January 28, 2020
By Jonathan Kirsch
The law of unintended consequences is stirring up trouble in California, where an earnest effort by the legislature to protect Uber and Lyft drivers and other “gig workers” from exploitation has threatened the livelihood of freelance writers, editors, and photographers.
The law is still widely known as AB5 (that is, Assembly Bill 5), even though it was passed by both houses of the California legislature, signed by the governor, and codified as California Labor Code Section 2750.3 in September 2019. To summarize what is a long, complex, and highly nuanced statute, the new law establishes that service providers are presumed to be employees unless the hiring party can prove otherwise. Some professional services are exempt if the freelancer meets certain criteria, as described below. The exemption covers freelance writers and editors who limit their annual submissions to any single publisher to 35.
The burden of proving that a service provider is a bona fide independent contractor is so daunting that some national print and digital publications have stopped using freelancers in California rather than take the risk that they will be forced to bear the burdens of an employer, including the payment of minimum wage and overtime compensation, family and sick leave, payroll taxes, and premiums for workers’ compensation, unemployment, and disability insurance.
What I am calling burdens, of course, may well be seen as benefits by the service providers themselves. Indeed, AB5 is regarded as a progressive measure by the legislators who sponsored it, the labor unions who lobbied for it, and the governor who signed it into law. Authors and journalists, however, are more likely to regard the new law as a threat to their livelihoods.
Strictly speaking, the law of California applies only in the state of California. But the new provisions of the California Labor Code are a source of concern for publishers across the country. Indeed, some out-of-state publishers have stopped using California-based freelancers in order to avoid the burdens of the new law. While a boycott of California-based freelancers may be an overreaction, the risk of falling afoul of California law remains.
The new law applies directly to publishers who are headquartered in California or whose headquarters are out-of-state but who maintain a business presence in California. The California law also applies to out-of-state publishers who use the services of freelancers living or working in California. The California law does not apply to out-of-state publishers who use freelancers in their own states or in states other than California.
Of course, a publisher operating in any given state must comply with the laws and regulations of that state. Massachusetts, for example, is also highly protective of employment status, and some of the issues discussed here may arise in the future in other states, too.
A policy that favors employment status under various California rules and regulations is nothing new. The law has long provided that employment is a rebuttable presumption when it comes to hiring, and a hiring party that wants to treat a worker as an independent contractor bears the burden of proof in overcoming the presumption. But the preference for employment is much more muscular now because of two major changes in the law.
First, the California Supreme Court ruled unanimously in the 2018 case of Dynamex Operations West v. Superior Court that all workers are presumed to be employees rather than independent contractors unless the hiring party is able to satisfy a strict three-part test that is known as the “ABC test”:
A. The worker is free from the control and direction of the hiring party in connection with the performance of the work, both under the contract for the performance of the work and in fact.
B. The worker performs work that is outside the usual course of the hiring party’s business.
C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
The next change came in September 2019 when the California Legislature enacted Assembly Bill 5, commonly referred to as AB5, resulting in the controversy that has attracted so much public attention. The bill was promptly signed into law and went into effect on January 1 as newly enacted Section 2750.3 of the California Labor Code. Thanks to several last-minute amendments to AB5, the statute goes beyond the Dynamex case and now includes several additional provisions that were meant to address the needs of the news media (though the journalists themselves disagree, and the changes only burden the publishing industry).
Although Section 2750.3 has not yet been fully implemented or litigated, a strong legal argument can be made that it does not apply to the conventional dealings between authors and publishers in the book trade.
Publishers do not customarily engage the services of authors who create a book. Rather, publishers acquire intellectual property rights in works of authorship that are created by the authors. If and when the argument is tested in court and upheld, then the conventional author-publisher contract may fall entirely outside the scope of labor law in California, including the newly enacted section of the California Labor Code.
The argument is strongest when a work of authorship is actually in existence, even if only in the form of a book proposal and a few sample chapters. However, if no intellectual property exists when the publishing agreement is signed, and the contract uses terms like “services” to describe the author’s work, the contract might start to look more like a contract for the provision of services and run afoul of the California law. For example, if the contract provides that the publisher is acquiring the “results and proceeds of the services rendered by the Author,” which is advantageous language when the publisher seeks to acquire as many rights as possible, the contract is more plausibly characterized as a contract for services.
The argument that books fall outside the scope of labor law is weaker when it comes to other content providers whose work consists of editing, proofreading, typography, house or catalogue copy, and press releases. The work of a copy editor or proofreader, for example, is best characterized as a service. The copywriter who produces flap copy, catalogue copy, and press releases is producing works of authorship, but it is harder to argue that the core relationship with the publisher is the acquisition of intellectual property rights rather than the provision of services. The argument is also weakened by the fact that publishers rarely employ authors but commonly employ editors and copywriters—a factor that favors employment status under Section 2750.3.
