Showing posts with label compensation. Show all posts
Showing posts with label compensation. Show all posts

Tuesday, January 1, 2013

Independent Contractors vs. Employees - Part II: Written By New York Entertainment Lawyer And Employment Attorney John J. Tormey III, Esq.

http://www.tormey.org/contractors2.htm

Law Office of John J. Tormey III, Esq. – Entertainment Lawyer, Entertainment Attorney
John J. Tormey III, PLLC
1324 Lexington Avenue, PMB 188
New York, NY  10128  USA
(212) 410-4142 (phone)
(212) 410-2380 (fax)
brightline@att.net
http://www.tormey.org

Independent Contractors vs. Employees - Part II: Written By New YorkEntertainment Lawyer And Employment Attorney John J. Tormey III, Esq.
© John J. Tormey III, PLLC. All Rights Reserved.

This article is not intended to, and does not constitute, legal advice with respect to your particular situation and fact pattern. Do secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies in one context, may not apply to the next one. Make sure that you seek individualized legal advice as to any important matter pertaining to your career or your rights generally.

Part I of this article discussed the distinction between hiring “independent contractors” versus “employees”, and some of the consequences thereby resulting. To give the hypothetical some real-life relevance to an entertainment lawyer like myself, how could, for example, a recording studio or a film production characterize its workers as the former (independent contractors), rather than the latter (employees)? If the Internal Revenue Service (IRS) or applicable Department of Labor (DOL) challenges the characterization of the workers as independent contractors as opposed to employees, is there anything that the film production or recording studio could have done in retrospect to seek to prevent or withstand the challenge – aside from calling its entertainment lawyer at the point of hire and asking the entertainment lawyer, that is?

A signed written agreement between the music or film studio and each worker, which among other things characterized each of them as an “independent contractor”, prepared by the entertainment lawyer, might have been helpful. But do not believe for a minute that agencies like the DOL and the IRS will view that self-serving contractual “independent contractor” vs. employee characterization as fully-dispositive, even when drafted by the entertainment lawyer. These agencies decidedly will not. Rather, the actual facts and circumstances surrounding the worker’s services must give additional support to the contractual characterization of an independent contractor as opposed to an employee. Moreover, things change. The facts and circumstances of work in the latter year may differ from what the entertainment lawyer’s drafting predicted them to be in the former year’s signed contract. See, e.g.:
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

In other words, the hiring company in the entertainment field should, at minimum, require all its independent contractor hires to sign independent contractor agreements prepared by the company’s entertainment lawyer, that among other things expressly disclaim an employee-employer relationship. But the smart company also further monitors the factual circumstances of that work relationship post-signature, to make sure that those facts continually support the contract and the “independent contractor” vs. employee characterization. Most independent contractor relationships themselves, as well as other forms of relationships, change over time and do not remain static. The entertainment lawyer can amend the pre-existing signed contract at the client’s further request.

This article will not rehash all factors in the past IRS “checklists” here, particularly because the governmental definition of independent contractor vs. employee continues to evolve and may have changed by the time you read this article. The hiring party should update itself on the IRS and DOL “independent contractor vs. employee” definitions anyway: (1) so to be sure to consider factors applicable to its own state and jurisdiction, and (2) so as to work off of the most updated definition Obviously it is wise to consult with one’s entertainment lawyer, accountant, and payroll company – particularly the latter two - before one rolls out an entertainment company payroll plan for independent contractors, employees or otherwise. Indeed, prospective advice should be obtained before the hiring party even make the hires. But below are some of the checklist factors which as an entertainment lawyer representing the hiring party I have found to have been given some significant weight in the context of past DOL actions. Query whether or not the hiring party will be able to “flip” any of them to its own favor and advantage, if the hiring party is ever challenged on its own characterizations of workers as independent contractors as opposed to employees:

A. Nature Of Services.

The entertainment lawyer first inquires of the hiring party, “What exact services or types of services does the claimed independent contractor worker perform?” If the hiring party is held to exercise or reserve the right to exercise sufficient supervision, direction, and control over the worker’s services, an “employer-employee” relationship may be established, even if such relationship was never intended by the hiring party thinking he or she was instead hiring an independent contractor rather than an employee. To this extent, a written job description in the agreement drafted by the entertainment lawyer suggesting that the worker toils independently, may support the company’s assertion of an “independent contractor” vs. an employee-employer relationship. But the written job description must be an accurate reflection of the facts, and must stay accurate going forward in time which is even more difficult. In any event the written job description scribed by the business owner’s entertainment lawyer, is not dispositive on “independent contractor vs. employee” question. Moreover, most media and entertainment hiring parties are unwilling to relinquish supervision, direction, and control over even its independent contractor hires, as a practical matter - much less instruct their entertainment lawyer do so in writing. Therefore, this “nature of services” item is a difficult checklist factor for the hiring party to “flip” to its own advantage in favor of an independent contractor adjudication as opposed to employee determination.

B. In Business For Himself/Herself.

The entertainment lawyer next asks, if this worker that the hiring party wishes to characterize as an independent contractor as opposed to employee, in business for himself or herself. For example, does this worker run his or her own business or corporation, or work through a “loan-out” entity? Does the worker have an independent consulting business? Does the worker advertise any business, or have the trappings or indicia of any self-standing business? If the worker is in business for himself or herself – and particularly if the worker can be documented by the hiring party’s entertainment lawyer to have been such, well-prior to the making of the hire in question – then that would be a strong suggestion that the worker is an independent contractor rather than an employee. In fact, the party wanting to hire a worker can choose to limit its hires only to those contractors that are already separately incorporated or functioning through a limited liability company, which the entertainment lawyer can normally confirm on-paper through the use of public-record databases. This “business for himself/herself” item is therefore a factor that can be flipped to the hiring party’s advantage in favor of an independent contractor determination over an employee characterization, if set-up carefully in advance, and a step in which it may be critical to involve the entertainment lawyer.

