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AB 5: HOW TO REVISE THE STATUTE

Ivan Hoffman, B.A., J.D.

          AB 5 adversely prejudices the very parties it presumably was designed to protect.   Additionally, as I pointed out in an earlier article called “Work Made For Hire Agreements Under California Law,” the provisions of Labor Code 3351.5 (c) already created prejudice to the same class of creators that it was also designed to protect.  AB 5 merely widened the circle of those intellectual property creators who are likely to be put out of business by these laws. 

         The reader should read the numerous articles on my site under the general heading of “AB 5.”  Click on “Articles for Writers and Publishers.”  As indicated in those articles (and this article), my focus is only on intellectual property creators and those parties who would engage the services of those intellectual property creators.  Presumably California has a plethora of those parties.  Everyone has a book or a screenplay they’re shopping! 

The Adverse Effect of AB 5 

          The operation of AB 5 creates a deeply chilling effect on those who might be considering engaging any parties but especially engaging intellectual property creators.  The actual legal outcome of the determination as to employee or independent contractor is almost irrelevant since the effect of “guessing wrong” by the engaging party (which has that burden of proof) is likely to make that party less likely to want to take the risk and instead find another intellectual party creator in another state or another country. 

          More specifically, intellectual property creators are treated the same as parties who can only provide their services via their physical presence in the state.  The distinctions between how parties are viewed under Dynamex compared to Borello and the carve out “exemptions” are largely distinctions without differences and, because of the burden  of proof issues, do not form any form of “safe harbor” for either those creators or those who would engage those parties.  Thus, if an engaging party needs someone who, because of the nature of the work and services, must be in the state, indeed someone who must be in a given location within the state, that engaging party has little choice but to treat those parties as employees with all the attendant issues.  Individually those parties are not likely to be at a competitive disadvantage since all other parties are in the same situation.  Moreover, these parties who are so hired often work for large businesses which may already have the business infrastructure (insurance, HR departments etc.) to simply include these other parties into the operation as employees, under their insurance and so on.  

          But intellectual property creators face competition from not only other such creators within the state, but also from those outside the state and indeed outside the country.  An artist, writer etc. can be anywhere.  An engaging party has the world to choose from and the legal impediments to engaging someone in California, no matter how talented or tanned those parties might be, are likely to outweigh that talent…and that tan.  And given that many potential engaging parties are small businesses or no businesses at all (individual authors for example), these requirements seem to place all those potential engaging parties out of the running for engaging California intellectual property creators. 

          Thus AB 5 prejudices those intellectual property creators even as it desires to help them. 

          Moreover, the copyright implications of AB 5 are significant in further working adversely against the intellectual property creator (read “AB 5: Copyright Implications”).  AB 5 appears to operate to deprive the very parties that it was intended to help of potentially valuable rights and work.  On the one hand, while it may make these parties potentially more “hirable” because, in hiring them, the acquiring party gains more rights, it does so at the expense of those being “hired.”  A person (or business) is deemed to be an employee and thus has to give up valuable rights and that person’s (or business’) other choice is not to accept the work.  Two bad choices for the creator.  

          Additionally, these intellectual property creators may be less likely to obtain work, especially if they reside or are legally based in California, since potential “hirers” face difficult burdens of proof as to the independent contractor or employee status of the parties they would like to engage.  The “hirers” appear to be legally and financially conflicted since, on the one hand, they want to avoid the legal and financial burdens imposed on them if the creators are deemed employees but, on the other hand, if those parties are employees, their creations are likely to be deemed works made for hire by employees and that redounds to the benefit of these “hirers.”  So since the burden of proof as to status is upon those who would be “hirers,” which choice will they make?  Will they incur the legal and financial burdens that come with considering these parties as employees so as to gain the benefit of the work made for hire or will they seek to avoid the application of AB 5 and just simply engage parties in another state or another country and obtain rights via a work made for hire agreement without the issues created by AB 5 or Labor Code 3351.5(c)? (whether they can or not is an open question…see below) 

          And the “less than 35” provisions of AB 5 are of no help to either the creators or the engagers  since even if a party provides “less than 35,” all that means is that their status is governed by Borello and not Dynamex and, as the above articles indicate, Borello has its own set of legal challenges that a potential engaging party has to navigate at its peril. 

