “independent contractors”, to ensure that more workers are properly identified as “employees.” As a result of the new law, “workers can only be classified as independent contractors [. . .] if (1) they are free from control and direction of the company that hired them while they perform their work; (2) the worker is performing work that falls outside the hiring company’s usual type of business; and (3) the worker has their own independent business or trade beyond the job for which they were hired.”  If the individual does not satisfy these criteria, then that person is more akin to an “employee” and must be classified as such. The individual would then be entitled to traditional employment benefits from the hiring business. The statute also provides the State of California and each of its individual cities with the right to file suit against a company for worker misclassification. This statutory right even overrides any existing arbitration provisions that many businesses include in their standard hiring documents in an effort to shield themselves from worker complaints.

As a result of this law, some industries are currently exempted from these rules. For instance, doctors, psychologists, dentists, podiatrists, insurance agents, stockbrokers, lawyers, accountants, architects, engineers, veterinarians, real estate agents, marketing professionals, travel agents, graphic designers, fine artists, and repossession agents are all not subject to it.  There are also exemptions for photographers, freelance writers, and editors or newspaper cartoonists who make 35 or fewer submissions a year.  In addition, other exempted parties include hairstylists, barbers, aestheticians, cosmetologists, and manicurists, as long as they set their own rates, are paid directly by their clients, and schedule their own appointments.  Furthermore, salespeople are exempt if their pay is based solely on actual sales.  While many industries are exempt from this law; it seems that the music industry’s associations could not negotiate an agreement on terms, so no exemption or other protection was extended to them.  While not agreeing on a particular solution, in response to the introduction of this law, many prominent music lobbying associations still chimed in to voice their displeasure.

Specifically, the newly passed legislation may directly affect the California music and entertainment industries in a variety of ways. For example, many musicians as well as record labels and music publishers located in California may now be subject to the newly revised law since they collaborate or otherwise work with third-parties. This is because the recently enacted law expands the definition of an “employee” to apply to any person who provides any service that relates to the hiring entity’s “usual course of business.”  In these cases, any third-party used by an artist, label or publisher based in California may be classified as an employee when they are commissioned to perform any work related to the hiring party’s business.  This might apply to a studio engineer, mixer, producer, session musician, songwriter, or background vocalists as well as to any backup dancers, music video creators (videographers), photographers, tour managers and roadies utilized by these parties.

Therefore, as a result of this legislation, the hiring musician, recording entity or publisher would now need to provide traditional employee benefits to any third-party that provides them with music or other entertainment related services.  This is because the individual’s actions may be seen as part of the hiring entity’s “usual course of business.” This is in contrast to past arrangements that existed with freelancing music professionals. Specifically, many standard entertainment deals are very flexible and are usually fashioned with a flat-fee payment in exchange for all of the work performed for an entire project. For example, an audio engineer might only earn a set fixed payment rate to mix or master a track or a producer might charge a flat-fee buy-out for the sale of an instrumental (“beat”) to a musician. In addition, it is also typical for some industry individuals to enter into “spec” agreements.  These arrangements are ones where no immediate income is earned; and, instead the party earns a percentage of the future income generated from that work (if any). As a result of the California statute, many record producers and recording musicians may cease hiring studio or other independent musicians for their tracks to avoid having these individuals classified as “employees.” This classification would then require the payment of employment benefits to them, which may substantially increase the project’s budgeted cost. Instead, the musician may either just play the material themselves or use a computer to generate the desired music and sounds. This new law might also cause artists touring in California to be less inclined to hire other musicians to play with them live because they might have to pay them as “employees.”  This would again cause the parties to incur additional expenses that might inflate the entire cost to operate the business by “30%-40% or more.”  This increase in cost might make the entire operation impractical for them.

Overall, this new law has far reaching implications across a variety of service-driven sectors. In particular, since the music and entertainment worlds were not exempted from coverage, it may have a profound impact on these businesses’ operations, including a potential substantial increase to their overall operational costs. Therefore, as a result of this new legislation, there may be more individuals and businesses re-locating or otherwise operating out of other states and markets. This might cause other entertainment hubs, such as New York and Nashville, to grow as more parties aim to avoid the new California employment regulations.

This article is not intended as legal advice, as an attorney specializing in the field should be consulted.

© 2022 Justin Jacobson Law, P.C.