California freelance writers, photographers get relief from contractor labor law AB 5

On Sept. 4, California Governor Gavin Newsom signed Assembly Bill 2257, which creates exemptions for certain professionals under AB 5.

The law immediately removed a 35-piece limit per company for many creative workers, including freelance journalists and photojournalists, as well as artists, musicians, and interpreters. There is no exemption for rideshare drivers for Uber and Lyft.

Those app-based ride companies are making large contributions to support California state Prop. 22. That proposition, if passed in November, would classify app-based drivers as independent contractors rather than employees.

The exemptions under AB 2257 are likely to result in companies hiring more independent contractors. The Business Journal uses multiple freelance journalists.

“The pandemic cut so much out of my income. Weddings, winery clients, and nonprofits have really cut the amount they have been spending. Since the pandemic began, news has been my main source of income,” said Erik Castro, a Santa Rosa-based photojournalist who contributes to The Press Democrat, Sonoma magazine, and the San Francisco Chronicle.

Castro said when the pandemic started, news companies started asking for photographs of bars and restaurants where people were being served.

“At one bar, a customer outside the door asked me if he could have the mask I was wearing. He wanted to go inside and get a drink. I’ve photographed all kinds of dangerous events, including protests. Going into that first restaurant during the pandemic was the first time I was ever nervous doing my job,” said Castro.

Freelance journalists and photographers may not be fully protected from defamation lawsuits by the media companies for which they contract.

The change to lift the restrictions does not immediately change much for Castro. He filed an application with the state to incorporate as a limited liability corporation (LLC) before AB 5 took effect in January. AB 5 allowed an individual to submit more than 35 assignments per company if the individual incorporated as a business under a “business to business” exemption.

Yet Castro, as many other freelance photographers and writers, can now consider not having to maintain LLC status in 2021. The filing fee to become an LLC is $800. The act of filing is associated with numerous expenses and labor, such as the cost of an attorney to help with filing, and setting up a separate bank account for income earned through the business.

Cost of complying with AB 5

Matt Villano, a Healdsburg-based journalist who has contributed to The Press Democrat, Sonoma Magazine and CNN, spent over $1,300 to establish himself as an LLC.

“That included the $800 filing fee with the state, $500 for legal services to assist with filing, extra fees for VIP service, as well as my own time and work to set up a separate bank account for my business. There was no question that AB 5 wasn’t good for freelancers. I think it was completely out of touch with reality,” said Villano.

Villano said he was thankful AB 5 “lit a fire under me to make some steps I had been resisting for years.”

“Hopefully now my finances are more watertight and protected than they’ve ever been. There’s a wall between myself and my business,” said Villano.

Establishing a degree of financial and legal separation can be important for freelance journalists and photographers. These professionals may not be fully protected from defamation lawsuits by the media companies for which they contract.

AB 5 had also been problematic because it carried hefty fines for employers who violated the rules, between $5,000 and $15,000 per violation. These usually arose when a freelancer stopped receiving assignments from an employer and tried to claim unemployment from a client through the California Employment Development Department (EDD).

Crista Morrow, a Marin-based business attorney at Scheuring, LLP, which represents both employers and freelancers, said having a good relationship with the company for which you create work is the remedy.

Morrow said concerns regarding work come up when “relationships go sideways.”

“Avoid frustration and disappointment by communicating clearly and working out concerns. That ultimately lowers costs for everyone,” said Morrow.

Still useful to incorporate

Filing as an LLC or S corporation can still offer freelance journalists and photojournalists advantages. An LLC filing or S corporation filing, and the separation of income earned through it, can protect personal property like a home, car, or valuables from business debts.

With an LLC, S corporation or sole proprietorship, a freelance journalist or photojournalist can also make tax deductions for certain expenses incurred by the business, such as a software program or a new camera. A business entity like an LLC or S corporation may have greater eligibility for a bank, credit union, or Small Business Administration loan than a sole proprietorship or an individual working as an independent contractor. Still, lenders often require personal guaranties.

Morrow said each method of forming a business involves a different procedure.

“To form an LLC or S corporation, you file with the state. An LLC and an S corporation are pass-through entities which do not pay federal taxes themselves. Rather, each individual member or shareholder pays income tax on their allocable share of the LLC or S corporation’s income. You formalize a sole proprietorship by filing a fictitious business name with the appropriate county government office, which is usually the Registrar-Recorder/County Clerk’s Office. You should also get a business license from the city and/or county in which you do business,” said Morrow.

A freelance journalist or photojournalist who is looking solely for financial protection against loss should talk to their homeowner’s or renter’s insurance company.

“The existing policy may offer protection for your business. Alternatively, the insurer may offer an umbrella policy, which covers additional claims that the main policy does not,” said Morrow.

Lasting side effects

Many employers are happy that the labor laws have been modified to exclude a larger class of independent contractors.

Margarita Wear is a San Rafael-based employment law attorney with Maier Law Group, which primarily represents employers. Wear said AB 5 presented a moving target, “with its multiple legal challenges and proposed amendments to the law.”

“There was a lot of displeasure with AB 5. One of the good things that came out of it was that contracts between employers and independent contractors evolved. The contracts now more clearly state who has liability and what compensation an independent contractor will receive,” said Wear.

A number of freelance journalists and photojournalists changed their business practices. They are now writing fewer pieces for certain companies and have added to the list of companies to which they contribute.

Jess Lander, a Napa-based freelance wine, food, and travel writer who contributes to The Napa Valley Register, Wine Business Monthly, and Eater SF, said she does not write 35 articles a year for any one publication. She still was highly opposed to any type of restrictions on article submissions. Lander is glad that freelance journalists and photojournalists are now no longer “looped in” with rideshare drivers.

“I completely understand the drivers' wish to receive benefits and worthy compensation. Yet most freelancers I know don’t wish to be a full time employee. I once worked full time at a newspaper and was barely getting by on the salary. Today, I make exponentially more money as a freelancer. I wouldn't give up the flexibility of my work for full-time benefits,” said Lander.

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