MIDSIZE THEATRE GROUPS FACING FINES FROM STATE

[Christopher Comte]

By not classifying actors, others as employees, companies have avoided hefty salary payments, taxes

By REBEKAH DENN
SEATTLE POST-INTELLIGENCER REPORTER

Shakespeare won't be on the playbill when Kent Phillips finishes plans for his theater group's next season. Instead of a 15-player production of the Bard's "Richard II," he is looking into a two-man show by Noel Coward.

Phillips, interim director of the Tacoma Actors Guild and managing director of Bellevue Civic Theater, didn't pull his Shakespeare plans for artistic purposes. He was reacting to news that the state has been auditing other theater companies and fining them for paying actors honorariums and stipends rather than treating them as full-fledged employees.

The state says it is not cracking down on theaters or singling them out, but the artists say that makes no practical difference.

"I'd rather be safe than sorry," Phillips said. And dropping from a 15-person to a two-actor show in Tacoma, with a similar reduction in Bellevue, would cover his company's extra costs for the season if the entire industry must change how it pays for its art.

At least three theater companies in the region say they are facing fines from the state Employment Security Department. And dozens of others -- along with the broader arts community -- are worrying about what the change could mean.

"This is one that could have a real detrimental effect, not just in Seattle but across the state. And it might not just be theater companies, it might be all kinds of venues," said Gretchen Johnston, executive director of the Washington State Arts Alliance, a non-profit advocacy group that will start examining the issue at a meeting today.

"The implications are far beyond the theater community. It will cost everyone more," said Karen Zeller Lane, executive director of Theater Puget Sound, who said other theaters have faced audits as well. "You look at musicians. Dancers. Festivals. ... What about the church soloist?" she said.

Similar issues at symphony orchestras in Oregon over the past few years have caused music festivals to be canceled or cut back, according to the Statesman Journal in Salem.

At issue is the practice among small and midsize theaters to treat some actors, technicians and designers as independent contractors rather than as employees. Theater directors say paying a fixed payment or weekly stipend is a way to honor and at least slightly subsidize their creative work -- and provide a stepping stone to higher-paid Equity jobs -- without completely breaking the bank for community non-profits.

 
 
Now, they say, the state is telling them that workers should be classified as employees, meaning they should pay an hourly salary of at least minimum wage, plus contribute to the state's unemployment and workers' compensation funds.

"From an actor's standpoint, they're going to be more protected," said Lauri Watkins, managing director of Theater Schmeater.

But it could harm them as well.

Seattle has a long tradition of being a "theater town," but it has taken a hit over the past few years as community theaters have struggled to stay in business. The Empty Space Theater and ACT Theatre, for instance, threatened shutdowns recently before emergency fund-raising drives kept them afloat. Several smaller theaters have shut their doors for good.

With different employment rules, "in a worst-case scenario, you might eliminate 50 percent of the theaters in town," Watkins said.

Theater Schmeater currently pays actors $100 apiece for participating in a show, including rehearsal time, Watkins said -- not much, but at least a way to show they value what's being done. To reclassify actors as employees "would probably end up something like quintupling our budget."

To keep functioning, the solution instead for such small companies might be "to just classify everyone as a volunteer and not pay them at all. That doesn't serve anybody," she said.

Sharon Hitt, employment accounts manager for the state Employment Security Department, said yesterday that the theaters in question were audited randomly. "The fact that they are theaters bears no relevance to the process," she said, and as far as she knows, there are no plans to actively seek out other theaters who are treating employees as contractors.

Still, theater directors said, they want to comply with the law, whether they're immediately under the gun or not.

"It would absolutely decimate the midsize and small-theater community," said Scott Nolte, artistic director for Taproot Theater, which he said is facing undetermined fines after its state audit.

"Seattle has had such a great and rich theater environment. We've attracted theater grads from all over the country. A lot of them come in and perform within the fringe community and sort of work their way up the ladder," he said.

"If we revert back to we only have (unpaid) community theater and only the big boys, that's a totally different artist ecosystem than we have had for the last 20 years, and that's a big step backward. ... Take Seattle off the map."

The additional taxes would be a burden for midsize companies but wouldn't break the bank, Zeller Lane said. The Civic Light Opera, for instance, one of the companies appealing a fine, was assessed more than $5,000 for 2003 and was recently notified that it is being audited for 2004, business manager Ann Arends said.

But the "killer" hardship, Zeller Lane said, would be paying minimum wage, particularly if the requirement included not just the shows but all rehearsal times, or time spent at home learning lines.

