Practicing wage and hour law has become a cottage industry. Indeed, many
employment lawyers would describe the current appetite among lawyers for
wage and hour cases as a feeding frenzy. The entertainment industry, like
many others, will likely face several different types of wage and hour
lawsuits in the foreseeable future. Already one large-scale, industry-wide
class action wage and hour case has been settled. The suit, Greenberg
v. EP Management Services, LP, involved nearly every production company,
talent agency, and studio in Los Angeles.1 Substantial exposure remains,
however, because many entertainment industry practices are particularly
ripe for class action litigation. In order to properly understand the
entertainment industry's vulnerability, it is necessary to examine the
legal landscape against which wage and hour law claims arise. California
wage and hour law is a mixture of both statutory and administrative regulations.
For the most part, the relevant statutes are contained in Division 2 of
the Labor Code. These statutes include laws relating to mandatory overtime,
reporting and record-keeping obligations, and meal and rest periods. Additionally,
regulations affecting the entertainment industry are contained in documents
known as wage orders.
The California Industrial Welfare Commission maintains different wage
orders for different types of jobs and industries. In the entertainment
sector, three wage orders come into play. Wage Order 10 covers the amusement
and recreation industry and regulates businesses that furnish entertainment
or recreation to the public, such as theaters, night clubs, and theme
parks. Wage Order 11 covers businesses that are operated for the purpose
of broadcasting programs through radio or television. Wage Order 12 covers
businesses that engage in motion picture or television production. When
a wage order applies to an employer, it will cover all the jobs in the
company, including the administrative positions unrelated to production
work. Wage Order 12 covers almost all the motion picture and television
production work in Los Angeles.
In addition, one cannot discuss wage and hour issues related to the entertainment industry without differentiating between union and nonunion productions. There is a generalized (and mistaken) belief in the entertainment industry that a collective bargaining agreement can ward off wage and hour lawsuits in much the same way that garlic can ward off vampires. While there are many types of civil claims that cannot be brought in a unionized workplace due to federal labor preemption, courts have allowed workers to maintain wage and hour lawsuits outside the established grievance and arbitration system. Preemption analysis is a complex topic worthy of an article all its own, but in the context of the entertainment industry, it can be boiled down to a single question: Do wage and hour obligations reflect a minimum standard set by law regardless of a collective bargaining agreement?2
In most wage and hour disputes, the answer is yes. This is why courts regularly reject most preemption defenses to wage and hour actions.3 For a claim to be deemed preempted, it is not enough for the claim to refer to the collective bargaining agreement for the determination of workers' rates or hours. However, if a court must examine the collective bargaining agreement to resolve disputes between the parties, then preemption may attach.4 Navigating through the preemption minefield, even in wage disputes involving unionized workers, is inherently fact specific.
California recognizes an express exemption for some unionized workplaces when it comes to overtime. Labor Code Section 514 and the wage orders provide an overtime exemption for employees (with the exception of minors) who are covered by a collective bargaining agreement, as long as the agreement contains three elements: 1) the minimum wages, hours, and working conditions for the employees, 2) a regular rate of pay that is at least 30 percent above the state minimum wage, and 3) "premium wage rates" for all overtime hours worked. Thus, for this exemption to have any effect, employees must be paid at least a straight time wage of $8.78 (30 percent more than $6.75, the current minimum wage).5 Note that the exemption only requires that some type of "premium" be paid, not necessarily that workers be paid time and one-half for all overtime.6
The Section 514 collective bargaining exemption extends to Labor Code Sections 510 and 511, which govern working hours and overtime pay, but not necessarily to other minimum standards imposed by California law. Prior to a legislative amendment in 2002, however, the collective bargaining exemption covered the entire Labor Code, including meal and rest periods, reporting time pay, and other obligations. In 2005, the legislature amended Labor Code Section 512 to restore a limited collective bargaining exemption for entertainment production but, even then, penalties will be imposed for a company's failure to provide meal periods or breaks. Though there are several different types of statutory exemptions for workplaces covered by collective bargaining agreements, production companies that simply defer to rights established through those agreements as a proxy for wage and hour compliance face significant liability exposure. Past practice and union consent will not trump a worker's right to pursue remedies under California law.