          And what about those intellectual property creators not specifically “exempt” from the operation of Dynamex?  Creators such as web designers and developers are not specifically mentioned as “exempt” parties (web designers are only mentioned in regard to the referral agency provisions) and even if they were, they would merely have all the Borello challenges to face. 

The Issues About The Scope of The Law’s Applicability 

          In addition to the above issues, the scope of the law’s applicability is quite uncertain.  Let me discuss only the issues about workers compensation insurance as one example. 

          The Labor Code states in part: 

3600.  

  1. Liability for the compensation provided by this division, in lieu of any other liability whatsoever to any person except as otherwise specifically provided in Sections 3602, 3706, and 4558, shall, without regard to negligence, exist against an employer for any injury sustained by his or her employees arising out of and in the course of the employment and for the death of any employee if the injury proximately causes death, in those cases where the following conditions of compensation concur: 

(1) Where, at the time of the injury, both the employer and the employee are subject to the compensation provisions of this division. 

          Note however, that under (1), there is no definition of who “are subject to the compensation provisions of this division.” 

3700.  

Every employer except the state shall secure the payment of compensation in one or more of the following ways: 

          Thus it is clear that the law applies to: 

  1. California based intellectual property creators doing work for California engaging parties such as publishers and others. 

          But the above statutes do not rule out other situations.  The law may also apply to: 

  1. California based intellectual property creators doing work for parties such as publishers and others located in other states or countries.
  2. Any intellectual property creators located outside of California doing work for parties such as publishers and others located in California. 

          Thus, California intellectual property creators are further adversely affected since not only are they likely not to be used by California engaging parties but, because the statute and case law is unclear as to how far the “long arm” of the statute may reach, can result in out of state (or out of country) potential engaging parties from engaging California based intellectual property creators. 

          It is that very uncertainty that creates the chilling effect. 

Suggestions For Amendments 

          There are many situations in which an engaging party may seek to engage an artist or an editor or similar intellectual property creator on a “one—off” basis, i.e. for a single project.  The engaging party may be a small book publisher, or a web site owner, as but a few examples.  Clearly the cost and legal jeopardy that attends any decision to engage a California creator for this small project is very likely to rule out the engaging party doing so.  Thus… the loss of work for the California creator.    

          So perhaps a real “exemption” should be created which states that, irrespective of any other factors, whether under Dynamex or Borello, any intellectual property creator who performs services for any one engaging party less than [5] times per year is conclusively deemed to be an independent contractor and not subject to the provisions of AB 5 or any other laws for any purposes.  

          The above approach benefits the creator and the engaging party.  This set of provisions can eliminate the “chilling” effect. 

          Another suggestion: the chilling effect comes in large part because the burden of proving “independent contractor” is on the engaging party and the burden of proof is a heavy one to overcome.  If the burden of proof is shifted to the party claiming “employee” status, including, for example, government entities, then this somewhat eases the said chilling effect.   Now it is up to the claiming party to prove the status of the intellectual property creator.  Such a change would still, of course, leave the engaging party subject to substantial legal and financial jeopardy should the claiming party prevail and this may still operate to dissuade the engaging party from dealing with a California creator. 

          As indicated in “AB 5: Copyright Implications,” although state law is used to determine employment status as far as work made for hire agreements are concerned, an exception can be carved out for any party not deemed an employee under state law by specific reference to the above “less than [5]” works exception.  AB 5 would also need to amend Labor Code section 3351.5(c) (the “work made for hire” agreement set of provisions).   Under federal copyright law, these parties can still be engaged under the work made for hire statute under section (2) as independent contractors and thus the purposes of the copyright law are not affected thereby. 

Conclusion 

          Insofar as California intellectual property creators are concerned, AB 5 seems unworkable.  The above suggestions are only some that might be considered to revise the statute. 

Copyright © 2019 Ivan Hoffman.  All Rights Reserved. 

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This article is not legal advice and is not intended as legal advice.  This article is intended to provide only general, non-specific legal information.  This article is not intended to cover all the issues related to the topic discussed.  You should not rely on this article in any manner whatsoever and you should not draw any conclusions of any sort from this article.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  This article is based on United States laws but the laws of other countries may be different.  You should consult with an attorney familiar with the issues and the laws of your country.  This article does not create any attorney client relationship and is not a solicitation. 

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No portion of this article may be copied, retransmitted, reposted, duplicated or otherwise used without the express written approval of the author.

 


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