A ‘Very Serious Wage Theft Issue’ That Hollywood Overlooks

Because of convoluted rules, legal experts and California officials say misclassifying salaried employees as exempt from overtime is common: ‘It’s probably more widespread than we think’

Because of convoluted rules, legal experts and California officials say misclassifying salaried employees as exempt from overtime is common.

For much of 2019, headlines across California news outlets trumpeted AB 5, the bill that its supporters hailed as righting the alleged wrongs of gig-economy workers suffering from a lack of unemployment benefits and health insurance at the hands of companies like Uber because they’d been labeled independent contractors. Ultimately, most industries with any skin in the game — from ride-share firms to music studios to real estate brokers and newspapers — negotiated an exemption to the law, which changed the test used to determine if someone is an employee or independent contractor and reclassified scores of workers as the definition of “employee” became more broad.

But while AB 5 took the spotlight, other labor woes went relatively unnoticed. The California Labor Commissioner’s Office, and many legal experts, say a lack of overtime pay is likely under-reported — either because certain workers don’t understand they shouldn’t be exempt from overtime or they do and they’re afraid of complaining and losing coveted opportunities in the already cutthroat Hollywood job market. “The exemption misclassification is a very serious wage theft issue,” senior deputy labor commissioner Monie Netikosol says, adding that, though her office doesn’t see too many of these complaints, “It’s probably more widespread than we think.”

Through a public records request, THR was provided with six Private Attorneys General

Act claim notices sent to the California Labor & Workforce Development Agency involving various kinds of unpaid overtime allegations against large entertainment employers in the past five years. (The PAGA empowers employees to sue employers on behalf of themselves, others and the State of California for Labor Code violations.)

“That is a microcosm of what you’re looking at,” says employment attorney Sahara Pynes of Fox Rothschild. “Because you have the people that didn’t know they were being underpaid; you have all the people who knew they were underpaid but didn’t feel like doing anything about it because they didn’t want to get blackballed in the entertainment industry; and you have the people who just dealt with it through a [private] lawyer letter or threat to sue.”

Employment attorney Ann Fromholz says misclassification is common, even after a flurry of litigation more than a decade ago over failure to pay overtime and meal and rest breaks. “They’ve forced change in a lot of companies in a lot of industries,” she says, “but I still encounter companies that haven’t made changes.”

Part of the problem is the complex criteria for the executive, administrative and professional exemptions. There are two tests, one involving salary and one involving duties, and an employee must meet both to be exempt from overtime.

The financial standard is clear: Employees can’t be exempt from overtime if their salary isn’t double the state’s current minimum wage (based on a 40-hour work week). In California in 2021, that’s $54,080.04 for a company with 25 or fewer employees and $58,239.96 for companies with more. Emphasizes Netikosol, “It cannot be a dollar less.”

If an employee’s salary is above that line, attention turns to the duties test, which is convoluted. To meet the bar, the employee has to spend more than 50 percent of their time performing exempt duties, which vary by exemption category, and the employee must “customarily and regularly exercise discretion and independent judgment.”

Practically, “independent judgment” varies by job. Netikosol notes that a location manager probably exercises enough discretion in choosing a filming location to meet the independent judgment test — but a more junior location scout likely wouldn’t meet that bar. In a similar hypothetical, a more senior set designer is likely exempt, while a set decorator who is following instructions instead of exercising creative freedom might not be.

Labor and employment attorneys consulted by THR say overtime exemption problems are likelier to occur not at major studios but at smaller and midsize companies that don’t have quite the same access to an army of sophisticated in-house and outside labor counsel.

“Even though there’s so much gray area, there’s still a lot that’s black and white here,” says Pynes, adding that it should be easy to at least avoid mistakes on the salary minimum. Still, it happens. “The determination is fact-specific.

So, there may be some situations where someone is inadvertently misclassified, even at these larger companies that do have good counsel,” says Loeb & Loeb partner Ivy Kagan Bierman, adding that her clients are careful to make sure they’re doing it right.