With the dramatic explosion of the gig economy over the past ten years, laws determining whether a worker is an independent contractor or employee have gained substantial attention on a state and federal level. As the historical headquarters of the entertainment industry in the US, changes in California law have an outsized impact on the independent film and documentary industry across the nation.

In 2020, California enacted AB 5, its landmark bill changing how it determined when workers should be classified as independent contractors or employees. While the law has received certain updates from the legislature, not to mention countless other legal and legislative challenges, it remains the law of the Golden State. Learn more about AB 5 and how it can affect production across the country, as well as the current state of federal law, below.

California’s law on independent contractor classification, known as AB 5, made the so-called “ABC Test” the official law of that state. The ABC test states that workers should be classified as independent contractors only where all of the following criteria are met:

A. 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;

B. The worker performs work that is outside the usual course of the hiring entity’s business; and

C. 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.

This law, which contained certain exceptions for professional workers and business-to-business contracts, entered into effect in California as of January 2020. California had previously used the Borello test to determine whether a worker was an independent contractor or employee, which used multiple factors and focused on “economic realities.” The Borello test was not entirely eliminated by the passage of AB 5; instead, it is used only to determine the employment status of certain categories of workers that AB 5 exempts from the ABC test.

If you’re confused about which test applies to whom, you’re not alone. Suffice it to say that media and entertainment industry professionals were not among those categorized as exempt from the ABC test, despite the fact that, by and large, both workers and employers did not wish to change the status quo.

Certain entertainment professionals benefitted from a September 2020 update to the law; namely, music industry professionals, freelance writers, and photographers. Additionally, the business-to-business exemption from the ABC test was loosened, so that more entertainment professionals who are incorporated or who formed an LLC may qualify as exempt from AB 5’s requirements.

What does California’s law mean for production in and outside of the state?

It’s important to understand what is required of companies employing workers in California, whether or not the company itself operates from inside the state. Any company that employs workers who are based in California must treat those workers as employees, assuming that they do not pass the ABC test. This means that employers must take out taxes (both state and federal), workers’ compensation, state disability, and other important withholdings from workers’ paychecks. There are a number of other states which use a system like the ABC test to determine if workers are independent contractors, and many more—including New York—have taken steps toward changing their own test for determining independent contractor status to one similar to that used by California. In the wake of AB 5’s passage, state labor commissioners have become increasingly aggressive in prosecuting employee misclassification, so it’s important to do your research and speak with a seasoned entertainment lawyer to be sure that you have correctly classified those working on your production.

Trump administration rule on independent contractors rescinded by Department of Labor

Even federal law on the issue of independent contractor classification is in a state of flux. In January 2021, the outgoing Trump administration’s Department of Labor announced its final rule regarding independent contractor classification. The rule entered into effect in March 2021, but the incoming Biden administration rescinded the rule as of May 6, 2021. Jessica Looman, the principal deputy administrator of the Department of Labor’s (DOL) Wage and Hour Division, announced that the DOL would be returning to the former test, which used a “totality of the circumstances” approach by considering multiple factors when determining whether a worker was an independent contractor. That said, President Biden did mention his affinity for the ABC test while campaigning for president, so a federal adoption of that test would not be a surprise.