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For much of 2019, headlines across California news outlets trumpeted AB 5, the bill that its supporters hailed as righting the alleged wrongs of gig-economy workers suffering from a lack of unemployment benefits and health insurance at the hands of companies like Uber because they’d been labeled independent contractors. Ultimately, most industries with any skin in the game — from ride-share firms to music studios to real estate brokers and newspapers — negotiated an exemption to the law, which changed the test used to determine if someone is an employee or independent contractor and reclassified scores of workers as the definition of “employee” became broader.
But while AB 5 took the spotlight, other labor woes went relatively unnoticed. The California Labor Commissioner’s Office, and many legal experts, say a lack of overtime pay is likely under-reported — either because certain workers don’t understand they shouldn’t be exempt from overtime or they do and they’re afraid of complaining and losing coveted opportunities in the already cutthroat Hollywood job market. “The exemption misclassification is a very serious wage theft issue,” senior deputy labor commissioner Monie Netikosol says, adding that, though her office doesn’t see too many of these complaints, “It’s probably more widespread than we think.”
Through a public records request, THR was provided with six Private Attorneys General Act claim notices sent to the California Labor & Workforce Development Agency involving various kinds of unpaid overtime allegations against large entertainment employers in the past five years. (The PAGA empowers employees to sue employers on behalf of themselves, others and the State of California for Labor Code violations.)
“That is a microcosm of what you’re looking at,” says employment attorney Sahara Pynes of Fox Rothschild. “Because you have the people that didn’t know they were being underpaid; you have all the people who knew they were underpaid but didn’t feel like doing anything about it because they didn’t want to get blackballed in the entertainment industry; and you have the people who just dealt with it through a [private] lawyer letter or threat to sue.”
Adds Sean Andrade, a litigator whose specialties include entertainment disputes and wage and hour complaints, “It takes a certain level of confidence and bravery to step forward. You see it happening to you and other people. Most of the time people just accept it, especially if they’re in an industry where they could be penalized for stepping forward and complaining.”
Even though formal complaints seem scarce, employment attorney Ann Fromholz says misclassification is common, even after a flurry of litigation more than a decade ago over failure to pay overtime and meal and rest breaks. “They’ve forced change in a lot of companies in a lot of industries,” she says, “but I still encounter companies that haven’t made changes.”
Part of the problem is the complex criteria for the executive, administrative and professional exemptions. There are two tests, one involving salary and one involving duties, and an employee must meet both to be exempt from overtime.
The financial standard is clear: Employees can’t be exempt from overtime if their salary isn’t double the state’s current minimum wage (based on a 40-hour work week). In California in 2021, that’s $54,080.04 for a company with 25 or fewer employees and $58,239.96 for companies with more. Emphasizes Netikosol, “It cannot be a dollar less.”
If an employee’s salary is above that line, attention turns to the duties test, which is convoluted. To meet the bar, the employee has to spend more than 50 percent of their time performing exempt duties, which vary by exemption category, and the employee must “customarily and regularly exercise discretion and independent judgment.”
Practically, “independent judgment” varies by job. “They are able to make independent choices free of supervision with respect to matters of significance,” says Netikosol. “They have to do it consistently. Not once a week, not twice a month, but every single day on a regular basis.”
A location manager, she notes, probably exercises enough discretion in choosing a filming location to meet the independent judgment test — but a more junior location scout likely wouldn’t meet that bar. In a similar hypothetical, a more senior set designer is likely exempt, while a set decorator who is following instructions instead of exercising creative freedom might not be.
Labor and employment attorneys consulted by THR say overtime exemption problems are likelier to occur not at major studios but at smaller and mid-size companies that don’t have quite the same access to an army of sophisticated in-house and outside labor counsel.
“The determination is very fact-specific. So, there may be some situations where someone is inadvertently misclassified, even at these larger companies that do give good counsel,” says Loeb & Loeb partner Ivy Kagan Bierman, adding that her clients are very careful to make sure they’re doing it right, and she often walks them through the factors. As for non-clients who may be getting it wrong, she says it’s more likely to be inadvertent than malicious: “I don’t think they intentionally violate the law.”
Notes Fromholz, “It might not even be on their radar” if no one has flagged a potential misclassification issue internally to HR or filed a complaint with the state.
“Even though there’s so much gray area, there’s still a lot that’s black and white here,” says Pynes, adding that it should be easy to at least avoid mistakes on the salary minimum. Still, it happens. “I think because that [minimum wage] rate changes once a year, it’s just not on the annual radar for auditing purposes.”
Pynes also suspects many companies are relying on third-party payroll companies. “I think people assume their payroll providers are going to flag an issue or not even allow them to pay somebody under minimum wage. Yet, consistently, I find that it’s not happening.”
Kagan Bierman says that’s likely because of those industry-wide wage and hour class actions years ago, in which the payroll providers were also sued. “The payroll companies became much more conservative in giving advice to their clients,” she says. “Many of them stopped advising clients on any labor issue. They weren’t lawyers, and they didn’t want to be liable.”
If someone suspects they’re misclassified, Netikosol says the Labor Commissioner’s website can walk them through the claims process. If a worker is worried about retaliation and wants to remain anonymous, they can instead file a report with the Bureau of Field Enforcement, which may trigger an investigation. (If retaliation has already occurred, she notes, there is a Retaliation Complaint Investigation Unit.)
Julie Shapiro, director of the Entertainment and Media Law Institute at Loyola Law School, says Hollywood workers often join the ranks of the industry expecting to “pay their dues” and that may make them less inclined to complain about low pay or missing meal and rest breaks. “The problem is the realities of the actual job,” says Shapiro. “Lower-paid individuals are not going to blow the whistle. They’re working their way up, and they don’t want to ruffle feathers.”
A version of this story first appeared in the July 21 issue of The Hollywood Reporter magazine. Click here to subscribe.
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