C. Invoicing Or Billing For Services.

Asks the entertainment lawyer to the hiring party, “Does the claimed independent contractor worker submit a bill or invoice for services?”. Most employees don’t. Most independent contractors do – or, should. Again, this is a factor that the hiring party can flip to its advantage in favor of an independent contractor characterization as opposed to an employee determination, if assessed and set-up carefully in advance, and a step with which the entertainment lawyer can help by assisting the documentation process. The party wanting to hire a worker can choose to limit its hires only to those claimed independent contractors that furnish or are willing to furnish periodic invoices. An employee would be unlikely to do so, and unlikely to be asked to do so. This “invoicing” factor will likely not be dispositive by itself, but could be helpful to the hiring party to support an independent contractor determination over an employee ruling.

D. Where, When And How Long.

The entertainment lawyer then asks the hiring party, “Is this worker claimed to be an independent contractor rater than an employee, told where to work each day? Or, when to work each day? Or, how long or how many hours to work each day?” The entertainment lawyer observes that a worker toiling off-premises is more likely to be characterized as an “independent contractor” rather than an employee. A worker on his or her own schedule is more likely to be characterized as an “independent contractor” rather than an employee. And, a worker who chooses his or her daily hour expenditure is more likely to be characterized as an “independent contractor” rather than an employee. But again, most hiring parties are unwilling to relinquish that kind of supervision, direction, and control over their hires much less instruct their entertainment lawyer do so in writing – be they employees or even independent contractors.

E. Review Of Work.

“Regarding the worker sought to be classified as an independent contractor rather than an employee”, asks the entertainment lawyer, “is this worker’s effort subject to review by anyone – particularly annual reviews? Is the worker’s effort reviewed as ‘satisfactory’ or ‘unsatisfactory’”? The more discretion of review that the company exercises, the more likely that this worker will be characterized as an “employee” rather than an independent contractor. One presumption would be that the remedy for a bad independent contractor would be simply to terminate rather than to review, which the hiring party might do through his or her counsel, or just on his or her own. But again, most hiring parties are unwilling to relinquish that kind of supervision, direction, and control over their hires, much less instruct their entertainment lawyer do so in writing – be they employees or even independent contractors.

F. Refusal Of Work Assignments.

This worker that the hiring party calls an independent contractor rather than an employee – the entertainment lawyer muses - can this worker refuse work assignments? Does this worker in fact refuse any work assignments? If so, what happens as a result? Though not an absolute, a worker entitled to refuse assignments is at least somewhat more likely to be characterized as an “independent contractor” rather than an employee. But again, most hiring parties are unwilling to relinquish that kind of supervision, direction, and control over their hires, much less instruct their entertainment lawyer do so in writing – be they employees or even independent contractors.

G. Tools And Office Space.

As for this worker that the hiring party claims to be an independent contractor as opposed to an employee, the entertainment lawyer inquires - what equipment or other tools or objects does this worker supply or bring to the job site by himself or herself, if any? Who provides the office space, if any? The more equipment and tools that the worker brings to the work site, the more likely it is that the worker will be characterized as an “independent contractor” rather than as an employee. If, on the other hand, the company provides an office, tools and equipment, the relationship looks more like an employee-employer employment relationship. In this day and age of laptop and telecommuting, we will more frequently see hiring parties try to flip this variable to their advantage in favor of an independent contractor determination as opposed to an employee determination. And this factor will not be ignored by the governmental authorities adjudicating the issue, or entertainment lawyers drafting the prospective agreements, either.

Again, please do not rely upon the excerpted list of “independent contractor vs. employee” factors above - it is only illustrative in the context of media and entertainment company hiring patterns in the past - and different tribunals may adjudicate different results. Any determination that a hiring party in the entertainment field makes about a worker’s status should be done only upon review with one’s own entertainment lawyer, one’s tax accountant, and one’s payroll company – particularly the latter two. The most important thing to remember is that the rule of “ipse dixit” does not apply to the “independent contractor vs. employee” question. In other words, just because the hiring party calls someone an “independent contractor” as opposed to an employee, does not make them so! (“Ipse dixit” is Latin for “he himself said so”).

There are structural modifications that the hiring party can make to the hiring relationship, as well as entertainment lawyer-drafted text, that will increase its chances of successfully claiming the worker to be an independent contractor rather than an employee. But there are seldom any absolutes in this regard. Finally, keep in mind that there is a real “Catch 22” to the “independent contractor v. employee” characterization. The entertainment lawyer will advise the hiring party that the hiring party must truly be willing to part with a substantial amount of supervision, direction, and control over a worker - and must in fact do so - in exchange for the privilege of paying them like an independent contractor rather than an employee. There is only a very limited extent to which a hiring party may be able to contract around this problem.

