Last night, roughly 35 theater folks drove to Boyle Heights to listen to a two hour powerpoint hosted by LA STAGE Alliance and California Lawyers for the Arts to learn about something seemingly dull, with major consequences for intimate theater. The subject? The finer points of Employment Development Department’s (EDD) employee classification and audit process.
Here’s the backstory: several California theater companies, at least one in Los Angeles, have gotten audited by the EDD for allegedly misclassifying actors as either Independent Contractors or “volunteers” instead of “employees.” This is a big deal with significant financial liability (in one case, at least $50k in fines and taxes).
Imagine you run a small nonprofit, scrapping to get by with an annual budget of $150,000 and suddenly get hit with a tax bill for 30 percent of that budget. Here’s the kicker, you can’t pay that fine out of your budget because as a nonprofit, you can’t pay fines. Technically, it’s the responsibility of your officers and directors or a generous donor (one who’s so generous she’s willing to forego a tax deduction for her donation because it’s a fine). How’s that for a donor retention strategy?
This isn’t a witch hunt by the EDD against the theater community. Instead, it’s likely triggered by an actor or crew member who files for unemployment or disability benefits. The EDD asks who payed the actor last, the actor says theater company x, EDD has no record of theater company x employing this person, they initiate an audit and we’re off to the races. This is really, really complicated territory. If you’ve ever waded into the world of “employee” versus “independent contractor” classification you know it’s a dense multi-part series of questions and factors, none of which is particularly clear or designed to contemplate the process of making theater. Two perfectly reasonable people could view the same person as potentially an employee or an independent contractor (if you’re a glutton for punishment, have a look at California control factors for determining Independent Contractor Status).
If you’ve got a director directing a group of actors at a rehearsal that’s at a set time, performing a script you’ve provided for them, in costumes (or as the EDD might say “uniforms”) you’ve asked them to wear, a reasonable person could see that running afoul of some of those determining factors.
So why does this matter? Why should you care?
- It threatens the existence of small theater in LA.
- It’s directly and powerfully related to the Actors’ Equity dispute.
It’s easy to see how EDD fines and back taxes could sink any non-profit organization. In a worst case scenario, the EDD audit could reclassify eight years of actors. The bigger the nonprofit’s budget – the more actors they likely used in the preceding eight years, the bigger the fine. The fines will grow in relation to the size of the organization. That’s not all, an EDD reclassification could trigger a minimum wage issue and/or an IRS issue.
Here’s where the insidious genius of Actors’ Equity strategy really comes into focus.
I’ve written about the Actors’ Equity “99 Seat Plan” dispute extensively, but in a nutshell: Actors’ Equity, the actors union, proposed a fundamental change to how theater was made in LA’s under 99 seat houses. For the past three decades, the 99 seat plan allowed these theaters to use union actors and only give them a small stipend to cover expenses, basically gas money.
This is significant because the best protection from this EDD debacle (and everything that could flow from it) is treating actors and artists as “volunteers.” California Labor Code Section 3352(i) “employee” exclusions includes,
any person performing voluntary service for a public agency or private, nonprofit organization who receives no remuneration for the services other than meals, transportation, lodging or reimbursement for incidental expenses. [emphasis added]
While not perfect protection, the 99 seat plan allowed for reasonable protection if you classified the per show “stipend” as actually a reimbursement for expenses (hence the oft referred to “gas money”).
Last year, Equity made the argument that union actors in LA’s under 99 seat theaters should be paid minimum wage. Los Angeles union actors rejected this proposal in an advisory vote by a margin of two to one. Why would an actor argue against getting paid more money? As the theater actors in Los Angeles have been arguing for the past 30 years, for the love of the craft and the opportunity to work on stage.
Even though Equity’s proposal got a lot of pushback and is currently the subject of a lawsuit and negotiations, it was a brilliant strategy for the union. Not only did it echo the income inequality arguments and fights for raising the minimum wage in the for profit sector that were appropriately sweeping the nation, it contained within it the fundamental change from volunteer to employee. As a first bid in a negotiation it contained, if successful, it’s inevitable success.
Let’s imagine the negotiation goes something like this:
- Equity opens the bid at minimum wage.
- Actors counter with some lower number.
- Actors and Equity split the difference and settle.
Successful negotiation for the actors, right? Not if you follow it through to it’s logical conclusion. By practically re-classifying these “volunteer” actors as “employees” (or perhaps tenuously Independent Contractors) Equity removed the exemption from the EDD. Then once they’ve done that they allow the publicity generated by this dispute to shine a spotlight on these theaters and allow the EDD and others do the inevitable work of enforcing taxes and minimum wage, which is what Equity argued for in the first place.
While this might not have been Actors’ Equity specific playbook, it can’t have been far from their minds (note: one of Equity’s compromises for small companies was, in effect, you can continue to volunteer but only if you give up your non-profit status. Recognize that Equity achieves exactly the same outcome. Without nonprofit status, that company would not qualify for the EDD exemption and is open to the same liabilities.)
So what’s to be done?
I can imagine three solutions (working from tongue-in-cheek to potentially viable):
- Magically enchant the philanthropic community increase their support of small theater in LA by an order of magnitude so everyone can get paid minimum wage.
- Create a community-wide foundation that takes care of the problem.
- Come together as a community with a single voice to garner support across the philanthropic and political communities, while creating a sustainable cultural infrastructure.
My favorite solution is number one because there’s nothing that would make me happier than for worthy theater artists to be valued more highly. That said, not sure it’s worth holding my breath for this one.
Number two is a creative smoke-and-mirrors approach. The issue with volunteers is they can’t receive any remuneration for their work from the company for which they are doing the work. My immodest proposal would be to create a foundation whose express mission would be to reward actors in 99 seat productions with modest grants as an acknowledgement of their important cultural contribution to our city. Those grants could coincidentally match the proscribed “stipend” required by Actors Equity. Problem solved?
Ultimately, the continued viability of Los Angeles’ Intimate theaters is going to rely on the entire community coming together and garnering significant and meaningful support across both the philanthropic and political communities. Los Angeles’ small theaters, and similarly situated nonprofits, need to band together, recognize the shared threat and their collective interests and make a compelling and consistent argument for their cultural and civic value.
A not-so-simple remedy for this pressing EDD issue would be to have the State Legislature create a specific exemption for small, nonprofit theaters. Sound far fetched? I’d direct you back to the California Labor Code which carves out specific exemptions for “ski patrolmen” and “ski lift operators” under specific circumstances. Surely, the theatrical community could make a compelling argument.
The first step in such a campaign requires that LA’s theater community, top to bottom, works together and articulates its cultural and civic value. LA STAGE Alliance should be commended for putting together last night’s presentation but, at best, it’s a first partial step. A real solution needs to articulate a consistent, coherent strategy that tackles these threats in all of their dimensions. This is an uncomfortable position for a humble nonprofit but in order to truly serve its constituents and its city, this is what is needed.
For the theaters themselves, from our intimate 99 seat theaters to our large nonprofit houses, this needs to be a reminder of the importance of engaging and serving our city. After all, if our theater is not speaking to our city, why should our city value and protect our theater?
It’s a challenging moment in Los Angeles theater and the only way through it is together.