Assembly Bill 5 Blindsides California Music Industry

Well, I hope you all had a wonderful Christmas, and as we move towards the New Year holiday, there is some important information I want to share with you regarding a new law, previously known as Assembly Bill 5 (AB5) that becomes effective on January 1, 2020. I apologize for what might be a long email as I introduce and explain this new legislation that some of you may be unaware.
Meet Dynamex, a national same-day delivery service whose drivers pick up and deliver on-demand for companies such as Office Depot, Amazon, Staples, etc. At one time, these delivery people were considered employees of the company. In 2004, Dynamex reclassified its drivers making them Independent Contractors (IC). One of the drivers, Charles Lee, after signing the IC agreement, then sued the company, citing misclassification of his job and violations associated with specific drivers labor codes. Using existing case law (Martinez vs. Combs), the court held Mr. Lee’s lawsuit. Dynamex filed an appeal, and the Appellate Court, citing yet another existing case law (Borello), again upheld the lower court decision as to the misclassification or “GiG Law” of ICs. Whether intentionally or not, this quickly spread and all ICs came under scrutiny including the California music industry.
The Legislature asked numerous lawyers, performing arts executives, the American Federation of Musicians (AFM), unions, and others to come to the table to collaborate. AFM declined, and on September 18, 2019, Governor Newsom signed AB5 into law, a law that lays out terms of IC, including any exemptions of the ruling. Musicians did not receive a waiver, and those who did were classifications that included professions that required either a professional or business license such as real estate professionals, doctors, attorneys, or those with union representation. The following three-step test was used. Please keep in mind that every worker in California is assumed to be an employee unless validated otherwise by this tool.
THREE STEP TEST
To be exempted as an Independent Contractor, the California worker must meet all three of the following conditions.
(A) is free from the control and direction of the hiring company in performing work, both practically and in the contractual agreement between the parties; and
(B) Performs work that is outside the usual course of the company’s business; and
(C) Is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company.

The Sacramento Jazz Cooperative (SJC) is a California nonprofit whose mission is to preserve jazz, with an emphasis on classic, mainstream jazz, as an American art form. We do this through various educational means and with the performance of live jazz shows featuring local, regional, national, and international jazz musicians. The process has been to have the musician sign the SJC Independent Contractor’s Contract, negotiate remuneration, after which we pay them upon completion of the gig and at the end of the year, assuming they have made more than $599, issue a 1099. No more. Effective January 1, 2020, SJC will have to deduct state and federal payroll taxes of these employees, FICA, Unemployment, Pension fund, etc., and report such earnings to EDD quarterly. At the year’s end, the employee is issued a W2 regardless of how much the worker earned over the year.
Because of increased payroll functions and other considerations between employer/employee, SJC is determining how best to proceed. One thing is clear, while we don’t expect to quit totally, how we do future business will change. This email is to alert you before the January 1st effective date. We are booked through March 30, 2020, with contracts signed before the new law, and we believe these contracts can be honored. We promise to keep you apprised. This action does not affect our nonprofit status and all donations are still tax-deductible under 501(c)(3) guidelines.
As always, thank you for being our customer, the best part of SJC.

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