Hollywood’s Unions Tell Their Members That New State Gig Economy Law Won’t Impact Their Loan-Out Companies

David Robb

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Hollywood’s unions are assuring members that their loan-out companies will not be negatively impacted by a new California law designed to end the misclassification of gig economy workers as so-called “independent contractors.”

The bill – AB 5 – which was signed Wednesday by Gov. Gavin Newsom, was designed to protect Uber and Lyft drivers and other gig workers from being deprived of health benefits and overtime pay.

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In a joint letter to their members today, SAG-AFTRA, the WGA West, IATSE, Hollywood Teamsters Local 399, and Studio Utility Employees Local 724 said that although there is “a great deal of confusion about the new bill” and the potential impact it will have on their loan-out companies, the new law “is not directed at our industry, and we do not believe it will trigger a change to industry practices.”

Loan-out corporations, which are common in the entertainment industry, are usually set up for tax and legal purposes, making the individual the “employee” of their loan-out, that then “loans” their services to an employer.

“Over the past four months, we have carefully monitored this legislation as it was drafted and moved through the California Legislature,” the unions said. “During that time, we conducted due diligence within our own guilds and unions, with outside tax attorneys, CPAs, and entertainment lawyers knowledgeable about our business and loan-out companies, and with legislative staff in Sacramento. These conversations were all undertaken to ensure that AB 5 would not undermine the rights secured by our collective bargaining agreements, including the right to form and utilize loan-out companies.”

The new law codifies a ruling by the California Supreme Court – known as the Dynamex decision – that last year adopted new legal standards for determining whether workers should be classified as employees or independent contractors.

“Nothing in these conversations has changed our own internal assessments: neither AB 5 or the Dynamex decision, which has now been the law in California for a year and a half, undermine your use of a loan-out,” the unions told their members.

“Once the Dynamex decision became law in California in 2018, all the doomsday pronouncements now being made could have come to pass, but they did not. AB 5 codifies the Dynamex decision; its sole purpose is to protect workers across California who are currently misclassified as independent contractors.

“Members of our guilds and unions are not independent contractors; they are employees, whether or not they utilize loan-outs. Loan-out companies are employers, and so they, too, do not have independent contractor status. AB 5 exempts the kind of business to business relationships which loan-out companies are set up to support.

“Furthermore, AB 5, by setting up rules applicable when one employer loans an employee to another employer, specifically contemplates that loan-outs will continue. Our collective bargaining agreements expressly allow members to use loan-outs. Our CBAs also protect your status as an employee. AB 5 does not undermine these legal or contractual rights. AB 5 is not directed at our industry, and we do not believe it will trigger a change to industry practices.”

The unions noted, however, that “This analysis is not a substitute for individualized tax advice. Some loan-out companies may have structural issues that put them at risk. This is not changed one way or the other by AB 5. Members should always consult their own professional tax advisors to ensure the optimal tax treatment of their earnings.”

Many non-union workers employed in reality TV, however, are known to be concerned that the new law could negatively impact their employment opportunities if companies decide to scale back on hiring freelancers and produce their shows in-house.

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