The vulnerability of unionized companies, however, pales in comparison to their nonunion counterparts. While the collective bargaining exemption may not be comprehensive, it does guard against the potential for overtime class actions, which are perhaps the most typical type of wage and hour class action and carry the potential for large damages given the rigorous demands of production work. Moreover, should a nonunion production company seek to alter a legally mandated eight-hour day, it must comply with the secret ballot election procedures established by Labor Code Section 511, which requires a two-thirds majority to approve alternative work schedules.7
Production Practices Creating Potential Liability
Unionized or not, many production companies and studios face additional (and often unnecessary) exposure to wage and hour lawsuits because of certain legally suspect production practices. One of the most common of these practices involves "box rental"--the fee that many entertainment industry workers in the skilled trades are paid for their tools and equipment, in addition to their regular rate. On a set, producers may pay box rental to anyone from lighting grips to makeup artists. The amount of the box rental usually is set forth in the worker's individual deal memo as opposed to being a fixed amount that is paid pursuant to the collective bargaining agreement.
The concept of box rental can serve two completely different purposes. Smaller, independent production companies may not have the necessary tools and equipment for a shoot, and bona fide equipment rental makes economic sense. Larger production companies actually may have the requisite tools and equipment but nonetheless pay box rental as a way of increasing de facto compensation for certain trades people while still preserving the union's scale as a sacrosanct ceiling on wages.
Companies need to be aware that under California law, a worker cannot be required to provide his or her own tools and equipment unless the worker is paid twice the minimum wage (that is, $13.50 per hour).8 Even then the worker must be reimbursed for the use of his or her tools pursuant to Labor Code Section 2802, which governs workers' indemnification rights. Moreover, many box rental agreements purport to shift the risk of loss onto employees if their property is damaged on the set, which gives rise to additional liability issues under Labor Code Section 2802.
One of the open issues concerning box rental relates to the fact that in most cases a worker's "regular" hourly rate for overtime purposes does not include money paid as box rental. Under both California and federal law, overtime must be based on a regular rate that is determined by dividing total remuneration by hours worked.9 To the extent that box rental is a thinly veiled form of compensation (and exceeds the fair market rental value of the tools and equipment at issue), one could argue that it should be part of an employee's regular hourly rate. However, if the box rental truly reflects reimbursement for use of personal tools and equipment, then it should not be considered part of the regular hourly rate.10
In a unionized environment, it remains to be seen whether or not an individual can sue under state law for unpaid overtime based upon the failure to account for inflated or arbitrary box rental compensation. To qualify for an exemption, an employer must pay some premium (not necessarily time and a half) for overtime hours worked. So long as producers pay an actual premium above the "correct" hourly rate for overtime (that is, a rate that includes box rental compensation), the production company may be able to claim a state law exemption. However, there are at least two arguments supporting the assertion that the collective bargaining exemption does not apply. First, the exemption was intended to allow for alternative work schedules in a unionized context and not to compromise the integrity of the hourly rate. Second, the requirement that some form of a premium be paid for overtime hours contains an implied obligation to pay that premium based upon a correct hourly rate. Regardless of state law remedies, however, the potential for overtime liability exists under the federal Fair Labor Standards Act, which also relies upon the concept of a "regular" rate for purposes of overtime computation.11
Another production practice that has potential liability exposure involves internships and free labor. The entertainment industry has no shortage of people willing to volunteer their services as so-called interns so that they can learn the ropes and develop professional contacts. But calling someone an intern does not create an exemption from wage and hour law.
The law allows for unpaid volunteers, but only when the services are for humanitarian, public service, or religious reasons.12 While many entertainment executives may view themselves as deities, it is highly unlikely their interns will qualify as exempt volunteers. About the only time when unpaid internships will pass muster is in the context of a bona fide academic program in which the student receives no remuneration or economic benefits.13
Anyone who has ever attended a silent auction has undoubtedly seen the industry practice of donating walk-on roles as a means of raising money for charity. It is not clear whether or not these uncompensated roles violate wage and hour law. A walk-on part may arise in a charitable context but the service itself is not humanitarian in nature. It is fair to wonder whether the walk-on part exists only as a means to support charity or whether the walk-on recipient is actually displacing a professional actor who would have been cast and paid for the performance. While Wage Orders 11 and 12 contain certain exemptions for "professional actors,"14 this exemption does not cover unpaid amateurs performing as extras. Moreover, whether "cast members" of reality television shows or game shows must be paid minimum wage, given that they are not professional actors, remains an unresolved issue. To dismiss the notion of someone actually suing over this practice is to ignore the fact that wage and hour class actions often emerge as a result of nothing more than legal technicalities.