"It's already causing some groups to reconsider or put on hold projects they had planned for the summer, because they don't want to be out of compliance, and they know they can't operate currently in compliance."

The King County agency 4culture is also interested in seeing if the law is being interpreted correctly, Executive Director Jim Kelly said. If so, "there's something that's different about a non-profit theater than a commercial enterprise, and maybe it needs to be brought to the attention of the state that there should be a waiver or exception or exemption," he said.

Hitt noted that employers who aren't sure if they are classifying workers correctly can request a voluntary audit and won't face penalties unless the agency determines that they haven't been acting in good faith to comply with the law.

The issue of who qualifies as an employee and who is a contractor has been debated nationally many times with "very intellectually unsatisfactory and very unpredictable results" that depend heavily on individual details, said Charles Sullivan, an employment law expert and professor at Seton Hall University School of Law in New Jersey.

The line between an employee and a contractor generally revolves around whether the employer has the right to control the person, Sullivan said.

In a recent case that sounds similar to the Seattle theaters' situation, he noted, the 8th U.S. Circuit Court of Appeals ruled that members of a symphony orchestra were indeed independent contractors.

In his view, though, "In either a symphony or at least the traditional (directorial) control for actors, it's total control about where you're going to be, what you're going to wear, what you're going to do, how you do it, when you do it. I can't imagine a situation that's more subject to control," he said.

"To me, the logic of the situation is that (actors) are employees. On the other hand, I've already quoted you a case that says I'm wrong."

The questions aren't likely to affect the largest theaters in the Seattle area and actors who work under union Equity contracts, said Chris Comte, a local theater artist and Seattle liaison for the Actors Equity Association.

But he thinks even other actors wouldn't necessarily support the state's move and worries that it would crush the tiny non-profits who are just trying to create art.

"I think if you were going to ask any 10 actors, you would find at least seven would say I am not an employee, I am an artist."

[Kelly Balch]

My assumption is that this will also apply to guest directors and choreographers, right?

[Christopher Comte]

Who knows where all this could lead?  Basically, anyone who is "hired" by a producer, and who fits the definition of "employee" according to WA L&I guidelines could be affected.

[Craig Bradshaw]

From the various instances I've hear, that's exactly the case:  designers, paid volunteer co-ordinators, etc etc etc.

[Peggy Gannon]

Instead of stipends, what about all-volunteer shows, in which volunteers are reimbursed for certain expenses at the end of the run?  Would a slight language/focus change such as this solve the problem in the short-term, while we then focus on long-term restructure & reform?

[Karen Lane]

Peggy,
All volunteer or full employee currently are the only two options. I would use caution when trying to reimburse for 'expenses' as the state has said they would view that as simply an attempt to subvert the law.

There may be some semantics and straight forward grounds for a different interpretation of the law. This is the starting point for the work the WSAA has already begun.

[Peggy Gannon]

I'm not talking about subverting the law, I'm talking about changing the entire focus of why that certain amount of money is paid.  I have been a volunteer for several (non-theatre) organizations where they reimbursed for mileage, bus fare, etc.

[Karen Lane]

The following information has been culled and edited from an article written for Media Inc. I am actually unaware if it has as of yet been published.

The Washington State Department of Labor and Industries (L&I) recently created these acknowledgements and clarifications specifically for the Entertainment Industry:

The Entertainment and Production Industry employs many who:
1) work for short periods
2) work for many different employers
3) have highly specialized skills
4) often work without close supervision but who do work under the overall, highly-coordinated direction of the employer. 

L & I therefore established the following guidelines for determining if a worker in the Industry is an independent contractor.  These guidelines in no way change the six-part statutory test and all employment situations are subject to L&I review.  However, Industry employers and their accountants are urged to review the following guidelines and make adjustments as necessary.   

Entertainment and Production Industry Guidelines

1.   A worker in the Industry* is assumed to be an Employee of the hiring entity unless the Employer establishes that s/he is an independent contractor. (Simply signing a waiver or agreement is not enforceable).

2.   A worker in the Industry will be deemed an Employee if s/he has no UBI number.  (A UBI does not, in and of itself, make one an independent contractor).
HOWEVER: A ruling in a court case on these issues concluded: 'Our first ruling specifically denied the State's claim that we must have UBI #s for designers whose scope of work passes the State's Exception Tests for employees.  The Administrative Law Judge ruled that "Although a UBI number is generally an indicator of independent contractor status, it is not an element of the exemption tests found in RCW 50.04.140, and is not dispositive.  Nonetheless, the record establishes that all eleven of these designers...worked on flat-fee bases and were substantially free of the Appellant's control in designing the  Appellant's costumes, music, lighting, sound and sets.  The designer's relationship to the Appellant was akin to that of services merchant to customer."'

