Max Hacker is a partner at AltView Law Group, LLP in Los Angeles, California. His practice includes representing talent across the digital media, TV/film and music landscape. His passion for talent representation and music lead him to launch Cosmic Dust Management, an artist management company.
The entertainment and arts communities in California have flourished in part as a result of tapping into a growing network of independent contractors or, more commonly referred to as “freelancers.” However, all that growth and success attributable to the so-called “gig economy” may be in jeopardy based on a law that went into effect this January 1st.
The law, referred to as AB5, was intended to protect workers from being misclassified as independent contractors when they should be employees. On the surface, it sounds like a good thing for the individual. Workers, a historically maligned group, should be entitled to employee benefits, and the state should collect the related tax revenues. However, using social media influencer brand endorsements as an example, it’s easy to see how the effects may be more adverse than beneficial to certain entertainment industry workers.
The Test: Am I an employee or an independent contractor?
AB5 codifies a three-pronged test to determine worker classification. Under the test, a worker is presumed to be an employee unless the employer demonstrates (Cal. Labor Code Section 2570.3(a)(1)(A)-(C)):
- The person 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;
- The person performs work that is outside the usual course of the hiring entity’s business; and
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Taking influencers as an example, whether they are “free from the control and direction of the hiring entity” under the first prong, often depends on the terms of the contract. Some brands dictate every single word said or written in a branded endorsement, while others allow more creative leeway. Often branded content does not include company-provided equipment or require on-site attendance. Still, the analysis gets complicated when deliverables include, for example, a photo shoot at a company-dictated location.
Analyzing whether a branded post is “outside the course” of the brand’s business under the second prong is also tricky because marketing is arguably inherent in any industry. Take, for example, one of the numerous fit tea brands notorious for often using young female influencers and models to promote their products. One could argue that marketing and endorsement are so integral to their business, that it is inside the usual course of the business. But imagine the same fit tea company hires an electrician to fix IT equipment used for the company’s e-commerce platform. While the mechanism (website) is in the usual course of their business, fixing it is not. Similarly, even if the mechanism for advertising (digital promotion) is in the usual course of their business, hiring influencers to be a part of that mechanism is not.
Influencers should have no problem meeting the third prong, being “customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.” Brand endorsements are their independent trade, and it is of the same nature across campaigns for different brands. While influencers are likely in the clear here, it behooves them to follow certain business formalities to bolster their case for an independently established trade.
The Professional Services Exemption
Fortunately for hiring entities and workers looking to continue as freelancers, AB5 lays out several exemptions to satisfy the test. One plausible exemption for influencers is the professional services exemption for marketing. (c)(2)(B)(i) (Note: other exemptions could apply, but for this article, we will only look at one). To meet this exemption, the services/deliverables must be “original and creative” and resulting “primarily on the invention, imagination, or talent of” the influencer, or “work that is an essential part of or necessarily incident to” the services/deliverables.
As mentioned in the analysis of the first prong of the AB5 test, the more control over the influencer’s work, the more likely the influencer is an employee, and that applies to the exemption analysis, as well. Some brand endorsement agreements are rigidly prescriptive, while others rely on the influencer’s creativity and sense of aesthetics. To comply, we may see brands loosening their grip on content requirements/approvals and allowing influencers greater creative license. This could be great for the truly creative, artistic influencers, but maybe not so great for others whose every finger lift is dictated.
Keep in mind that even if the test or the exemption is met, a worker still needs to meet the Borello test to complete the final hurdle before independent contractor status is established.
What does the future hold?
So how will this law be applied to the artists now formerly known as freelancers if no exemption applies? One possibility is conservative compliance making all independent contractors employees. Another possibility is for these hiring entities to use payroll companies as third-party liability workarounds (no doubt still raising the costs of hiring those newly dubbed employees). Determination of the above options may come down to a cost-benefit analysis. A third possibility is the status quo. Hiring entities may choose to take the risk that workers won’t bring a claim before the Labor Commission based on the circumstances.
I’m a concerned creative…what can I do?
If you are a worker afraid of losing work or a hiring entity concerned about AB5’s impact on your business, what can you do? First, you can contact the sponsor of the bill, Congresswoman Lorena Gonzalez, at her office. Alternatively, connect with industry/trade groups and encourage them to lobby for an amendment and, ultimately, an exemption for your particular group of workers. And if you are a company that has historically hired freelancers and plans on continuing to do so, or you’re a worker classified as an independent contractor but think you deserve benefits, consult with an attorney.