An extremely common assumption in the entertainment industry is that salaried employees carry an automatic exemption from overtime and other requirements. Most lawyers now appreciate the fact that employers cannot maneuver their way around wage and hour law simply by labeling workers "exempt" and paying them a salary. Yet many in the entertainment industry continue to pay flat salaries to personnel such as production assistants who do not appear to fall within any recognized exemption.
It is one thing to have alternative overtime arrangements for "below
the line" workers in a unionized setting (because of the collective
bargaining exemption), but it is quite another for nonunion production
companies to turn a blind eye toward wage and hour law. Indeed, there
have been two notable class actions filed by groups of individuals working
in reality television who have not been paid overtime and have not been
given meal and break periods.15 These lawsuits are being closely watched
because they raise significant legal issues common to nonunion reality
At their core, the reality television lawsuits reflect what can go wrong when production companies assume that salaried workers are exempt. The entertainment business is simply no different than any other business. Indeed, the insurance industry generally assumed that claims adjusters were exempt prior to Bell v. Farmers Insurance Exchange16 in much the same way that producers believe that virtually anyone on a crew can be classified as exempt by simply paying them a salary.
In the reality television lawsuits, the positions at issue are, for the most part, story editors and producers, who develop and create story lines for reality shows. In order to claim an artistic professional exemption under the wage and hour laws, an employer must show that its employees are performing "original and creative" work in a "field of recognized artistic endeavor,"17 and exercising "discretion and independent judgment" over their tasks.18 Unlike writers on scripted television series and films, it is not at all clear that reality writers and editors operate under those conditions.
For entertainment productions, it is not a given that employees holding certain positions will be treated as artistic professionals and those filling other positions will not. The strongest analogy is to news writers. On occasion, newspaper columnists are considered exempt professionals but, for the most part, "the reporting of news, the rewriting of stories received from various sources or the routine editorial work of a newspaper" is not considered original and creative for purposes of an artistic exemption.19 The same may be true for the type of storytelling occurring in reality television.
Entertainment tends to attract people who describe themselves as "creative" in one way or another. Companies, however, simply cannot expect courts to take an overly generous view of who is and is not sufficiently "artistic" for purposes of a wage and hour exemption. While lawsuits have been filed over the story editor/writer jobs, this is just the tip of the reality television iceberg. The "actors" themselves may not qualify for any type of recognized exemption, and some of them work 24 hours a day, seven days a week for months. A reality show's cast does not consist of trained professionals, no matter how many of them are trying to break into show business through their exposure on the show. The fact that strippers may view themselves as artistic exotic dancers did not stop a court from rejecting an artistic professional exemption for them because of their lack of training.20 "Actors" in reality television should be no different. About the only thing that is clear at this point is that the stakes are extremely high when companies rely on exemptions as a substitute for wage and hour compliance.
Further potential exposure exists regarding the many types of skilled tradespeople on a set who are "daily hires" and who have no contractual guarantee of continued employment (even if they have worked on the same show for years). Generally speaking, a daily hire is someone who is hired to work on a production for a single day--usually for a specific, short-term project. By calling large portions of a regular crew daily hires, a production company can open up a Pandora's Box of legal problems when these workers are required to wait for the normal payroll period to receive their paychecks.
Some production companies have tried to defend wrongful termination claims through the legal fiction that the worker in question was hired and laid off on a daily basis--that is, a producer's decision not to rehire is different from a decision to terminate.21 If, however, a company contends that workers are laid off and rehired on a daily basis, one can query whether or not the workers should be paid as daily hires.