Finally, the new statute raises the risks of any publisher who seeks to acquire a work of authorship as “commissioned work” or “work made for hire.” Existing sections in California law, California Labor Code Section 3352.5(c) and California Unemployment Insurance Code Sections 686 and 621(d), have long stated that an individual who provides a work of authorship on a work-for-hire basis is deemed to be an employee of the acquiring party. Until now, these three sections have been ignored by employers and by the courts. Combined with Section 2750.3 of the California Labor Code, however, these existing statutes represent a sharply elevated risk for a publisher who seeks to acquire a writer’s work on a work-for-hire basis.
As a general rule, Section 2750.3 of the California Labor Code adopts the ABC test, but exceptions are carved out for various specific businesses and professions that fail to satisfy all three of the requirements under the ABC test. One of the exceptions applies to freelance writers and editors (and also to photographers and newspaper cartoonists) who work under contract with the hiring party. Rather than the ABC test, a different, multilayered, and more complete test is applied to determine if a publisher can deal with its freelance writers and editors as independent contractors rather than employees.
The exception applies to freelance writers and editors under contract “who do not provide content submissions to the putative employer more than 35 times per year.” A “submission” is defined as “one or more items or forms of content by a freelance journalist that: (I) pertains to a specific event or topic; (II) is provided for in a contract that defines the scope of the work; (III) is accepted by the publication or company and published or posted for sale.” The problematic word in the clause is “journalist,” which raises a question of whether the exception applies at all to freelancer writers and editors who work in the book publishing industry.
By the way, the same exception applies to still photographers and photojournalists who do not license content to the putative employer more than 35 times per year, and to graphic designers, grant writers, fine artists, and marketing professionals whose work is “original and creative in character.”
But the exception applies only if the freelance writer or editor, or the other specified professional, meets six additional conditions listed in the statute, including maintenance of a business location, issuance of a business license, the ability to set or negotiate her or his own rates, the ability to set her or his own hours, the availability to perform the same type of work for other customers, and the ability to exercise discretion and independent judgment in the performance of services.
Once it has been determined that a freelancer does not satisfy the ABC test but falls into one of the exceptions in the new law, yet another and longer test is applied to determine whether the freelancer is an employee or an independent contractor. The applicable test is the one that was established in the 1989 California Supreme Court case S. G. Borello & Sons Inc. v. Department of Industrial Relations. Unlike the ABC test, which is as simple as 1-2-3, the Borello test consists of 11 different factors, ranging from “whether the person performing services is engaged in an occupation or business distinct from that of the principal” to “whether or not the parties believe they are creating an employer-employee relationship.”
Most strikingly, the carve-out for freelancers does not help journalists who contribute more than 35 items per year. A weekly columnist or blogger, for example, falls outside the scope of the carve-out and is more likely to be deemed an employee of the publisher. That’s why, for example, Vox Media terminated the contracts of hundreds of freelance contributors in California. And that’s why the American Society of Journalists and Authors and the National Press Photographers Association challenged the constitutionality of the law under the First Amendment in a lawsuit filed on their behalf by the Pacific Legal Foundation, a libertarian public interest law firm.
If an author or journalist wants to forego the benefits of steady employment in order to secure work from publishers, then a business relationship can be structured—and a contract can be written—that may enable both parties to navigate around the new law. Of course, it is not enough to write and sign a self-serving contract. The author or journalist and the publisher must actually comply with the requirements of the new law.
For example, as noted above, the book contract between an author and a publisher should avoid any reference to services or to work-for-hire, and the contract should be based on the acquisition of rights, preferably to an existing work of authorship, even if it is only a proposal at the time the contract is signed. Most proposals, after all, include one or more sample chapters, which amount to an existing work of authorship Moreover, the compensation in book contracts consists of royalties on the sale of copies of the book rather than a payment to the author for writing the book. (The Authors Guild is seeking an opinion from the California Department of Labor to clarify that typical book contracts are not covered by AB5.)
As another example, the contract between a journalist and a publisher should be based on the six conditions listed in the carve-out for freelance writers and editors above, and the freelance journalist should operate her or his business in compliance with these conditions.
Some of us expect that the courts will fine-tune the new California law in the future, but we still fear that damage will be done to authors and journalists in the meantime.
Important Notice: This article is an overview of recent developments in California law and does not constitute legal advice. Some elements of the law discussed here may change in the future. Writers must consult an attorney with appropriate experience and expertise to determine if and how the current laws may affect their legal rights and legal risks.
Jonathan Kirsch is an author, book reviewer, and attorney specializing in copyright, trademark, privacy, and publishing law in Los Angeles.