Click the “Articles” button at:
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My law practice as an entertainment attorney includes state and federal employment law matters relating to independent contractors and employees and other human resource matters as they arise in the fields of music, film, publishing, television, Internet, and other media and industries. If you have questions about legal issues which affect your career, and require representation, please contact me:

Law Office of John J. Tormey III, Esq.
John J. Tormey III, PLLC
1324 Lexington Avenue, PMB 188
New York, NY  10128  USA
(212) 410-4142 (phone)
(212) 410-2380 (fax)
brightline@att.net
http://www.tormey.org

 
Page:
Independent Contractors vs. Employees - Part II

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Meta Description:
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ATTORNEY ADVERTISEMENT

Independent Contractors vs. Employees - Part I: Written By New York Entertainment Lawyer And Employment Attorney John J. Tormey III, Esq.


Law Office of John J. Tormey III, Esq. – Entertainment Lawyer, Entertainment Attorney
John J. Tormey III, PLLC
1324 Lexington Avenue, PMB 188
New York, NY  10128  USA
(212) 410-4142 (phone)
(212) 410-2380 (fax)

Independent Contractors vs. Employees - Part I: Written By New York Entertainment Lawyer And Employment Attorney John J. Tormey III, Esq.
© John J. Tormey III, PLLC. All Rights Reserved.

This article is not intended to, and does not constitute, legal advice with respect to your particular situation and fact pattern. Do secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies in one context, may not apply to the next one. Make sure that you seek individualized legal advice as to any important matter pertaining to your career or your rights generally.

As an entertainment attorney practicing in New York, I see people and companies struggling to address the definition of independent contractor vs. employee, frequently. Anyone who hires workers or is thinking of doing so, in New York or elsewhere in the United States, should be aware of the following. Before hiring anyone, it is critical that one carefully determines with one’s accountant and entertainment attorney or other counsel whether the new hire is to be an “employee”; or, alternatively, an “independent contractor”. The terms have legal and financial import; they are mutually exclusive; and one should never use them interchangeably.

The distinction between the two types of workers is important because, among other things, it is usually more expensive and more administratively inconvenient to hire and pay “employees” as opposed to “independent contractors”. On the other hand, few persons or companies that hire workers are truly willing to relinquish control over their hires, to a sufficient degree to allow those workers to accurately be characterized as “independent contractors” as opposed to employees. As an entertainment attorney, I frequently encounter business projects of short duration such as a single film shoot, a single album recording, or a single pilot shoot. The question of “independent contractor vs. employee” therefore arises most often in the context of media and entertainment projects of multi-week or multi-month duration. Though the two constructs, “independent contractor” and “employee”, are not necessarily self-defining, the word “independent” is used for a reason, and truly translates to “loss of hiring-party control”. I’ll explain below.

The U.S. Internal Revenue Service in (former) “IRS Publication 937” identified 20 “checklist” factors that it considered when determining whether or not an individual worker is an “independent contractor” as opposed to an “employee”. The litmus test has apparently since evolved somewhat. See, e.g.:
The hiring party should review the most updated version of the IRS criteria prior to any hires, and it is probably more important to do so with one’s payroll company and tax accountant, than one’s entertainment attorney. The hiring party should also be aware that the IRS is not the only institution with whom to be concerned regarding the all-important “independent contractor vs. employee” determination. Other governmental agencies have a stake in preventing mischaracterization of workers as independent contractors, too.

For example, the state Department of Labor (state “DOL”) in one’s own home state may apply its own checklist of criteria to distinguish independent contractors vs. employees. One needs to be aware that there is a federal [US] Department of Labor as well as a state Department of Labor. A hiring party needs to comply with the requirements of both. In a perfect world, there should be consistency between the respective “checklists” of the IRS and the applicable DOL, as well as consistency between each agency’s interpretation of those checklists. However, your entertainment attorney and tax accountant will opine to you that the world isn’t perfect, and those interpretations could differ as to what constitutes an independent contractor versus an employee. Therefore, one should be aware as to how a local state DOL characterizes the two different types of workers, too - if different than the IRS characterization. Additionally, from an enforcement perspective, the DOL could challenge a hiring business’ characterization of its workers as “independent contractors” vs. employees, without the IRS joining in on the contest. The IRS and the DOL are separate agencies, although there is a suggestion that they will more thoroughly share electronic data with each other on field data and this issue in the near future.

The “independent contractor” determination can be the proverbial unstable apple cart, easily tipped. An employer, as most know, should withhold taxes from an employee’s pay, and make unemployment contributions with respect to those employees, among other things. Hiring companies in the entertainment field, for example, even if they already have an entertainment attorney and a tax accountant, still often wisely use a “payroll company” to administrate payment obligations to workers, so as not to transgress. The cost of a hiring party mischaracterizing an employee as an independent contractor instead, could be high. If ever in doubt, payroll companies and accountants should skew cautious and conservative when making the distinction for their clients in favor of employees – and the entertainment attorney will usually tell the client to listen to his or her payroll company and tax accountant.

However, let’s say that a hypothetical music recording studio, or film production company, for that matter, hires 20 workers, characterizes them all (in reasonably good faith) as “independent contractors”, but uses no payroll company, tax accountant, or entertainment attorney initially. Let’s further assume that the film production or music studio pays no unemployment insurance or workers compensation contributions with respect to any of the hires, and does not withhold taxes from their paychecks. Then, one independent contractor worker is terminated, and vindictively files with the local state DOL for unemployment compensation, claiming to be a fired “employee” instead. Even after phoning the entertainment attorney and tax accountant to enlist their retroactive help, it may now be too late. The recording studio or film production could now find itself faced with a state DOL that characterizes not just the one claimant-worker - but all 20 workers - as “employees” as opposed to “independent contractors”. The apple cart tips. The camel’s nose is now in the tent.

