California is on fire.
But this economic blaze will ignite abruptly on January 1st and will affect the California music industry so drastically that it could completely burn it down. As the fifth largest economy in the world and the entertainment hub of the world, this is a big fucking deal. And there’s one man who could put it out single handedly – and that’s Governor Gavin Newsom.
Update 9/4/2020 – The Governor has signed into law a bill exempting the vast majority of the music industry from AB5. Read more about this here.
“This is an anti-creative economy bill for California. I’ve often wondered what could knock the LA music scene off it’s game. I think we’re looking at it.” – Ned Menoyo, EEM Law
Assemblywoman Lorena Gonzalez spearheaded a bill, AB5 which was intended to support workers’ rights – namely Uber, Lyft and DoorDash drivers. Rather than making a law targeting specific companies, they basically outlawed all independent contractors with few exceptions. It was signed into law on September 18, 2019 by Governor Newsom. Why haven’t you heard about it? Because it was run through committee so fast that no one really had time to process what was happening. So, no, we didn’t get to contact our representatives before the vote and plead with them not to vote for it or at least give the independent music industry an exemption.
Tonight in Van Nuys, I attended an educational gathering of mostly independent musicians organized by bassist Nick Campbell and cellist Danica Pinner.
Attorney Ned Menoyo led the discussion and broke down the law and how it will affect us. As he went on, the room got more and more unsettled to the point where people were shouting out questions left and right completely dumbfounded that something so detrimental to our livelihoods actually got signed into law without anyone knowing about it.
Don’t get me wrong, I’m all for “workers’ rights” and I’m sure Assemblywoman Gonzalez and Governor Newsom had the best intentions to support workers being taken advantage of by big corporations. They just didn’t do their due diligence and clearly have no idea how the music industry works. How this law affects musicians is not helping workers. It’s actually hurting them much, much more.
This law could single handedly end the music industry in California.
How the law is written, if you want to hire a bass player to play your gig for $100 you have to put that bassist on payroll, pay unemployment taxes, provide benefits, follow labor laws, get workers compensation insurance, deduct taxes, work with a payroll company, W-2 that bassist as they now legally will be designated your employee. FOR ONE FUCKING GIG.
Want to hire a violinist to play one song on your record for $150? She’s now your employee. FOR ONE FUCKING GIG.
Oh and by the way, every venue in California can’t just cut solo artists a check anymore. You play a 45 minute set at the Bootleg and make $800? Well, you’re now technically an employee of the Bootleg, they must deduct taxes, put you (and the hundreds of artists who play their venue each year) on payroll. FOR ONE FUCKING GIG.
Publishing companies won’t hire producers and won’t be giving songwriters advances anymore in California. Independent record labels can’t pay musicians, producers, engineers or anyone else without designating them as employees.
This is a ripple effect. The music industry could leave California en masse.
Research has shown that by forcing these individuals to designate everyone they hire as an employee it would increase costs by 30%. You thought your budget was $5,000 to hire the personnel for the album? Think again. It’s going to cost you around $6,500.
So you want to hire a drummer for $100? Well, now you have take out taxes. So either you cut the drummer a check now for $80 (you must withhold around 20%) or cut the drummer a check for $100 (but you actually are paying out $120). Multiply that by every musician at every gig. And you’re looking at thousands of dollars lost.
It is completely cost prohibitive to force musicians who are just scrapping by to jump through all of these hoops and pay all of these fees.
Just registering a corporate entity (like LLC or S-Corp) is a minimum of $800 and could be a couple thousand dollars a year to maintain – or more. Payroll companies aren’t cheap. It could run you a few hundred dollars a month! Not to mention that filing taxes for a corporate entity is extremely expensive. I have an S-Corp for Ari’s Take and my accounting company charges me $2,500 to file the corporate taxes.
This law was not thought out. It disproportionately affects independent musicians. Clearly no one in the California state government has ever worked a day in the music industry.
This law, if unchanged, will single handedly crash the California music economy. This is not hyperbole. This is reality.
Record labels will start to take their business to New York, Atlanta, Nashville or elsewhere. Touring bands will not come play the state anymore because the venues may not allow solo artists to accept payment under their name – forcing them to create a corporate entity to get around the employee requirement. No touring solo artists will do this just to play a few gigs in California which will pay much less than the cost of that corporate entity.
