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The state legislature is considering a proposal that takes aim at Uber, Lyft and others using independent contractors by adopting the “ABC” employment test – but it could render the entertainment industry’s tax-lucrative loan-out companies useless.

The Hollywood Reporter magazine claims that Hollywood studio executives may be in for a shock when it comes to their budgets. A bill winding through California’s legislature that takes aim at gig-fueled companies like Uber and Postmates may upend long-standing showbiz practices by reclassifying scores of independent contractors as employees, and could render tax-lucrative loan-out companies useless.

The bill, AB 5, which the state assembly passed May 29, is designed to protect workers from being misclassified as independent contractors and therefore denied such employee protections as minimum wage, overtime pay and workers’ compensation. It seeks to codify and expand the California Supreme Court’s 2018 Dynamex decision, and would presume every worker is an employee – with a few exceptions for people like barbers and real estate agents – unless a company can show that the worker meets three criteria under the so-called ABC Test.

The requirement that makes Hollywood nervous is that the independent contractor must perform duties outside the usual course of the company’s business. “That test will necessarily lock talent out of being an independent contractor if it passes in its current form,” says talent lawyer Rick Genow, whose clients include Debra Messing, Anthony Anderson and Henry Golding. “The economic impact would be somewhat devastating to both talent and the studios.

A doomsday scenario for Hollywood would look like this: A law is enacted with no exemption for entertainment workers; companies opt to treat everyone as employees for all purposes to avoid complications; and loan-outs are effectively dead in the water.

It’s often financially beneficial for talent to form their own corporation, and then that company loans out their services to other employers instead of those employers hiring them directly. Adds business manager Harley Neuman, who represents Ellen DeGeneres and Scarlett Johansson: “It would be catastrophic to our business if loan-outs went away.

It’s unclear how much this bill would cost the entertainment business in total, but the state of California estimates it loses out on $7 billion in payroll tax revenue each year because of alleged misclassification across all industries. Economist Chris Thornberg of Beacon Economics says the bill aims to solve a problem that’s been overblown. “California’s economy has the lowest unemployment rate it has ever had,” he says. “People have options, and they’re still choosing to drive Uber or Lyft. The idea these people are being exploited and need help just doesn’t fly.” He expects film and TV productions would either leave the state or find ways to cut costs.

The language of the bill isn’t final, so some of the potential negative impacts could be avoided through amendments. The deadline to pass legislation before sending it to Gov. Gavin Newsom’s desk is Sept. 13.