In September 2014, four reality TV participants on the show Texas Car Wars sued the network Megalomedia for violating the Fair Labor Standards Act (“FLSA”) alleging that Megalomedia did not pay them in full for their time on the show. According to the participants, film shoots regularly exceeded 40 hours per week and participants were “on call” to return to set 24 hours a day. Given this schedule, the participants argued they deserved to be paid at least minimum wage for these hours, as well as overtime for all after-hour time spent on the show. In response, Megalomedia argued that the participants were not its employees and therefore not protected by the minimum wage or overtime laws.
Like Texas Car Wars, many reality shows film their participants 24 hours a day or schedule film shoots that greatly exceed eight hours a day. However, because the pay structure for participants is often in the form of small stipends or conditional cash prizes, participants may not be compensated for their long hours. Now, it appears that many participants are turning to legal action to fight for reasonable wage and hour standards.
Does the FLSA Cover Reality TV Participants?
The first legal issue is that federal Fair Labor Standards Act’s (FLSA) wage and hour standards only apply to employees and do not cover independent contractors. Many networks require participants to sign agreements providing that their relationship with the network is as an independent contractor rather than an employee. These types of agreements, however, are far from the end of the inquiry as an agreement stating that a worker is an independent contractor does not mean a court or a federal or state agency will conclude that the worker is in fact an independent contractor under the law. The analysis of whether a worker is an independent contractor or employee comes down to a case-by-case analysis that looks at different aspects of the work relationship.
In other words, whether a worker is an employee or independent contractor is a highly fact-specific inquiry. The main test, often called the economic realities test, has seven key factors:
- The extent to which the work performed is integral to the employer’s business;
- The permanency of the work relationship;
- The amount of the worker’s investment in facilities and equipment;
- The nature and amount of control of the employer;
- The worker’s opportunities for profit and loss based on the workers’ managerial skill;
- The amount of initiative, judgment, or foresight the worker must have in order to successfully compete in the open market;
- The degree of the worker’s independent business organization and operation.
In the reality TV world, the degree of the network’s control over the work performed usually weighs in favor of participants being deemed employees. For nearly all reality shows, networks control the location, manner, and rules of the participants’ work. Many claim that networks even stage scenarios to make shows more interesting.
Similarly, participants’ opportunity for profit or loss based on managerial skill and their lack of investment in the network’s business also often support classifying them as employees. Although most reality shows give participants some opportunity to make or lose money, none of these opportunities arise from participants’ own decisions about the work performed but rather are usually predetermined rewards for completing challenges designed by the network. Regarding investments, participants do not usually make investments to work on reality shows because the network often covers most expenses, including food, housing, and supplies needed to participate in the show. One potential exception, however, may be entrepreneurial shows, such as Shark Tank, which give participants more independent authority to make managerial decisions about their own businesses. In such cases, the opportunities for profit or loss based on managerial skill are more palpable.
The permanence of the working relationship on reality shows varies tremendously. Some shows, like Survivor or American Idol, do not guarantee work for the entire operative period of the season because participants can be voted off. Other shows, like The Real Housewives of New Jersey depend on the permanence of participants because the shows revolve around the specific participants’ lives. The degree of skill required for the work is also show-specific. Shows like The X Factor or The Voice require talent and skill to maintain participation, whereas The Bachelor or Are You the One? only require participants to be willing to fall in love.
Finally, the extent to which participants’ work is integral to the network’s business is fairly straightforward. For nearly all reality shows, participants form the foundation of the shows. Since the shows would not exist without the participants, this factor weighs heavily in favor of participants being employees. Although all of the factors are important in this fact-intensive inquiry, this factor often proves to be the real key to the ultimate question of whether the worker is an employee or an independent contractor.
Ultimately, many reality TV participants may qualify as employees, even if networks classify them as independent contractors in their contracts.
Tax Implications
Beyond the wage and hour issues, there are also differing tax implications for both participants and networks. Importantly, the IRS has a different test for whether a worker is an employee or an independent contractor. Although the FLSA and IRS tests have many similarities, it is possible that a worker would qualify as an employee under the FLSA but not under the IRS test, or vice versa.
If a participant is an employee, the IRS characterizes any reward received, either in the form of a salary, weekly stipend, or prize (monetary or non-monetary), as wages. Consequently, this income must be reported on a W-2. Additionally, the network, as the employer, is responsible for withholding payroll taxes from the employee’s income.
Alternatively, if a participant is an independent contractor, the IRS characterizes any reward received as miscellaneous income. As a result, this income must be reported on a 1099. In this case, the network is not responsible for withholding payroll taxes, and a participant must keep track of the appropriate taxes that he or she must pay to the IRS.
The Bottom Line
Reality TV is an ever-changing and burgeoning sector of the entertainment industry. Some may argue that the content is not “reality” per se, but the wage and hour issues concerning its participants could not be more real, and are not that different from wage and hour issues in other industries.
Whether their workers are on the silver screen or on a factory line, all employers should be cognizant of their wage and hour obligations, and should keep in mind the following:
- Employment agreements do not determine whether a worker is an independent contractor or employee under the FLSA; rather, worker classification is a fact-intensive inquiry that takes into account many factors.
- Misclassifying workers as independent contractors can have significant legal consequences.
- Worker classifications impact your tax obligations and those of your workers.
About the Author:
Angelina “Lina” Irvine is an associate in Dickinson Wright’s Detroit office. Lina focuses her practice on labor and employment litigation, including discrimination, retaliation, wage and hour, disability, unemployment insurance benefits, and FMLA matters. She also advises entities and individuals regarding employment matters and regulatory compliance, and has expertise in negotiating complex severance and settlement agreements on terms advantageous to our clients. Lina’s practice also includes commercial litigation and employee benefits. Lina may be contacted at airvine@dickinsonwright.com, and you may visit her bio here.
