California Gov. Gavin Newsom signed a union-backed bill that seeks to protect entertainment workers' use of loan companies after an audit earlier this year prompted widespread concern about their future.
The governor's office announced that Newsom officially gave the green light to state Sen. Anthony Portantino's SB 422 on Monday. The bill, which received support from the Entertainment Union Coalition, made up of the California IATSE Council, the Directors Guild of America, SAG-AFTRA, Teamsters Local 399 and LiUNA! Local 724: Codifies that a loan company is the employer of the entertainment workers who create these companies and work under their auspices and is responsible for paying the employer's taxes.
The legislation also prevents entertainment payroll companies from being deemed employers of lending companies or their employees. Under the parameters of the bill, entertainment payroll companies will be required to file quarterly reports with the California Director of Employment Development disclosing their payments to lending companies.
The legislation effectively affirms entertainment workers' long-term use of these S-Corporations, C-Corporations or LLCs, which “lend” their services to various other companies, an industry union said. “In practice, this means that lending companies will continue to operate as they have for decades,” the Writers Guild of America West wrote in an Aug. 31 message to members explaining the bill, which by then had passed the state legislator. . “The legislation also preserves an important court decision establishing the right of loan employees to receive UI benefits on the same basis as other unemployed workers.”
Many workers in different industries, such as writers and reality TV producers, use lending companies, which provide some business protections and can offer tax benefits. DGA Western Executive Director Rebecca Rhine, whose union took a leadership role in collaborating on the bill, explained in an interview, “Exit lending has been a part of our industry for many, many decades because of the transitory nature of the work and the multiplicity of employers and employees on different projects. And therefore it is a structure that helps people in the sector manage their particular working lives”.
Several stakeholders began working on the bill after news broke in May that the California Employment Development Department was auditing the industry's largest payroll provider Cast & Crew. Cast & Crew sent a warning message to industry workers that month, noting that the State Department had objected to the practice of funneling compensation through lending companies rather than paying wages directly to the lending companies' owners or shareholders as if were the employees of the payroll providers. Cast & Crew said at the time that it was “actively contesting” the EDD's decision and was working with unions and entertainment companies on the issue, which it predicted would quickly become “an industry-wide issue.”
In a response at the time, EDD said it was working with industry representatives and made clear that it would not ban the use of the loans in California.
Entertainment unions began talking with the governor's office about the issue after news of the audit emerged and eventually worked with Portantino to resolve the issue through legislation, Rhine said. The WGA West, EDD and Cast & Crew also played a role in the effort, according to the WGA West's August message to members. Rhine added of the new law: “Most importantly, it provides clarity to our members, state and industry about the role of lending companies in our world.”