Labor Code Section 201.5, which applies to "employees engaged in the production of motion pictures," requires that when employees are "laid off" (meaning that they are terminated while retaining eligibility for reemployment), they may be paid on the next regular payday (as opposed to paying them on their last day of work). This provision, however, may not cover television production. One could argue that by excluding television production from the scope of Section 201.5, the state legislature intended for laid off workers to be paid immediately--at the end of every workday. Thus, an employer that does not pay wages on a daily basis may be liable for a statutory "waiting time penalty" under Labor Code Section 203, which requires employers to promptly pay terminated workers on their last day of work. The penalty for violating Section 203 is equal to a day's wage for every day that payment is late (up to a 30-day maximum). With a daily hire, however, one could argue that waiting time penalties accrue with each day's work (and layoff), and that each violation triggers a new and different penalty period.
A case currently pending before the California Supreme Court may have an impact on wage and hour analysis pertaining to daily hires. Smith v. Superior Court (L'Oreal USA, Inc.),22 which is not an entertainment industry case, involves a model who was hired to work at a one-day trade show. She waited several months before receiving her fee. At issue is the definition of the term "discharged" for the purposes of Labor Code Section 20323 and whether waiting time penalties are available for employment that is for a fixed and set duration, such as a daily hire.24
Another production practice that elicits concern--and often avoidance--is the observance of meal and break periods. Production schedules are hectic, and breaks are often taken on a catch-as-catch-can basis without any type of regularity. Many workers are expected to just grab a quick bite to eat at the craft services table and resume their duties shortly thereafter. Uncontrolled meal and break periods, however, may create substantial liability for production companies.
California's meal and break rules are codified in Labor Code Section 512. In 2005, the California legislature amended the statute to include a limited exemption for work performed pursuant to a collective bargaining agreement in the motion picture or broadcasting industries--as long as the workers are covered by Wage Orders 11 or 12. Under this exemption, if the collective bargaining agreement provides for meal periods and includes a monetary remedy for employers who fail to provide a meal period--a remedy that presumably may differ from the statutory remedies that are otherwise provided under California law--then the terms of the collective bargaining agreement will control.25 For unionized employers, while there may be an exemption under state law, preemption will not likely rescue an employer who abides by union rules while ignoring California's unique requirements.26
Nonunion productions, however, must comply with the strict statutory meal and break rules imposed by law. Under Wage Order 12, employers may not employ a worker for more than six hours without a meal period.27 Moreover, the meal period cannot be less than 30 minutes, and employers also need to provide subsequent meal periods no later than six hours after the termination of the preceding meal period. Unless the employee is relieved of all duty during his or her meal period, the law requires employers to count the meal period as time worked. This type of "on duty" meal period is only permitted when the nature of the work prevents an employee from being relieved of all duty and, even then, an employee must consent in writing to the "on duty" meal period. Employees may revoke their consent at any time, and the written agreement must reference this right.28
Employees are entitled to take a 10-minute break for every four hours of working time, and the workers must be paid for these rest periods. Moreover, "swimmers, dancers, skaters and other performers engaged in strenuous physical activities" may be entitled to additional breaks.29 If an employer fails to provide mandated meals and breaks, the employer may be ordered to pay the worker one hour of his or her regular rate for each respective violation.30
Entertainment industry companies also may face legal exposure as a result of the practice known as working off the clock. Production companies cannot allow the work schedule to dictate wages, which must be determined by work that is actually performed. During the production of an entertainment project, some companies have been known to request hourly workers to record their hours worked in a pro forma fashion for a standard workday--which could be 8, 10 or 12 hours--regardless of the time that is actually worked. Moreover, on some sets, workers are not given credit for the time they work after "wrapping" for the day, even if the workers need to pack up equipment or attend to other types of incidental cleanup. Requiring employees to work off the clock is an invitation to wage and hour claims.
Joint Liability and Personal Liability
All these employment practices not only can lead to substantial liability
for wage and hour violations, they also should raise concerns regarding
joint--and even individual--liability. It is common in the entertainment
industry for a network, a studio, one or more production companies, and
several "loan-out" companies to work together on a given project.
While this collaborative business model has served the industry well,
it can create joint liability for wage and hour claims as well as other
types of employment claims.
In certain cases, two or more companies may be deemed the joint employer of one or more employees, especially when networks and studios exert significant control over personnel decisions and production schedules. Indeed, when this occurs, the joint employers are jointly and severally liable for compliance with state and federal wage and hour laws.31 Additionally, if a joint employment relationship exists, the hours worked by an employee for each employer are combined when determining the total number of hours worked in a day or workweek for wage and hour purposes.32 For example, a studio may be liable for overtime violations even when its records indicate that its employees had not worked more than 40 hours in a workweek or eight hours in a workday if those employees also performed services for the production company--the joint employer--on the project.
