Gavin Newsom Signs Union-Supported Bill Safeguarding Entertainment Loan-Out Companies

California Governor Gavin Newsom has signed into law a union-supported bill that seeks to protect entertainment workers’ use of loan-out companies after an audit earlier this year provoked widespread concern about their future.

The governor’s office announced that Newsom had officially greenlit state Sen. Anthony Portantino’s SB 422 on Monday. The bill, which received the backing of the Entertainment Union Coalition — consisting of the California IATSE Council, the Directors Guild of America, SAG-AFTRA, the Teamsters Local 399 and LiUNA! Local 724 — codifies that a loan-out company is the employer of entertainment workers that set up these companies and work under their auspices and is responsible for paying employer taxes.

The legislation also bars entertainment payroll companies from being considered the employers of loan-out companies or their workers. Under the parameters of the bill, entertainment payroll companies will be required to submit quarterly reports to California’s Director of Employment Development disclosing their payments to loan-out companies.

The legislation effectively affirms entertainment workers’ longtime use of these S-Corporations, C-Corporations or LLCs, which “loan out” their services to various other firms, said one industry union. “In practice, this means that loan-out companies will continue to function as they have for decades,” the Writers Guild of America West wrote in an Aug. 31 message to members explaining the bill, which had at that time passed the state legislature. “The legislation also preserves an important court decision establishing the right of loan-out employees to receive UI benefits on the same basis as other unemployed workers.”

Many different industry workers, such as writers and reality television producers, use loan-out companies, which provide some corporate protections and can offer tax benefits. Explained DGA Western executive director Rebecca Rhine in an interview, whose union took a leadership role in collaborating on the bill, “Loan-outs has been part of our industry for many, many decades because of the transitory nature of the work and multiple employers and different projects. And so it is a structure that helps people in the industry manage their particular work life.”

Multiple stakeholders began working on the bill after news broke in May that California’s Employment Development Department was auditing major industry payroll provider Cast & Crew. Cast & Crew sent out a cautionary message to industry workers that month, noting that the state department had challenged the practice of channeling compensation through loan-out companies rather than paying wages directly to loan-out companies’ owners or shareholders as if they were the payroll providers’ employees. Cast & Crew said at the time that it was “actively contesting” the EDD’s decision and working with unions and entertainment companies on the matter, which it anticipated would quickly become “an industry-wide issue.”

In a response at the time, EDD said that it was engaging with industry representatives and clarified that it would not be banning the use of loan-outs in California.

Entertainment unions began engaging with the governor’s office about the issue after news of the audit emerged and ultimately worked with Portantino to resolve the matter through legislation, said Rhine. The WGA West, EDD and Cast & Crew also played a role in the effort, according to the WGA West’s August message to members. Rhine added of the new law, “The most important thing is it provides clarity to our members, to the state and to the industry about the role of loan-out corporations in our world.”