The recording studio or film company may be required to litigate administrative hearings on the independent contractor v. employee question, and may thereupon be assessed retroactive unemployment insurance contributions, interest, and penalties with respect to the workers that “should have been paid as employees”. Other actions may also follow, such as a workers compensation audit, and perhaps even findings by the IRS and local tax authorities with respect to claimed monies that “should have been withheld” from the “employees” pay. The argument of, “But I told them they were independent contractors” may be considered a mere ipse dixit proposition and might not wash with the government. The entertainment attorney or the business owner can state the case to the authorities that short-term hires are the bread-and-butter of the local entertainment economy in the jurisdiction and so should be rewarded and not punished, but the adjudicating authorities may not accept that distinction between entertainment and non-entertainment sectors. Their only care may be to decrease the overall number of independent contractors and increase the total number of employees across all industries and sectors.

Could this nightmare have been avoided by the recording studio or film production company, through documentation, prospective use of its entertainment attorney, or otherwise? The answer is “Maybe yes, maybe no”. Please see Part II of this article for a further discussion.

Click the “Articles” button at:
to return to the main Articles page.

My entertainment law practice includes state and federal employment law matters relating to independent contractors and employees and other human resource matters as they arise in the fields of film, music, television, publishing, Internet, and other media and industries. If you have questions about legal issues which affect your career, and require representation, please contact me:

Law Office of John J. Tormey III, Esq.
John J. Tormey III, PLLC
1324 Lexington Avenue, PMB 188
New York, NY  10128  USA
(212) 410-4142 (phone)
(212) 410-2380 (fax)


Page:
Independent Contractors vs. Employees - Part I

Title Metatag:
independent contractor,entertainment attorney,employee

Meta Description:
entertainment lawyer,independent contractor,entertainment attorney,employee,labor,withholding,film crew,labor,New York

Keywords:
compensation,contracts,corporations,employees,employment,entertainment attorney,entertainment lawyer,independent contractors,labor,law firm,legal services,New York lawyer,union agreements,withholdings

entertainment attorney, entertainment lawyer, independent contractors, employees, independent contractor, entertainment attorney, employee, entertainment lawyer, independent contractor, entertainment attorney, employee, labor, withholding, film crew, labor, New York, compensation, contracts, corporations, employees, employment, independent contractors, labor, law firm, legal services, New York lawyer, union agreements, withholdings

ATTORNEY ADVERTISEMENT


Employment And Severance Scenarios: Written By New York Entertainment Attorney And Employment Lawyer John J. Tormey III, Esq.


Law Office of John J. Tormey III, Esq. – Entertainment Lawyer, Entertainment Attorney
John J. Tormey III, PLLC
1324 Lexington Avenue, PMB 188
New York, NY  10128  USA
(212) 410-4142 (phone)
(212) 410-2380 (fax)

Employment And Severance Scenarios: Written By New York Entertainment Attorney And Employment Lawyer John J. Tormey III, Esq.
© John J. Tormey III, PLLC. All Rights Reserved.

This article is not intended to, and does not constitute, legal advice with respect to your particular situation and fact pattern. Do secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies in one context, may not apply to the next one. Make sure that you seek individualized legal advice as to any important matter pertaining to your career or your rights generally.

In prior articles I have alluded to the fact that many people think being an entertainment lawyer is a romantic existence. Yet the brass-tacks principles of employment law and the harshness of employee severance and termination scenarios often overtake that romanticism. Being an entertainment lawyer entails a lot more than hanging-out with talent backstage or on the tour bus. In prior articles I have also alluded to the fact that artists often have “day jobs” providing their paying employment to subsidize their artistic ventures. As a New York entertainment attorney who grew up in a show business family in the midst of performers, I’m used to this. Most of these artists intend to abandon these day jobs, with or without an employment severance package, once they get signed to a development deal, record contract, or otherwise “make it”. But what happens in the meantime? What if an artist works for a company that intends to jettison him or her as an employee, rather than the other way around? What if the company counts on using an employment severance package as a hedge against risk of an after-occurring wrongful-termination lawsuit?

These past few years have comprised a particularly bad time in terms of employee and contractor lay-offs and firings. As a working entertainment lawyer in New York I have seen many artists and others downscale and change jobs in recent years. Many situations which used to prompt a severance package to materialize in the prior decade, do not do so any longer. The fact of the matter is, a large proportion of employees and other workers misplay the handling of their job exit, if and when it occurs in the employment law context. In the interests of employee and worker empowerment before the blue-ink dries on the release and settlement agreement or other severance documents, this article follows. Though written by me as a media and entertainment attorney working with entertainers, the same principles apply to employment work in other industries and sectors.

I suppose that the first rule of employee empowerment is fairly pedestrian-sounding, but vitally important. An employee must read and review every employment document pertaining to his or her job and career, carefully - including the following disclaimer. The employee should secure counsel promptly, if he or she sees any legal issue looming on the horizon which may affect the employee’s career or rights - including legal issues relating to employment and severance packages. As an entertainment lawyer friend and entertainment law professor of mine used to say, “every deal is different”. What applies in one employment context may not apply to the next one. The employee must make sure that he or she seeks individualized legal advice as to any important matter pertaining to the employee’s career or rights generally. It is not uncommon that a soon-to-be-terminated worker starts calling attorneys as soon as offered an employment severance package.