While there is no bright-line test to determine when a joint employer relationship exists, courts generally will make a finding of joint employment if: 1) the employers arrange to share the employee's services, or 2) one employer acts directly or indirectly in the interest of the other employers, or 3) one of the employers, either directly or indirectly, controls or is controlled by the other employers.33 Conversely, if the employers are acting entirely independently of each other and are completely disassociated from one another regarding the employment of the employees, then no joint employment relationship exits.34
The entertainment industry is ripe for joint liability claims. In some cases, employees of a production company that partners exclusively with a studio may be deemed employees of both the production company and the studio, especially if studio executives exert significant control over the production. A judge or jury could find that, in many situations, personal assistants, drivers, security personnel, and others hired by an actor's or director's loan-out company are jointly employed by the company and a studio. Joint employer liability is a trap for the unwary, and companies should consider its consequences any time they are collaborating on a project.
Even if no joint employer relationship exists, companies are not necessarily free from joint or dual liability. Separate business entities will be treated as a single employer for purposes of liability when they are deemed to be an "integrated enterprise." Courts consider four factors in determining whether separate entities should be considered as a single employer: 1) interrelation of operations, 2) common management, 3) centralized control of labor relations, and 4) common ownership and financial control.35 While centralized control over labor relations is an important factor, no single factor is conclusive, and all four factors need not be present for the integrated enterprise doctrine to apply.36
The integrated enterprise doctrine usually attaches to parent corporations and their subsidiaries--and, of course, there is no shortage of corporate parent/subsidiary relationships in the entertainment industry. If a studio owns a significant interest in a production company or oversees all human resources matters for the production company, a court could find that the studio and production company operate as a single, integrated enterprise and hold both entities liable for the wage and hour claims of employees of either company. Parent and subsidiary companies should employ separate upper management and maintain separate human resources departments if they want to avoid this type of claim.
Under federal law, certain individuals--such as show runners, directors, and studio executives--may be held personally liable for wage and hour violations. The Fair Labor Standards Act defines an employer as "any person acting directly or indirectly in the interest of any employer in relation to an employee," and defines a person as "an individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons...."37 Several courts have held corporate officers and executives liable as an employer under the FLSA, in addition to the corporate defendant, and they have done so especially when the executives have a significant ownership interest in the company, control significant functions of the business, determine salaries, make hiring decisions, and have operational control of the business.38
Personal liability under California law is less clear. The California Supreme Court recently held that individual officers, directors, and shareholders could not be held personally liable for nonpayment of overtime wages under California law.39 The court noted several instances, however, in which state wage and hour law may subject individuals to personal liability. For example, the Department of Labor Standards and Enforcement may hold individuals personally liable for wage and hour violations when it prosecutes or adjudicates these claims in an administrative setting.40 Further, Labor Code Section 558 allows for civil penalties to be assessed against "any employer or other person acting on behalf of an employer who violates, or causes to be violated, California wage and hour law." Because the penalties available under Section 558 include the amount of underpaid wages, it remains to be seen whether or not individuals will be held personally responsible for underpaid wages through an action brought under California's Private Attorney General Act.41 A recent appellate decision, however, suggests that these alternative theories of personal liability will not likely be available under California law.42
The wage and hour issues confronting the entertainment industry will no doubt have an impact on the way production companies structure their employment relationships. Some industry practices, like paying phantom box rental to personnel who do not have boxes, will have to change. Producers of nonunion programming may decide that, given the several collective bargaining agreement exemptions under California law, it is cheaper to sign a union contract than to engage in union avoidance. There are many open issues facing production companies, and the prospect of liability exposure for wage and hour violations will alter many business practices that are now considered to be standard operating procedure.
While the Greenberg class action was certainly a wake-up call to many industry employers, it is only the first of what will likely be several industry-wide class actions challenging the status quo. Greenberg involved fairly narrow issues, including waiting time penalties and reporting obligations, and it did not purport to cover the full panoply of legal claims that may be brought under federal and state law. Unless production companies begin to assess their wage and hour exposure and change the way that they do business, several large scale, industry-wide lawsuits are undoubtedly on the horizon.