AB5 Law Ruled Retroactive: What It Means for Your Freelance Production Crew in California

A January decision by the California Supreme Court clarified that the “ABC test” of CA AB5 can be applied retroactively, even prior to the 2018 Dynamex ruling which initially spawned it, when it comes to classifying workers as W2 employees rather than independent contractors. Here we look at how that impacts your production company and its film and TV crew freelancers.

What was the recent AB5 ruling, and what does it mean for film and TV production crews?

The ABC test can be applied retroactively to worker classification cases concerning employment prior to the groundbreaking Dynamex Operations West v. Superior Court decision, California’s Supreme Court says. In its decision on Vazquez v. Jan-Pro Franchising International January 14, 2021, the court extended the reach of the ABC test to instances of misclassification before April 2018 (when the court first made the Dynamex decision and spelled out the ABC test).

The ABC test can be used by the courts as a guide on how California’s wage orders should be applied in distinguishing employees from independent contractors, no matter when the work took place – including on film and TV productions. Without getting too technical here, the court basically just ruled on how the definition of “suffer or permit to work” should be applied to existing wage orders, regardless of when the infractions occurred.

What this means for production companies is that cases can be brought for older crew misclassification which took place before the Dynamex case and before the California legislature codified it into law with AB5. Statutes of limitations still apply; consult with your entertainment labor attorney on any existing crew misclassification exposure.

California AB5 for Productions: Penalties for Misclassification

For production going forward, it’s a good idea to review the AB5 law and its ramifications for misclassifying crew members as 1099 independent contractors.

First off, why does the government even care how you pay your crew? It largely comes down to taxes and worker protections. Whether your crew workers are employees or independent contractors determines how you must withhold income taxes and pay unemployment tax on their wages – along with following wage and hour compliance. 

For W2 employees, production company employers have to pay a portion of their Social Security and Medicare, and in some states crew members are entitled to paid time off, healthcare and more. This obligation applies only to parties with an employee-employer relationship. If no such employer-employee relationship existed, then the hiring production company would have no duty to take on these obligations.

While it may tempting to pay crew as independent contractors to avoid withholding administration and paying payroll taxes on wages, misclassifying your production workers can result in some serious penalties.

Don’t go it alone. Let us take W2 payroll off your hands.

Production companies can be fined or penalized for not complying with laws on how they manage their contingent workforce for film and TV. You might also be guilty of wage and hour law violations, failure to comply with federal I-9 requirements, withholding state and federal payroll taxes and making matching Social Security and Medicare tax payments. Beyond that, you also have state unemployment insurance funds and workers’ compensation violations to look out for.

So it remains vitally important to determine whether your production crew meets the criteria for being classified as contractors. To do that, employers apply the ABC test from the Dynamex case. Let’s take a closer look at that.

ABC test explained for crew freelancers in the content creation space

The California Supreme Court ruling in Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018) summarizes the requirements found in law and jurisprudence for a contractor to be considered an employee. It’s important to note that under the ABC test, a crew worker is presumed to be an employee unless the employing party can prove otherwise.

So the burden is on the production company employer to show that the worker is a legitimate independent contractor, and not an employee. To meet this definition, all three of the ABC test statements must apply:

1. The hiring company has no power to control and direct the crew in the performance of the services involved, in fact, and under the contract of service;
2. The work performed is outside the usual course of the hiring company’s business;
3. The contractor is customarily engaged in an independently established trade, occupation, or business of similar nature as that involved in the work performed for the hiring company.

If the crew member can present substantial evidence to show that the hiring company has the power to control their conduct in the performance of the services involved in the contract, then the law considers such entity as their employer.

The most important indicator is whether the hiring company controls – or has reserved the right to control – the crew, not only as to the result of the work to be done but also as to the means and methods by which it has to be accomplished. In other words, the production crew members are employees of the company if the latter reserves the right to control not only the results of the production tasks involved, but also the means to be used in achieving them – e.g., we need this project shot in 4K using these RED cameras, our workweeks will start Mondays, etc.

As always, when it comes to determining independent contractor vs W2 employee status for crew members, the question is never just whether the company does control such factors – but simply whether it has the right to control them.

Where does AB5 apply?

AB5 is a California state law, passed by the State Legislature. Producers and content creators in the state have paid close attention to the legislation and the impact it has had on paying crew members properly.

But as we wrote in December, many states have equivalent guidelines in their labor and unemployment departments, and some are even considering AB5-style laws of their own.

Need help paying your crew properly? Talk to us.