There are attorneys, entertainment attorneys and otherwise, who routinely handle “employee-side” legal matters. A number of attorneys may be able to do so affordably for even a modestly-compensated employee, in the context of a severance proposal or otherwise. An employee-side lawyer should be accustomed to representing people who have limited financial resources, and this is a particularly-familiar fact-pattern for an entertainment lawyer handling artist-side work. There are parallels. And, assuming that one is not a lawyer, one should no sooner handle one’s own legal work than handle one’s own dental or medical needs oneself. The severance and employee-exit scenario most often entails some analysis of employment legal issues governing the exit. Given the economic realities faced by those in the artistic world, all entertainment lawyers need to be familiar with these employment legal issues.

The employee should remember that most employers themselves have in-house or outside attorneys. Indeed, the employment, severance, settlement, release, and exit documents are most often drafted by these attorneys. They may be entertainment attorneys, employment attorneys, litigators, or generalists. However monikered, often an employee’s securing of his or her own counsel is the only way to equilibrate the proverbial scales of justice in a severance or other job-related scenario. Exploitative and even abusive treatment of employees is unfortunately rampant in the employment law context, including at the time of worker exit - particularly in highly-competitive cities like New York and Los Angeles, and in highly-competitive industries like entertainment and media as any entertainment attorney will tell you. The good works and lessons taught by historical pro-labor figures like Samuel Gompers should not go for naught. The employee should not look to the employer, or the vicissitudes of chance, to protect the employee and the employee’s own legal rights in the workplace or in the context of a severance or other exit from employment. Rather, the employee should empower himself or herself, and should not be inhibited in seeking out the advice and opinions of those professionals who handle employee-side legal work for a living.

On to the substance and detail.

The lead singer of a rock band about to step onto a live television set is furnished a “release” for signature five minutes before scheduled air time. The entertainment lawyer representing the singer might cry, “No!”. While this could sound like an entertainment attorney observation meant only for the golden days of the Ed Sullivan Show, the rule of not signing on-the-spot is true in the employment context and across all other subject-matter areas and sectors as well. Like the artist, the employee, too, should never sign any document, employment document, severance document, or otherwise, on-the-spot. The employee should not be bullied into signing on the spot, as a product of fear, or the purposeful manipulation of same by oppressive employers or ex-employers. There are very few situations in life where one truly must sign a document on-the-spot, and an employment-related signature is usually not one of them. One of the only valid such situations that I can recall from my own experience is when an attorney must sign a stipulation on-the-spot before a judge, as the only way to preserve the attorney’s client’s rights. This will not likely be a situation that one will ever have to encounter as an employee or terminated employee in an employment severance context or otherwise. Employers typically offer severance to terminated workers out of fear of being sued by them, meaning that the worker often has more leverage in the employment context than he or she initially thinks.

It is astounding, though, as to how many people make this mistake of “on-the-spot” signing, time and time again, in the entertainment law context, and in the employment severance context and in the workplace and business-world generally - even if these signatories know better. The employee should trust his or her own instincts. If it smells bad, it is bad. If anyone, be it a car salesman, a manager or talent agent you’ve never heard of before, or, yes, an employer offering an employment severance package while terminating your employee services, waves a document at you as panaceatic – you should be suspect. The entertainment attorney’s first instinct is that a document waved at you for on-the-spot signing is not worth to you the paper it is printed on. In the employment context, if the employer presents the employee with a severance document or other document and tries to pressure the employee to sign that document on-the-spot, the instinctual reaction should be similar. The odds are better than 99% that the employer is trying to take advantage of the employee in that latter case - and trying to force the employee to thoughtlessly relinquish in haste valid and enforceable legal rights that the employee already and otherwise possesses.

By comparison, what does an entertainment attorney do, when given or forwarded a document intended for signature in the context of a rights deal, for example? The entertainment lawyer will typically indicate to the party who proffers the document for signature: “Thank you - my client and I will review and respond to this document”. Period. If the “proffering” party then says: “Hey entertainment lawyer, aren’t you or your client going to sign it now?”, the entertainment attorney answers with a flat “No”. Although it is possible that the proffering party will thereafter withdraw whatever offer the document contains and take it permanently off-the-table, they typically won’t. And if they do, it probably was not an offer worth taking anyway. This analysis also applies to written employment severance packages, releases, and settlement agreements, just as it does to talent agreements, agent and manager agreements, car purchase agreements, and just about any other form of proposed contract that one might ever be offered. Again, this rule is by no means entertainment attorney-specific, but instead is generalizable to the employment context and across all sectors and industries.

The protocols of professionalism create an expectation that all parties should be given a reasonable opportunity to review a document, including a proposed employment severance document, prior to either: (1) signing it as written (an extremely unlikely occurrence, by the way, if a good attorney reviews it for the employee); or else (2) responding to the proposed document with a fax, letter, red-line comparison draft, or mark-up indicating the receiving party’s proposed changes. This would normally be the way entertainment attorneys would interact with and between each other on a proposed license agreement, for example. The two entertainment lawyers would expect careful reading and deliberation on either end. If a proffering employer-party in the severance context, however, instead threatens to withdraw the document “since it wasn’t signed on-the-spot”, then they are just being ridiculous and overbearing. The odds are, again, better than 99% that their “non-negotiable” document would have been a legal disaster for the employee to sign as initially proposed. Again, this observation applies to employment severance packages, and most all other forms of proposed draft agreements in most all contexts other than employment, too.

