Loan Outs in Limbo

The California EDD, the state agency that administers unemployment, has informed multiple entertainment payroll companies that cast and crew working on productions under the common “loan out” method have been misclassified. The EDD contends that many of those working under a loan out agreement should have been classified as employees, with productions paying them directly and withholding taxes from payment.

Loan outs are prevalent in the entertainment industry, with many department heads, actors, and other using them. Loan outs allow workers to own their own company, pay themselves through it, and “loan out” their services to productions. While this can benefit the productions, the primary purpose is allowing the worker to write-off their business expenses, including owned equipment, advertising, and agency fees.

The scope of the EDD’s objections are not yet clear, and the payroll houses, as well as the major guilds, are asking for clarification. It’s unclear whether the EDD is targeting specific instances of loan outs, or if this is the harbinger of a larger ruling. The Franchise Tax Board and other relevant agencies have not yet weighed in either.

This is a story that is likely to change quickly, but the Law Firm of Dillon McCarthy is monitoring the situation and what it will mean for clients.

What is a "Last, Best, and Final Offer"?

In the ongoing negotiations between the AMPTP and SAG-AFTRA, the studios have presented their “last, best, and final offer” to SAG. But this is the second time that they have offered one. If the last, best, and final offers are neither last, best, nor final, then what are they?

The last, best, and final offer is part labor law term-of-art and part negotiating tactic. From the business point of view, they are presented as the final terms that an employer is willing to give to a union. But just because a business states that does not make it so. Businesses have a legal obligation to negotiate with properly recognized unions. For the most part, they may not unilaterally impose a new union contract.

So then what is the point of declaring an offer last, best, and final? While businesses have an obligation to negotiate in good faith with unions, it is possible that negotiations reach an impasse. A bargaining impasse is defined by the National Labor Relations Board as a point in negotiations where further negotiation would be futile. It is not easy to declare an impasse, and efforts by negotiating businesses to do so often result in lengthy court battles. Whether a legitimate impasse exists depends on a number of factors, including the issues in dispute, length of negotiations, and the history between the union and company.

If there is an actual impasse, the business or businesses may impose the terms of their “last, best, and final offer”, provided the terms were made in good faith. In practice, this rarely happens. Given the importance of the remaining conflicts and the length of the current strike, it’s unlikely to happen with the last, best, and final offer presented by the AMPTP here. In practice, unions often treat these declarations as another simple counteroffer and keep negotiating.

So what is a “last, best, and final offer”? In theory, it’s the offer that the AMPTP would impose if they declared an impasse and won the inevitable court battles that would ensue. In practice, it’s mostly a negotiating tactic.

What's in the New WGA Contract?

The WGA strike is over, and assuming the membership ratifies it, there is a new agreement between the Writer’s Guild of America and the AMPTP, the studio’s collective bargaining representative. But what' does the new agreement say and what does it change in Hollywood?

Pay

The new contract includes a 5% immediate increase in the minimum pay for WGA members, with additional smaller increases in 2024 and 2025. Studio contribution to the Health and Pension Plan also increased 0.5%.

Residuals

Television has changed a lot since the last WGA deal, with most people watching via streaming services. This has cut into residuals. The new deal requires streamers to let WGA know some of their viewership numbers. Based on a number of factors including viewership, writers will now receive increased residuals payments for successful streaming projects.

Artificial Intelligence

Going in, this was one of the more uncertain avenues in the WGA’s conflict with the studios. No one knows exactly how AI will change the industry moving forward. What we do know is that, under this contract, AI cannot re-write a writer’s work. AI can also not receive writing credit, something that many worried the studios would do, having AI write a treatment, calling the author’s contributions a re-write, and using that as an excuse to credit and pay them less.

A writer may use AI themselves in developing material, but cannot be required to do so.

Writer’s Rooms

Shows now have to employ more writers, based on the length of the season, and for longer. This excludes shows written entirely by one person.

The deal is more than 90 pages long, so this doesn’t cover everything. But it hits on the primary points of conflict that led to the strike in the first place. If you are a writer in need of legal representation, reach out to The Law Firm of Dillon McCarthy, and best of luck getting back to work.