The American Federation of Musicians (AFM) is literally the only entity in the music industry who is in favor of AB5. You’ve probably never heard of the AFM because very few musicians are actually in the musician’s union. The AFM cites 80,000 members, but there are literally millions of musicians in the US and Canada and no one I know is in the union. Unless you play in an orchestra, on major label records or are employed by a corporation who has a deal with the AFM, you don’t need to be in the AFM and I’m not really sure what they do. But what they DID do here is totally fuck the entire music industry on this – namely independent musicians. They convinced Assemblywoman Gonzalez that this was a good thing for the music industry. All they care about is apparently their members. Since the vast majority of musicians are not in the union, the AFM just convinced the California state government and Governor Newsom that they are looking out for musicians, when in reality they’re not.
Worth noting that the RIAA, A2IM and the newly formed Music Artists Coalition, comprised of Dave Matthews, Don Henly, Anderson.Paak, Maren Morris, Meghan Trainor, Shane McNally, Verdine White, Irving Azoff, Coran Capshaw and John Silva, among others, fought against this bill. Based on reporting it seems Assemblywoman Gonzalez got pissed at the RIAA, so she decided that no exemptions would be made for the music industry.
This law contains exemptions for lawyers, dentists, physicians, vets, psychologists, architects, private investigators, accountants, direct sales salesperson (telemarketer), fishermen, podiatrist, graphic design artist, travel agent, grant writer, “Fine Artist” (does not include musicians), Human Resources administrator, marketing, photographer, freelance writers/cartoonist/editor (limited to 35 items per year per publication), esthetician, manicurist, barber, cosmetologist, electrologist, annnnd repo men.
So, for some reason, repo men, manicurists and telemarketers are ok for exemptions, but music professionals are not?
This needs to change! And it can.
What we need to do:
We need to get an exemption for music professionals into this law before January 1st.
Please take 2 minutes right now and copy and paste this email and send it to your state representatives. You have an assembly person and a state Senator.
You can find out who your reps are here.
Click through and you’ll see contact info on the far right. It will say “Contact _____” if you click that there will be a form to send your rep an email. And if you scroll down a bit their phone number is there as well. You can call and say “Hi, am a constituent of _______ and am asking them to add an exemption to AB5 for non-union music professionals. I am an independent musician and if we don’t get an exemption, this will horribly affect my business.”
You can copy/paste this email (or edit at will):
I am writing to ask you to add an exemption in the newly signed law AB5 for “non-union music professionals” in section 2(c)(2)(b). I am an independent musician/producer/songwriter and if we don’t get an exemption, this law will horribly affect my business. I will lose thousands of dollars a year attempting to comply with the law. So you have some understanding, I (and every other music industry professional I work with) hire various professionals throughout the year for oftentimes one-off gigs. This includes musicians and singers for live shows and the studio, mixing engineers, record producers, live sound engineers, mastering engineers, merch managers, tour managers, the list is endless. If I have to designate each person as an employee, it will crush my business. I am not setup to do this and it is frankly cost prohibitive for me to do this.
I am pleading with you to add an exemption for “non-union music professionals” before January 1st so I can continue to run my business from California – the state I love.
Thank you for your understanding and compassion.
Also send this letter to Governor Newsom here.
I’d also recommend tweeting:
Hey @GavinNewsom and @LorenaSGonzalez please add an exemption to AB5 for “non-union music professionals.” I am an independent musician and if we don’t get an exemption, it will horribly affect my business and I will lose thousands a year attempting to comply with the law.
We are on Assemblywoman Gonzalaz’ radar! Yesterday I tweeted with her for a bit and she agreed to meet with me and some other independent musicians to get more educated on our concerns and the music(ian) industry of California – not from the suits at the RIAA, AFM or A2IM. Also, state reps are also taking notice thanks to your letters and phone calls! Keep it up! We’re going to get this this amended thanks to your work!
Here are some other attorneys’ thoughts on AB5 which helped inform my opinion (in addition to Ned’s presentation). This list was compiled by Peter Petro for A&R Registry:
“I thought for sure that California Governor Gavin Newsom wouldn’t sign the bill in its present form or that the California Legislature would modify it substantially. Unfortunately, neither of those things happened. The number of exemptions in the bill is a sign that they didn’t get the language of the underlying law correct. This may have to be decided through the courts or through an amendment to the legislation.
As an independent contractor, barring a work for-hire contract or similar language in a services agreement, the work you create is yours and not owned by whoever hired you. On the other hand, work done as an employee in the course and scope of your employment is owned by the employer. That should concern artists, songwriters and composers since it jeopardizes their creations. AB5 has such draconian implications. You could well see an exodus to entertainment hubs outside of California like New York or Atlanta, unless there are significant changes or limitations imposed on its implementation. Just as the film and TV industries suffered runaway production with various tax incentives wooing away productions to other states and countries, companies may take their business out of state unless significant changes are made to AB5.”