Some employers in the media and entertainment industry context and otherwise even have the unmitigated gall these days to ask employees to prospectively waive their right to a jury trial in the context of so-called “non-negotiable” employment agreements including severance or other exit agreements, as but one type of egregious example of the foregoing. It is jungle out there. If one is asked to sign an employment severance agreement with jury trial waiver or other exit document on-the-spot, it is entirely fair and within one’s rights to say that “I will need to review this document with my attorney”, or “I don’t sign documents of a legal nature without attorney review”. And, if the proffering party disputes the employee’s right to legal representation, perhaps this is someone that the employee doesn’t want to accommodate anyway, on principle. This country’s entire legal history was predicated, in substantial part, on the rights of the individual, and the individual’s right to counsel. The framers of the Constitution worked hard. It would be a mistake to let them down now.

The next rule is a corollary to the prohibition on “on-the-spot” signing: The employee should never believe the employer, when the employer offers a “standard” form of employment severance agreement or otherwise. An entertainment attorney will tell you that “standard” is the biggest lie in the entertainment industry. It should be considered comparably fallacious in the employment context. If the employee wants to empower himself or herself in the workplace and in the commercial world, what the employee needs to do is repeat the following phrase repeatedly, like a mantra: “There is no such thing as a ‘standard form’. There is no such thing as a ‘standard form’”. Because, there isn’t, as any entertainment lawyer should tell you.

Rather, “standard form”, after an entertainment attorney on the receiving end translates it, just means “get over on you”. Similarly, a “standard form” employment severance document is synonymous for “oppressive and one-sided form that takes advantage of the employee”. The employee should remember that the draftsperson of a so-called “standard form” is probably a fairly predatory-minded employer-side lawyer handling the company’s employment severance protocols en masse who is under absolutely no obligation to protect - or indeed even acknowledge or accommodate - the employee’s interests. Indeed, the opposite is true. The employer-counsel’s professional obligation as a member of the Bar handling the employer-side severance work is to be a zealous advocate of only his or her own client’s interests - that is, the employer’s interests only. If the employee signs an employment severance document because the other side tells the employee it is a “standard” or “non-negotiable” form, then the employee might as well be walking off the roof of the proverbial building just because the employee was told to do it. The employee should not trust “standard forms” in the employment severance context or otherwise, or those employers who purport to furnish them. Again, this may be an entertainment attorney observation, but it applies to all workplaces and other contracting situations as well.

The employee should make sure to have retained copies of every single scrap of paper pertaining to his or her employment relationship with any company, up to and including the time of the severance communications. The employee should not trust or rely upon the employer to give the employee copies of - or even access to - those employment documents and the employee’s human resources file, if and when the employee’s work honeymoon period with the employer ends, or if and when the employee’s services are, or are about to be, terminated in a severance or other context. Remember that the Japanese model of “employment for life”, and the antiquarian U.S. model of the gold watch after 40 years of service, just simply do not apply anymore. Severance and parachutes - and these days the absence of them too - often replace the old model of dutiful loyalty.

Our United States work-force is more mobile and transient than it ever has been. The workforce I see as an entertainment attorney practicing in New York, is most decidedly such a miasma. People change jobs all the time, with or without accompanying employment severance packages and exit agreements. The motility of the workforce, by the way, greatly empowers employees to seek out their market-value salary and non-abusive working conditions – so it is not necessarily a bad thing. As a practical matter, in New York or elsewhere, entertainment industry or otherwise, the employee should work with the assumption that the employee will one day have to depart every job ever taken with or without severance, no matter how rosy the employment picture of any job looks initially. If the employee stays at that job until retirement, more power to the employee. But the employee should realize that the statistics indicate this would be an extremely unlikely occurrence in this day and age given current job-market employment conditions.

The employee should make sure that, prior to any severance scenario, his or her exhaustive, fully-complete “job file” is kept at the employee’s home - not in an office desk drawer, not in the company’s file cabinet - not anywhere near the employment workplace. It is astonishing as to how many employees fail to do this simple thing. The employee should remember that the old-fashioned paradigm of “two weeks advance notice and severance” is rapidly becoming a vestige of the past, particularly in the media employment context as I see it from my vantage-point as an entertainment attorney. Many media, software, and other types of employers will now think nothing of having an employee escorted out of the workplace by a human resources rep, or even by security personnel, the day and even moment the employee is terminated. Usually when this happens, the employee is not smiling and holding a severance check when led out of the building towards the parking lot or subway.

Why is this happening? Because employers are becoming increasingly afraid of disgruntled employee (or ex-employee) theft of company material, misappropriation of software, and even sabotage and violence in rarer cases. The employment misappropriation threat is felt particularly by media and entertainment companies, and unfortunately workplace violence incidents are on the rise everywhere. Some employers see the promise of severance - carrot-on-a-stick illusory, or not, as finally offered - to be a hedge against these risks as well. The moral of the story - the employee should keep perfect and thorough contemporaneous documentation of his or her employment file, at home, well prior to any severance scenario.

