The Legal Pitfalls of Using “Freelancers” In The Entertainment Industry After The Dynamex Decision

The entertainment industry has long relied on temporary workers classified as independent contractors to provide flexibility in accommodating the project-by-project nature of the industry. In the production and post-production context, studios often utilize contract workers, sometimes called “freelancers”, to fulfill their production needs. This was not typically a problem until the California Supreme Court decision in Dynamex, which adopted the narrow, so-called “ABC Test” to determine whether an employer can legally classify a worker as an independent contractor under the California Wage Orders.

Under the ABC Test, an individual is an employee for purposes of the California Wage Orders unless the employer or hiring entity proves each of the following elements:

A. That the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work, and in fact (i.e., that the worker is free from the hirer’s control in performing work both practically, and in contract);
B. That the worker performs work that is outside the usual course of the hiring entity’s business (i.e., that what the worker does is different from what the hirer’s business does); and
C. That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity (i.e., that what the worker does for the hirer is what the worker typically does for work).

The ABC Test effectively precludes production and post-production companies from classifying workers hired for temporary projects as independent contractors where (i) the worker is supervised or directed by the hiring entity (the “A” prong of the test) or (ii) the worker is performing work in the usual course of the production or post-production companies’ business (the “B” prong of the test). For example, a writer hired for a specific episode or limited series of episodes must now be classified as an employee in nearly all cases and cannot, under the ABC test, be hired as an independent contractor. Similarly, an editor hired by a studio on a temporary basis would almost certainly be required to be an employee of the studio, under the ABC test, and entitled to all of the rights and benefits of an employee.

As a result, studio and production company employers should be prepared to classify temporary workers as employees, not as independent contractors, to avoid significant and expensive lawsuits or claims.

Third-Party Vendors as an Alternative

As an alternative to directly hiring temporary workers who must be classified as employees, employers will contract with vendors who employ the workers as their employees. In this scenario, the vendor hires its own employees, assigns them work, and supervises them on a particular project.

However, employers who contract with vendors need to avoid inadvertently becoming the co-employer or joint employer of their vendors’ employees. Joint employment is created when the hiring company exercises control over the details of how the work is to be performed and has supervisory authority over the vendor’s workers. For example, a temporary worker hired from a temporary employment agency to work under the hiring company’s supervision or to do work that is done by a hiring company’s own employees can be deemed to be an employee of both the agency and the hiring entity. (Please see our prior advisory regarding a contracting party’s liability to workers supplied by labor contractors.) In the context of a vendor doing work for a studio, significant control by the hiring entity (i.e., the studio) over the vendor’s employees may result in the studio being deemed the employer of the vendor’s employees and possibly being liable for wage claims the employee may have against the vendor.

A studio can avoid being an inadvertent joint employer if (1) the vendors are legitimate third-party businesses; (2) the studio has no control over the wages, hours, and terms and conditions of the vendor’s employees; (3) the studio does not directly control the work of the employees of the vendor; and (4) no reasonable person employed by a vendor would view the studios as his or her employer. See Martinez v. Combs, 49 Cal. 4th 35 (2010). The level of control that is sufficient to create a joint employment relationship is fact-specific and determined on a case-by-case basis. Compare, for example, Martinez v. Combs, 49 Cal. 4th 35 (2010) and Curry v. Equilon LLC, 23 Cal. App. 5th 289 (2018) (no joint employment despite some degree of control), with Noe v. Superior Court, 237 Cal. App. 4th 316 (2015).

Note: Even if joint employer status is found by virtue of the level of control a company exerts over the vendor’s employee, a company can avoid liability for wage law violations by its vendor by showing that (a) its policies and practices comply with the wage laws and (b) it requires its vendors to represent and warrant they are in compliance with wage laws as well. Serrano v. Aerotek Inc., 21 Cal. App. 5th 773 (2018).

Avoiding Liability for Contractor Misclassification Under Dynamex or for Being the Joint Employer of a Vendor’s Employees

Examples of contractual provisions, representations and warranties that studios should require from a vendor to avoid exposure under Dynamex and to avoid inadvertent joint employment include:

• Requiring the vendor to directly employ all personnel required for the preparation, production and delivery of the services.
• Specifying that the vendor selects the personnel or creative team that will work on the project (subject only to approval and veto right of the company).
• Specifying that notwithstanding studio’s veto rights, the vendor shall be solely responsible for hiring, training, terminating, setting the pay rate for, setting the work hours of, and generally supervising and directing all personnel required for the preparation, production and delivery of the services.
• Specifying that the vendor shall be responsible for payments to any individual(s) it employs or contracts with to render services and requiring the vendor to obtain a release confirming that the individual(s) hired by the vendor will look only to the vendor for compensation due them in connection with the services.
• Specifying that the vendor will comply with all applicable Wage Orders and labor and employment laws as to any of vendor’s personnel providing services to the company.
• Specifying that no joint venturer or partnership or joint employer or co-employer relationship is contemplated or formed as a result of the service agreement.
• Specifying that vendor shall defend (if required by the company and with counsel selected by the company), indemnify and hold the company harmless from and against any and all claims, etc., arising directly or indirectly from or out of a violation of any rights under applicable Wage Orders and labor and employment laws.

Special Considerations for “Loanout” Agreements

Agreements with “loanout” companies where the sole worker being “loaned out” is the owner of the loanout company can present special challenges with regard to the employee/independent contractor classification. Agreements with loanout companies should contain the types of representations and warranties described above, even when the “vendor” and the worker (while different legal persons) are both operating for the benefit of a single worker. Where the loaned out worker is exempt under the applicable Wage Order (i.e., the worker qualifies as an executive, administrator or learned or artistic professional), there is, practically speaking, little exposure with regard to wage and hour claims that the worker could bring against the studio. However, when the loaned out worker does not qualify for an exemption, or if there are other non-exempt employees whose services are loaned out along with an exempt employee, such as an assistant, then employers should consult with an attorney for advice on how to manage that particular engagement.

Disclaimer

This advisory is a publication of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.