Getting to the Bottom of New Employment Laws in California
New legislation passed in Spring 2018 has left many businesses and individuals scratching their heads and asking 'Does this apply to us?', and more importantly, 'Why us?' Community theatres in the State are not only no exception, they are feeling these legislative changes in a unique and dramatic way.
California Community Theatre will help answer a few of these questions you may have at your own theatre.
*Please note, while the information in this article comes from credible sources, there is no substitute for consulting with a legal person who knows YOUR situation best. Please consider this article a starting point in understanding how this legislation impacts community theatre in California. It is not a source of legal advice.
AB-5 Worker Status: Independent Contractors
In a Nutshell:
The legislation calls for a new three-tier test to ensure proper assignment of employees, primarily impacting many individuals likely previously identified as 1099 or independent contractor workers.
The 2018 court case Dynamex Operations West, Inc. vs Superior Court of Los Angeles, No. S222732 involves the misclassification of delivery drivers as independent contractors rather than employees. Dynamex is a a same-day courier and delivery company who, in 2004, begun classifying its drivers as independent contractors under a new contractural agreement. Under this agreement, drivers were required to provide their own vehicle, pay for their own transportation expenses, as well as taxes and worker's comp insurance. The Dynamex company obtains its own customers and sets rates to be charged for delivery services. Drivers were paid either a flat fee or a percentage of the delivery fee; they wore Dynamex shirts and badges (purchased with their own funds) while making deliveries; and while free to set their own schedule, drivers were required to notify the company of the days they intended to work. Dynamex drivers were generally able to choose their delivery sequence and routes, but were required to complete all assigned deliveries on the assigned day. They could also make deliveries for other companies, including their own personal delivery businesses.
The outcome of the court was the California Supreme Court's ruling that the drivers were employees, and most importantly, it rejected prior test (an Economics Realities test used since the 80s) for determining whether the workers should be classified as independent contractors or employees.
It instead introduced a standard that operates under the presumption that all workers are employees, rather than contractors. This standard is called the ABC Test, and it is considered a 'strict' test specifically for California employers.
The new ruling could impact the evaluation of employment generally, including the classification of workers (i.e., whether a worker is an independent contractor or an employee) and whether a worker is a joint employee (i.e., an employee of two employers). Most importantly, the burden is now on any entity who is classifying an individual as an independent contractor.
New ABC Test:
The employer is responsible for prove that EACH of the following elements of the 'ABC' test are met in order to classify the worker as an Independent Contractor:
A. The worker is not under the control or direction of the employer as it relates to the performance of the work, both in writing and in practice.
B. The worker performs work outside of the usual course of business for the employer.
C. The worker is customarily performing in an independently established trade, occupation or business of the same nature of the work they perform for the employer.
Interpreting and Applying the ABC Test Parameters to Community Theatre:
In the past, element A has been the traditional gauge for community theatres to both practice and justify many individuals associated with the theatre as independent contractors. Examples include directors, designers, camp or class teachers, and perhaps even fundraisers or grant writers.
In many cases, element C may continue to be met for some theatres, if a designer, director or teacher is freelance and and performs these services for others. He/she does not perform this type of work for your theatre only, he/she may have their own business cards or insurance, and he/she is primarily doing the service as an established business.
Because all three elements need to be met in order to classify a worker as an independent contractor, it is element B that will be a new challenge for community theatres, and which agencies may examine the most.
One way to help gauge element B is to focus on the mission. If the worker is doing something related to the mission, (ie: directing a theatre show, and producing theatre is part of your mission), you won't be able to satisfy element B.
Here is a basic example on how to apply the new ABC Test:
A painter is hired to paint your theatre's building. You want the building painted in specific colors and you want the job finished by a specific date.
In hiring this painter, you likely accept their rate and terms and what you pay may be a set amount. You are not likely to tell the painter that you hire how to use their paint, or how many hours to take to get the job done. You will not provide or pay for the tools (ie: brushes, drop cloths, etc) needed to paint the building. You likely do not have a policy or procedure in place at the theatre as to how to paint the building, and therefore the impact of any noncompliance has little bearing on your theatre's functions. The painter likely has their own insurance, the length of time the painter works for you is limited, and the painter may even have his/her own workers performing the painting job itself. Painting the building is not part of your everyday operations, mission or purpose of business endeavors.
For element A, you are not controlling how the painter paints the building, you are not providing direction, and you are not providing the painter the tools they need to complete the job.
For element B, painting is not part of your usual course of theatre business. It is an atypical need, to be performed at random or as needed.
For element C, the painter is very likely to have his/her own business or at least perform the painting service for other clients, individuals or organizations outside of yours as his/her primary business activity. They are likely professional/full-time identified painters.
In this example, because all three of the ABC Test elements must be met, the worker is an Independent Contractor.
A Few Things to Remember:
The State's ABC Test & the IRS:
While AB-5 is California state-mandated, businesses can be audited or reviewed at either the state or federal (IRS) level. While the CA Supreme Court and the IRS are separate agencies, both are similar in their stance that you as an employer "must follow whichever law is most generous to employees," and both default to the status of a worker as an employee. As mentioned above, the burden is on the employer to prove the worker is truly an independent contractor rather than an employee.
When thinking of your own employees, you may want to understand more about the Federal Level 'Common Law Rules' test used to provide evidence of the employer's control over the worker: Behavioral, Financial, and Type of Relationship. The IRS does not use California's ABC test explicitly yet.
California's ABC test only applies to wage and hour law; it doesn't apply if your worker goes to the EDD and files unemployment or files a workers compensation claim. The ABC test as a determining factor will impact the employer most if the worker is seeking meal/rest breaks, pay stubs, etc. If a worker seeks the aforementioned and the scenario applies to multiple workers, a class act law suit could apply.
Other Employment Info Applicable to Non-Profits,
Including Community Theatre:
Minimum Wage Changes:
This year, statewide minimum wage increased from $11 to $12 per hour for employers with more than 25 employees. Minimum Wage for Employers with 25 Employees or Less is $11.00 per hour.
The minimum salary requirement for exempt employees, which increased to $49,920. Exempt Salary is twice the state minimum wage (local minimum wage does not calculate minimum salary)
Criminal Background Checks
The Fair Chance Act, which went into effect on January 1, 2018, is a California law that generally prohibits employers of more than 5 employees from asking about your conviction history before making you a job offer. This type of law is also known as a “Ban the Box” law.
AB 1976 amends Labor Code 1031 to address lactation accommodation private locations. It provides that the private location be a place other than a bathroom, when reasonable/reasonable effort is to be made to provide a private room other than a bathroom.
Sexual Harassment Omnibus Bill SB1300
SB 1343 involves requirements relating to sexual harassment training in the workplace. By the end of 2019, employers with 5 or more employees (this includes season and temporary) must provide sexual harassment prevention to ALL non-supervisory employees.
Coming up in 2021: Paid Family Leave
Starting January 1, 2021, employees with family members who serve in the Armed Forces can receive paid time off when the employee’s spouse, domestic partner, child, or parent is on active duty abroad or has been notified of an impending call or order to active duty abroad. The paid time off is covered when the employee uses the time to address needs arising out of their loved one’s military service.
This article was written in Spring, 2019.
As with all forms of legislation, all aspects of the current laws are subject to change and evolve.