The employee should save copies of everything - offer letters, acceptance letters, employment contracts, “non-compete” documents, non-disclosure or confidentiality agreements, employee handbooks, time cards or time sheets, performance reviews, expense and reimbursement forms and receipts, insurance and COBRA documents, inter-office memos relating to work and performance, and anything else relating to the employment relationship with the company. The only exception would be, the employee should not remove any material from the workplace which is the employer’s or someone else’s property, or which the employee is contractually or otherwise obligated not to remove from the place of work. As an entertainment attorney handling production matters, I expect this issue to arise often, since an employee will usually depart while at least some non-fungible projects are still in development or production at the employer’s premises. This question of property ownership, intellectual property and otherwise, is sometimes a more difficult judgment to make than it sounds. If ever in doubt - you guessed it - the employee should seek an attorney’s advice prior to any such removal and prior to the closure of the employment severance or other exit documents.

Prior to the severance scenario materializing, the employee should be making thoughtful dated written notes to the employee’s own files and keep them at home, anytime any legally-relevant event happens during employ - such as a supervisor expressing either approval or disapproval with one’s work, or a fellow employee making suggestive or harassing comments in one’s presence. These written notes should be reduced to writing privately, immediately after the event occurs, as opposed to a day or more later. These written notes should quote what was said verbatim (yes, using actual quotation marks, and accurately). The employee should not let these notes merely rely on paraphrases, if possible.

These written notes should be taken home to the extent allowed and feasible, by the employee, on the date of the event so recorded, and should be stored securely in the employee’s employment file at home until ever needed. One would be surprised to learn just how many otherwise-valid employee-side severance-related and other legal causes must be wholly abandoned, simply for the employee’s idle failure to make a written verbatim record of important workplace conversations. This overall issue arises in the context of employment attorney and entertainment attorney work, though familiar to most all other legal practitioners as well. For legal purposes, the employee must assume that a re-constructive written record made in retrospect the following week instead, or a non-verbatim note, is near-worthless relative to one taken at the moment. What the employee wants is what is known as a “contemporaneous written record” - that means, “at the same time as the occurrence of the event itself”. And yes, for most forensic purposes in the employment context, that also could include a careful verbatim written record made by the employee five minutes after the event ends. The employment severance dialogues themselves, if and when verbal alone, should be reduced to writing by the employee in this fashion, too.

Finally, the last rule is a corollary to some of the others mentioned immediately above: The employee should bring or forward a complete photocopy (not originals) of the employment file which the employee kept at home, to the attorney or attorneys – entertainment attorney or otherwise - that the employee is considering to represent the employee in the negotiation of any employment exit and severance agreement, or any litigation or proceeding for wrongful termination of the employment or otherwise.

The employee should remember that what he or she discloses to an entertainment lawyer or any other attorney is strictly confidential, even if the employee never ends up retaining that lawyer to handle the employment severance or exit agreement or any other work. This rule of confidentiality is a serious and inviolate rule. That lawyer could lose his or her license to practice law, if he or she ever betrays the employee’s confidences. Accordingly, after first making sure that the lawyer doesn’t also represent the employer on the employment severance matter (or even otherwise), the employee should be totally candid and thorough in terms of the facts brought to that lawyer’s attention. The employee should not “screen out” facts that the employee thinks are irrelevant or that the entertainment or employment attorney “would never be interested in”. After all, if the employee is not an attorney himself or herself, he or she could be well wrong about this type of conclusion. It is the attorney’s job, not the employee’s, to filter out the irrelevant from the relevant. The employee should give the lawyer all the raw data. The matter may be the first employment severance deal which the employee has ever lived through, but probably not the lawyer’s.

The employee should cover any packet furnished to his or her actual or intended lawyer with a transmittal letter bearing the legend “Strictly Confidential”, or words to similar effect. That cover letter should include a typewritten or word-processed narrative in the employee’s own words, of all the facts and chronology of the severance or other employment matter about which the attorney is being contacted. The employee should not rely upon an oral soliloquy to make his or her point. Rather, the employee should write it all down, in legible font or typeface, before contacting the lawyer. Again, the employee should ensure, prior to divulging these facts to any such attorney, that the attorney does not already represent the employer or any other party closely affiliated with the employer on the employment severance matter (or even otherwise). It is a small world, and the entertainment and employment law bar in the employee’s locale may be even smaller.

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My law practice as an entertainment attorney includes state and federal employment law matters, including terminations, severance packages, executive compensation, settlements, releases, and other human resource matters including those that may arise in the fields of film, music, television, publishing, Internet, and other media and industries. If you have questions about legal issues which affect your career, and require representation, please contact me:

Law Office of John J. Tormey III, Esq.
John J. Tormey III, PLLC
1324 Lexington Avenue, PMB 188
New York, NY  10128  USA
(212) 410-4142 (phone)
(212) 410-2380 (fax)


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Employment And Severance Scenarios

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Sunday, December 30, 2012

Trickle-Down: Written By New York Music And Entertainment Lawyer And Film Attorney John J. Tormey III, Esq.


Law Office of John J. Tormey III, Esq. – Entertainment Lawyer, Entertainment Attorney
John J. Tormey III, PLLC
1324 Lexington Avenue, PMB 188
New York, NY  10128  USA
(212) 410-4142 (phone)
(212) 410-2380 (fax)

Trickle-Down: Written By New York Music And Entertainment Lawyer And Film Attorney John J. Tormey III, Esq.
© John J. Tormey III, PLLC. All Rights Reserved.

This article is not intended to, and does not constitute, legal advice with respect to your particular situation and fact pattern. Do secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies in one context, may not apply to the next one. Make sure that you seek individualized legal advice as to any important matter pertaining to your career or your rights generally.