3.   A worker in a classification covered by a valid collective bargaining agreement will be deemed an Employee when working under the terms of that collective bargaining agreement.

4.   If a worker has a UBI, but is not working under a valid collective bargaining agreement, the worker will be deemed an Employee if the Employer controls the details of how, when and where the work is performed as well as the final work product.  Specifically, if the Employer (and not the Worker) has the:
a.   Authority over the final work product
b.   Ability to determine the attributes of the work product, such as size, length, content, presentation.
c.   Authority to determine the hours and the location of the work.
d.   Authority to determine the sequence of the work.
e.   Authority to change the methods of operation.
f.   Responsibility for providing tools, materials and equipment for the work (other than minor tools and equipment, such as musical instruments, routine wardrobe, cell phones and “kits”).

5.   Additional factors establishing that a worker is an Employee are, if s/he has:
a.   No authority to hire others to perform the work (That is, to legally hire, not just recommend for hire)
b.   No continuing liability for the product after quitting the work.
c.   No authority to proceed without instruction, assignment or supervision.   

6.   Factors that do NOT, in general, determine whether a worker is an Employee are:
a.   Working for more than one employer.
b.   Working on a short-term basis (including even for a few hours).
c.   Filing schedules of expenses with the IRS as a business.  (Inasmuch as there has been a widespread practice of misclassification in the Industry for IRS purposes as well)
d.   No payment of benefits.
e.   No actual close supervision. (It may not be necessary in light of the specialized skills of the workers.)

An employer (“Producer”) may find itself contracting with a genuine independent sub-contractor (“Sub”) who has employees of his own.  In these cases, the Producer must make sure the Sub has the proper business licenses, and if the Sub is bringing its own workers, make sure the Sub has an Industrial Insurance (workers’ compensation) account and is current with premiums. The Producer has ultimate responsibility for maintaining a safe workplace and could still be held liable for any workplace safety violations.  (Again, the presence of a UBI or a “waiver” is not determinative of independent contractor status.)

For more information on “independent contractors,” go to www.LNI.wa.gov and search for A Guide to Hiring Independent Contractors in Washington (or go directly to www.LNI.wa.gov/pub/101-063-000.pdf. The department of Labor and Industries is committed to creating a “level playing field” for all employers. An L&I auditor could visit your place of business in the very near future and examine your books and records. If an employer is using an “independent contractor” who does not fit the criteria above, he/she will be considered an employee and you will be liable for unpaid premiums, penalties and interest. 

It is important to note that both the IRS and Employment Security have their own sets of guidelines, and that many Producers find it much simpler to simply treat the entire cast and crew as employees rather than try to navigate the various sets of guidelines.

A Washington Employer’s Obligations:

•   Apply for a Master Business License and UBI from the State.
•   Submit quarterly reports for all employees, their hours and earnings.
•   Make workers compensation and unemployment compensation premium payments to the State for his employees based upon the report.
•   Abide by wage and hour laws.
•   Abide by laws covering the employment of minors.
•   Keep a safe workplace.

Some Examples of Employees in the Industry:
An actor is given a fitting time, a specific wardrobe, a call-time, a script, a location to report to, direction for her performance, a specific mealtime and wrap time.  The producer controls her work.  The actor must be classified as an employee and covered by L & I.   
* * *
An electrician is called for a job by a gaffer, yet hired and paid by the production company.  S/he is given a call time and call location by the production company.
The gaffer supervises the electrician in setting up the lighting, as determined by the Director of Photography. The electrician helps execute the set-ups using his/her experience and technical knowledge. The production company rents the trucks and lighting gear, tells him/her when to break for meals, when to return from meals, and when to wrap.  The electrician must be classified as an employee and covered by L & I.

Again - information extracted from an article prepared for Media Inc.

[Karen Lane]

Peggy,
I understand completely that you are not talking about subverting anything. I was talking about perception... the State's.
Karen

[Peggy Gannon]

Yeah, yeah, totally Karen.  I hear you.  As you said, since the State has chosen to enforce this particular law in this way, we may need to protect ourselves by either hiring employees or solely using volunteers.

