I have said it before, California is special. But this new law may just screw a whole bunch of YouTube creators. Even if you aren’t in California you need to pay attention because this now exists in California, New Jersey, Massachusetts and Connecticut. It’s the growing trend and it will continue to grow in states across the US. As goes California goes the nation.
Last week California codified an existing California Supreme Court decision Dynamex Operations west, Inc. v. Superior Court of Los Angeles. This ruling changed the way that Independent contractors (sometimes called 1099) are classified. This new law will have far reaching impact on the intended industries as well as some unintended consequences that suck.
What’s the point of the ‘Uber Law’
Yes, AB5 is being referred to as the ‘Uber’ law because under the new test Uber is one of the biggest companies that will face sweeping changes classifying all drivers from independent contractors to employees. The thought of Ca. legislatures is that they are protecting individuals who work exclusively for one company from being exploited and not having benefits such as health care, unemployment etc. I am sure it has nothing to do with increased revenue from taxes paid to the sate when someone is an employee. What it means for companies like Uber is a 20%-30% overhead increase and likely an increase in rates in Ca., as well as a decrease in Uber drivers in Ca. But drivers aren’t the only industry impacted.
So what’s the ‘Test’.
California is now embracing what’s referred to as the “ABC” test to determine if someone is actually an Independent Contractor or if they are an Employee. The law, and court decision state that a person can only be classified as an independent contractor if all of the following are true.
- The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact
- The person performs work that is outside the usual course of the hiring entity’s business.
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
California AB 5 Section 2 amending the labor code section 2750.3 emphasis added.
Why is this a problem for YouTube Creators in California
If you are a content creator who hires an outside editor or videographer they will be considered in the usual course of the hiring entity’s business.’ because creating videos comprises those actions. That means the person you are working with would have to be the creators employee. Here is what that looks like…they have to be paid W-2…like through a payroll company and the creator will need to pay payroll and likely unemployment taxes for that employee. The creator will become responsible for adhering to the labor laws in Ca., including work hours, break periods. The creator can also be sued for work place discrimination, harassment and workers compensation if your employee gets hurt out on a shoot. The creator will need to have insurance to cover their business, oh yea …and will need an actual business. I would never advise hiring employees as a sole proprietor. This means forming an LLC or C-Corporation and adhering to all those rules and regulations as well. Take a deep breath and let’s dive into this more …I have some suggestions.
Emily WTF, that is a whole lot! Are there other options??
Yes, AB 5 has a number of exceptions that some may improperly apply to YouTube cretors. The problem is that there is an exemption to one of the main exceptions. That being an exception for still photographers or photojournalists. But in that exception there is an exemption. This clause is not applicable to an individual who works on motion pictures, which includes, but is not limited to, projects produced for theatrical, television, internet streaming for any device….. I understand that the temptation is to immediately argue that a YouTube video is not a Motion Picture. However, it is. The labor code in a different section defines motion picture in part as any other moving images, including those created for entertainment purposes transmitted by web cast or any other technology that is nor in use.
I know, that was some deep lawyer shit. But Calififornias definition of motion picture clearly includes YouTube videos. Keep breathing.
So Now What.
You have to be a business. The people you work with also have to be businesses. The only way to salvage this without creating an employee relationship is to properly fit under the business to business exceptions to this law. So how do you do that?? Depending on your business I would consider becoming an LLC, it’s the least formal commercial entity in California. Just know that becoming an LLC in California starts with about $1,000 in fees and there is an annual $800.00 mandatory tax to start. There are regulations to keeping your LLC legit but that is a post for another day.
If you are a business entity you also need:
Your business entity to be in GOOD STANDING
A business license
A business bank account (not just a separate account, and actual BUSINESS ACCOUNT)
Possibly a DBA/FBN
Proper business accounting and legal practices
A business location
A business address
It is your responsibility as the creator to get this sorted before January 2020. You have to ask the people you pay to work with you if they are a legal business entity. Only then will you be able to prove that you have a business-to-business contracting relationship and not an employer/employee relationship.
There are numerous other considerations in whether a relationship is a business to business one or not, but most importantly the business you are contracted with must work with other businesses and must set their own hours and location of work.
If you are totally freaking out, I get it. Call me. I provide legal consulting to creators and online businesses all day, erry day. It’s my jam. It’s my job to know this stuff. You are aware now so you can do it right. If you are interested in creating an LLC in California you can do that through the Secretary of State or, you can contact me through the form below for help with that.
If you are creating a valid business to business relationship make sure you have the appropriate contracts in place …a handshake and an agreement isn’t sufficient. You have to have legal agreements with the business you are working for. My Get Legit Shop is a great place to start. I suggest the Independent Contractor agreement!
If you have a community that needs this information I am here to help. Shoot me an email to firstname.lastname@example.org. I am happy to talk to your community, podcast, channel about how to Get Legit™.
Emily D. Baker, Esq.
Badass Lawyer for Online Business
Emily has been running business for 15 years and has ove 13 years of legal experience. She spent 10 years at the Los Angeles County District attorney's office where she truly learned to be a solopreneur. Emily has built her consulting and speaking business from the ground up, in her garage jamming out to 90's music. She specializes in no BS practical advice for the starting and scaling online entreprenur. Emily will tell you what the business gurus can't in a way that is both hillarious and empowering.