Jeffrey Brandstetter Brandstetter Law
“I think that the smaller independent music producers, bands of lesser renown and stature, and economically-leaner labels will likely suffer the greatest detrimental effect from AB5. Why? Because producers, bands, and labels that already have stature, significant assets, and infrastructure in place: (1) are more likely to use legal counsel to paper their way around AB5, and therefore (2) will more likely be successful circumnavigating AB5. Indeed, by analogy to the transportation sector, the wellheeled Ubers and Lyfts of the global “gig economy” have already indicated they feel that they comply with AB5 and are not afraid of it. Even in the current pre-AB5 climate in the entertainment industries, larger, richer entities more likely already know how to properly use a “loan-out” entity structure to address related tax, independent contractor, and I.P. issues, and are therefore more likely to resolve them successfully. Many other people are going to need outside help solving the AB5 problem, though, since those others never really handled independent contractors correctly to begin with. A number of rock tours that hire roadies, provide just one collective example of that. “
John J. Tormey III, Esq.
Law Office of John J. Tormey III, Esq.
“Unfortunately, the music industry couldn’t come to a consensus on the language that would support an exemption because of competing interests. The industry didn’t voice their opinion so they were not granted an exemption. In my opinion, that was a mistake. They tried to fight the law, instead of accepting it and securing an exemption.
The American Federation of Music (AFM) didn’t really benefit from a music industry exemption since their role is to govern union work for musicians and it aligns with the position of other guilds that AB5 does not affect collective bargaining agreements. AFM may even benefit from AB5 — if it is easier for independent musicians to make music in California if they’re part of AFM it could drive up their enrollment. The rest of the music industry should have come up with a compromise with AFM. This will hurt the industry. The advice will be, “comply with AB5 or record in Nevada or Oregon so you don’t get caught up in this detrimental law.” I’m getting lots of requests to revise contracts. The underlying case law to AB5 is already in effect so contracts need to be revised now”
Richard B. Jefferson M.E.T.A.L. Law Group
“The AB5 “A. B. C. test” to distinguish between an employee and an independent contractor doesn’t provide enough guidance. It’s based on a Dynamex case, which was decided in 2018 but is over 10 years old and originated way before Uber and Lyft. It revolves around 1) if the hiring company controls or directs the work done by someone they hire; 2) if that work is within the usual scope of the entity’s business and 3) if that worker generally works independently. The second criteria impacts the music industry most. If a singer-songwriter hires a producer, they’ll have a hard time saying the producer’s work is outside their course of business — creating music. That means the producer should be treated as an employee with workers comp, minimum wage and other employee benefits. Research suggests that would increase costs 30 percent. It also implies infrastructure and lawyers or accountants to set up when it was much easier before.”
Ben Laski, Law Offices of Benjamin Laski
“The biggest obstacle to creating an exemption appears to be reaching an agreement with the American Federation of Musicians. I’m not sure why the RIAA, A2IM, Music Artists Coalition and AFM can’t work together for the benefit of their common interest. If stakeholders can compromise on their positions, there’s a chance we could have an exemption for the independent music industry before this bill goes into effect in January. There’s certainly plenty of win-win here, we don’t need to be at odds with one another. The best thing the independent community can do is lend their support for the organizations representing them – RIAA, A2IM and Music Artists Coalition (MAC). They’re the ones who have a seat at the table. I haven’t seen a lot of other independent music industry press about this issue. The word needs to be more widely disseminated that this is on the horizon and people need to start preparing for it. I don’t know how educated independent artists, songwriters and producers are that this is a looming possibly for them. If an independent artist, producer or musician hasn’t already formed a corporate entity, they may want to discuss doing that with their accountant or business manager — securing a federal tax ID number and drilling down on the expense to comply.”
Henry Root Lapidus, Root & Sacharow LLP
“According to AB5, independent artists who hire a producer or engineer have to abide by minimum wage laws, pay into unemployment, provide benefits and more. Requiring an independent artist working from their home with multiple independent collaborators to abide by minimum wage laws, pay unemployment taxes or provide medical benefits makes absolutely no sense.
For that reason (coupled with the fact there is no exemption for the trucking industry) I believe the Bill will be challenged in court and ultimately ruled unconstitutional — because it conflicts with federal law by excessively burdening interstate commerce.” –Matthew Warren Clinton & Clinton