Important Message: California AB 5 and Loan-Out Companies

We are writing to you as guilds and unions of the entertainment industry. We are doing so because there is a great deal of confusion about the potential impact of a new California bill, AB 5, on loan-out companies.

Over the past four months we have carefully monitored this legislation as it was drafted and moved through the California Legislature. During that time, we conducted due diligence within our own guilds and unions, with outside tax attorneys, CPAs, and entertainment lawyers knowledgeable about our business and loan-out companies, and with legislative staff in Sacramento. These conversations were all undertaken to ensure that AB 5 would not undermine the rights secured by our collective bargaining agreements, including the right to form and utilize loan-out companies.  

Nothing in these conversations has changed our own internal assessments: neither AB 5 or the Dynamex decision, which has now been the law in California for a year and a half, undermine your use of a loan-out. Once the Dynamex decision became law in California in 2018, all the doomsday pronouncements now being made could have come to pass, but they did not. AB 5 codifies the Dynamex decision; its sole purpose is to protect workers across California who are currently misclassified as independent contractors.

Members of our guilds and unions are not independent contractors; they are employees, whether or not they utilize loan-outs. Loan-out companies are employers and so they too do not have independent contractor status. AB 5 exempts the kind of business to business relationships which loan-out companies are set up to support. Furthermore, AB 5, by setting up rules applicable when one employer loans an employee to another employer, specifically contemplates that loan-outs will continue. Our collective bargaining agreements (CBAs) expressly allow members to use loan-outs. Our CBAs also protect your status as an employee. AB 5 does not undermine these legal or contractual rights. AB 5 is not directed at our industry, and we do not believe it will trigger a change to industry practices.

This analysis is not a substitute for individualized tax advice. Some loan-out companies may have structural issues that put them at risk. This is not changed one way or the other by AB 5. Members should always consult their own professional tax advisors to ensure the optimal tax treatment of their earnings.