December 2019
By Craig Gipson
In 2020, West Coast technology hubs will continue their reach into modern publishing. Two California laws will become effective January 1 and Amazon subsidiary Audible will test traditional notions of fair use, bringing the latest legal and technology shifts to the publishing industry. California’s legal landscape will hit on two fronts, employment and privacy, while Audible defends its feature that displays text along with an audiobook.
California Independent Contractors…Or Employees?
What Does the New Law Do?
California’s new labor law, referred to as Assembly Bill 5 or AB5, makes it more difficult to classify California workers as independent contractors instead of employees. While media reports focused on “gig economy” workers like Uber and Lyft drivers, the law’s reach is much broader. Any publisher hiring an independent contractor in California must now consider if the contractor should now be classified as an employee. And even for those publishers that avoid California-based contractors, the legal trend is spreading. Similar laws are on the books in New Jersey, Vermont, and Massachusetts.
The new law codifies a three-part test for determining independent contractor or employee status. The three-part test, known as the ABC Test, requires that all three elements be met to qualify as an independent contractor. The elements are:
(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Part B of the test will likely affect publishers the most: is the work the independent contractor will perform “outside the usual course” of a publisher’s business? If a publisher has never designed covers for its books in-house, does hiring a cover designer in California now require that the publisher provide that designer with the benefits of its regular employees (see below for a possible exception to this scenario)? Unfortunately, it will require the California courts to answer these types of questions with any certainty. Experts in this area are anticipating plenty of litigation in 2020 and beyond to better clarify what the effect of the new law will be.
Are There Any Exceptions?
Yes, in the build-up to drafting the bill, interest groups for various professions ramped up their lobbying efforts to be excluded from its coverage. For those that received an exception, their categorization as employee or independent contractor remains as it was before the new law, provided certain conditions are met. Some of the exempted professional services common to publishing include:
- direct sales salespersons;
- marketing (provided the contracted work is creative in character and depends primarily on the imagination or talent of the contractor);
- graphic design;
- still photographers (provided the photographer does not contribute more than 35 times per year); and
- freelance writers and editors (provided they do no contribute more than 35 times per year).
The law also includes a limited exemption for business-to-business contractual relationships. A publisher may still contract with a corporate entity vendor to provide services without running afoul of the law’s employment classification. But publishers should be careful as there are 12 required criteria that narrow this exception. Among the 12 requirements are:
- The vendor must provide services directly to the hiring entity, not the hiring entity’s customers;
- The contract between the parties must be in writing;
- The vendor is a corporate entity (not an individual) with its own office separate from the hiring entity;
- The vendor contracts with other businesses to provide similar services; and
- The vendor advertises itself as providing similar services to those being performed for the hiring entity.
What Should We Do If We Use California Independent Contractors?
For publishers that work with independent contractors in California, there are several options:
- Only contract with individuals, staffing agencies, and businesses likely within the exemptions. For individuals not within one of the exempted categories above, one of the most common workarounds will be to contract with staffing agencies or corporate vendors. If a publisher uses a staffing agency or corporate vendor, be sure the contract specifies that the other party will only use its employees to perform the services, not independent contractor subcontractors. Otherwise, a publisher risks being found as a co-employer of the contractor and may be liable for violations of the new law. Also, the staffing agency or vendor should indemnify the publisher for their obligations as an employer and any misclassification of employees, as well as carry insurance to cover this indemnity.
- Partially change employment practices to comply with California law. This is a hybrid approach. A publisher could treat the independent contractor as an employee for California labor law purposes but an independent contractor for federal tax and benefit purposes. Taking on the burden of employment under state law would require tracking all hours, paying overtime, complying with mandatory meal and rest breaks, providing paid sick and family leave, and complying with other California Labor Code provisions.
- Don’t use California independent contractors. Publishers could stop use of California independent contractors altogether unless they meet the requirements of the business-to-business exception.
- Wait and see. Besides waiting to see how litigation plays out, the law itself may not be on solid ground just yet. The State Assembly is likely to pass some revisions and Uber, Lyft, and Door Dash have each contributed $30 million toward the campaign to place the law on the ballot in California in November 2020. In the meantime, one of the approaches above should be adopted.
California Customers’ Privacy
If changes to labor law were not enough, California also passed sweeping privacy legislation in 2018 that will go into effect January 1. The California Consumer Privacy Act (CCPA) resembles Europe’s General Data Protection Plan (GDPR) which grabbed headlines upon its effective date in 2018. The CCPA is arguably the most comprehensive privacy law passed in the United States.
Who Does the CCPA Apply To?
Like GDPR, the CCPA is extra-territorial and applies to any business, regardless of location, that collects or stores the personal information of a California resident. But “business” is a key word. The law does not apply to non-profit entities and only applies to for-profit entities that: (1) serve California residents and earn at least $25 million in annual revenue; (2) store the personal information of 50,000 or more individuals; or (3) collect more than half their revenue from sales of personal information.
What Does the CCPA Do?
First, the CCPA expands the traditional definition of personal information. Not only does it include the usual categories of name, address, email address, etc., but also includes IP address, personal characteristics (race, sex, religion, etc.), browsing and search histories, and geolocation information.
But the CCPA really creates four rights for California residents:
- Right to Know. California residents have the right to know about all personal information stored by a business. This means that upon request, businesses have 45 days to respond with a report of all the person’s personal information in its possession, how it was acquired, how it has been used, and who it has been shared with in the past 12 months. This can be a significant IT challenge requiring cross-silo file management by businesses subject to the law.
- Right to Opt-Out. California residents may opt-out of their personal information being sold to third parties. Businesses will need to be able to segregate data so it can easily determine how different data may be used. This right also requires businesses to place a link on their website reading “Do Not Sell My Personal Information” to facilitate the ease of opting-out. For Californians between the ages of 13 and 16, businesses must obtain an explicit opt-in before selling their personal information.
- Right to Control and Be Forgotten. California residents may demand that businesses delete all personal information about them in the business’s possession. The business may continue to store the personal information to comply with a legal obligation (e.g. tax laws) but may only use the applicable personal information to meet that obligation (i.e. may not use it for marketing purposes).
- Right to Exercise Privacy Rights Without Prejudice. Businesses may not discriminate against individuals who exercise their right to opt-out or be forgotten. They may not be refused services or offered different services as a result of their exercising privacy rights granted under the CCPA. It is unclear whether financial incentives may be offered for consumers who do not opt-out (e.g. can businesses in essence pay for the right to keep data?).
If the CCPA applies to your organization, begin preparations with an audit of the customer information your organization stores and its privacy policy and practices. The momentum in privacy law is driving toward more regulation; even if your organization does little business with California residents, having your data practices in order will be beneficial in the future.
Audible Pushing the Copyright Envelope
In 2019, Amazon-owned Audible began beta testing a new feature to include with its audiobooks. The so-called Captions feature would display the words to the audiobook contemporaneously with them being read by the narrator. Seven publishers called foul and filed suit against Audible, asserting that its audio license did not allow for reproduction and display of the text of the underlying works. Audible responded by claiming the feature should be protected by fair use.
If the case proceeds to trial and appeal, it could produce a significant fair use ruling as Audible’s proposed “transformative use” would present a novel theory. However, for now the parties have traded motions and entered into settlement negotiations. The parties are scheduled to update the court on their status on December 3.