For those theatres who can't afford to hire employees, I'm simply suggesting that they consider going all-volunteer.  Thoses theatres will then need to restructure their budget, obviously.  Once they have taken into account the savings from stipends, they can choose to allocate that money by increasing certain line-items, or by including new line-items.  It would be an honest-to-goodness restructuring, right?  The State can't very well screw us for honestly trying to stay within the precedent they themselves have set, can they?  (Yes, I know ... I'm just talking.)

The "do-not-try-this-at-home-now-you-can't-sue-me" disclaimer:  I am not an accountant or a lawyer.  As I'm sure you are all aware, these decisions require professional advice.  I'm just brainstorming, not advocating.

QUESTION:  What about artist benefit nights?  How do those fall into the mix?

-Peg

[Rob Jones III]

I personally don't mind changing my status to "volunteer" when working for fringe theaters if that is what I have to do to keep these companies alive.  The difference between a $100-$200 stipend for a 6-week run and no money really isn't so great that I'll miss it.  

It is unfortunate, however, because I remember how I felt the first time I got a contract to do a show.  The money was not the issue, it was the acknowledgement that what I was contributing mattered.  It is a level of respect that I fear may suffer if we have to classify ourselves as "volunteer".  

The article makes a good point.  Many of the actors that we see on the professional stages around town are people who honed their skills working for a stipend in the fringe theaters.  I worry about what will happen if the opportunity that these smaller companies afford goes away.

I am sure that this hurdle, like so many that are placed in the paths of artists, will be overcome with creative thinking and collective dialogue....

[Rik Deskin]

This also affects the Indie Film scene. All the non-union film-makers that are fresh out of film-school enlisting actors that want to build their demo reels and are compensated with copy, credit and meals. Maybe deferred pay if it is a SAGINDIE project.

I changed my audition posting to "All positions are volunteer unless sufficient funding is raised". My original plan for A Midsummer Night's Dream was too divvy up half of all donations to the participants and half to the Green Theatre backdebt. I really want my company to be a company that can pay it's artists and since I just joined AEA, I as an actor want to be fairly compensated. But not at the expense of the art or artistic choices. I was just talking to a fellow actor and showed him the article, his opinion was that the stipends really only amount to a small part of a combined income, but I cannot help feeling guilty and wanting equal compensation for my peers that I would expect to receive as a union actor. And as a Producer, my motto is to take care of the troops however I can because I have faith that some day I will be in a position to pay people a living wage, but where will the money come from? Do we raise ticket prices and thereby alienate our potential audience member that has to decide between spending $13 for a play or $5.75 for a film? In the interim, once again the non-profit sector is beset and besieged by bureaucracy. I have been a "Volunteer" Artistic Director for 5 years now, with the hope that at some point The Green Theatre entity could pay me for my time and energy in the future. Argggh! Rik's head hurts! Must read a comic book.

[Karen Lane]

In response to reimbursements:

http://www.leg.wa.gov/RCW/index.cfm?section=49.46.010&fuseaction=section

RCW 49.46.010 (5) d

(5) "Employee" includes any individual employed by an employer but shall not include:
 (d) Any individual engaged in the activities of an educational, charitable, religious, state or local governmental body or agency, or nonprofit organization where the employer-employee relationship does not in fact exist or where the services are rendered to such organizations gratuitously. If the individual receives reimbursement in lieu of compensation for normally incurred out-of-pocket expenses or receives a nominal amount of compensation per unit of voluntary service rendered, an employer-employee relationship is deemed not to exist for the purpose of this section or for purposes of membership or qualification in any state, local government or publicly supported retirement system other than that provided under chapter 41.24 RCW;

[Ken Holmes]

Through the grapevine from Kent Phillips:

"I have a source at the Attorney General's office.  It is this person's view that an exemption already exists to state law regarding the use of actor's.  You may want to pass this along to your legal departments. [snip]"

RCW 49.46.010(5)(c) excludes from the definition of "employee" any individual employed in a "bona fide" professional capacity. The Dept. of Labor & Industries defines an individual employed in a bona fide professional capacity as someone whose work is "Original and creative in character in a recognized field of artistic endeavor (as opposed to work which can be produced by a person endowed with general manual or intellectual ability and training), and the result of which depends primarily on the intention, imagination, or talent of the employee".

Are you bona-fide?

[Rik Deskin]

Okay, so if I am a bona-fide professional actor, non-union, can a producer have me volunteer my professional skills and reward me with a gift that could be cash?