Reports in the press of contract disputes of years past - one favorite of this music, film and entertainment lawyer which is entitled “Dixie Chicks Sue Sony” - discussed another installment in the seemingly-perennial process of music recording artists suing the record labels with which they previously signed contracts. According to “Dixie Chicks Sue Sony”, the Dixie Chicks claimed that they were due at least US$4.1 million in royalties under their contract, from their music label. See, e.g.:
There is a commonality between this type of music dispute, and a “net profits” or “points” dispute in the context of film or television.

This music, film, and entertainment lawyer article, on the other hand, can offer no opinion on the merits of the Dixie Chicks litigation or contract, or opine with regard to the oft-wondered question in litigations of “which side is in the right?”. The statistical odds in any music, film, or other contract litigation about royalties, net profits, or “points”, are that the case will settle pursuant to a stipulation of confidentiality. Even if we learn of the details of the Dixie Chicks contract or the case’s resolution, we’ll therefore never really know for sure about how other similar music royalty or other contract disputes may have been reconciled. But notwithstanding the sizable amounts of money at stake, the Dixie Chicks-Sony case will likely be governed by certain principles common to all music and film industry contract disputes of its kind, as any entertainment lawyer like myself will tell you.

It really boils down to the timing of when a music artist, film talent, or other artist for that matter, is or should be paid under the contract. Though this may sound pedestrian, the equation is simple. The music and entertainment lawyer opines that, “Agreeing in a contract to be paid the bulk of one’s compensation later rather than sooner, increases the odds that one will be unhappy with the dollar amount of the royalty, “back end”, “net profits”, or “points” payment(s) at that later date”. Would the Dixie Chicks-Sony music contract litigation have never occurred, if the band’s paid-up-front recording advances had been larger? No one – not music and entertainment lawyer, and perhaps not even the parties to the lawsuit themselves - will ever really know that answer for sure, either.

But one cannot argue with the equation. As argued and hammered-out between music or other entertainment lawyer counsel in the contract negotiation, a larger up-front advance to the artist or group at least reduces the magnitude of later artist dissatisfaction with the “net profits”, “points”, or royalty stream of payments that follow. Arguably the Dixie Chicks would be in a better economic position, if suing under the contract for “only” US$1.1 million rather than US$4.1 million. The general form of equation holds up across film, television, publishing, and all other entertainment, media, and related realms. You are better off the earlier you are paid.

Holding aside the Dixie Chicks contract dispute example for a moment, the practical reality for other artists in the music industry is that they often sign record contracts - or now, 360 deals - without the help of a music and entertainment lawyer, before they become commercially successful. Every successful recording artist in the music industry has historically had a “breakthrough” album. What looks like a huge advance in a contract to a starving music artist in the context of an earlier record deal, may later look like a per diem to that same artist several years later after she or he has “made it”. And indeed, the record label’s frugality is understandable. Few if any economically-rational record labels are willing to plunk down a huge contractual advance for an artist who has yet to “make it” commercially, even if they have already retained the services of the best of music and entertainment lawyers. The music and entertainment lawyer can protect the artist. But under most all circumstances (apart from one great band and keyboard player that I know in Pittsburgh), the music and entertainment lawyer is not the one also making the music.

Again, these artist-payment contract disputes, in the music industry, film industry, and otherwise, are a function of time and timing. In this light, the Dixie Chicks are essentially fighting the economic identities that elements within the music industry unilaterally assigned to them several years ago, before they were hugely famous and successful. I do not know at what point in the timeline the Dixie Chicks may have retained high-powered music and entertainment lawyer counsel. But if the band was comparably famous and successful several years ago when they signed their deal, they would have likely commanded much more by way of sizable contractual advances, and would presumably thereby have been better secured against the risk of (alleged) back-end royalty payment deprivation by the record label.

It is ironic that within the past several months prior to the suit, the Dixie Chicks were the subject of a TV news magazine show, in which at least two relevant things were said: (1) one band member suggested that the ladies in the band might soon want to leave the music and entertainment business; and (2) one band member boasted on-camera about having procured the “best [recording contract] deal in Nashville”, or words to that effect. As far as the viewer of the TV program could see, no music or entertainment lawyer was physically present on-camera along with the ladies when these statements were made.

The thrust of the news magazine program was that even with “the best deal in Nashville”, (and presumably able music and entertainment lawyer counsel), an internationally-famous musical recording act had to endure a contractual situation wherein their label was accused of holding most of the money. According to press reports, the Dixie Chicks albums “Ready to Run” and “Wide Open Spaces” sold more than 19 million units, resulting in more than US$175 million in revenue. That approaches a quarter of a billion dollars, and would normally seem to justify the retention of music and entertainment lawyer counsel, at least for future deals. And yet the band’s lead singer dolefully attested on camera that she didn’t “even” have US$1 million in the bank herself at the time of the interview. She jokingly added that her label must have remodeled its Nashville offices based upon the success of her band’s music.

“Where is all of this money going?”, asks the artist-side music and entertainment lawyer, particularly. Well, we know or suspect where it is going. It is true that launching and promoting albums, and developing artists, requires major expenditures by the record label, likely in the millions of dollars. The label has to spend money to make money. The label has to spend money on its own music and entertainment lawyers to draft and negotiate the contracts, for that matter. The film studio or television production company will deploy similar rationales when defending “net profit”, “points”, or other back-end payment arrangements. But in the case of a successful recording and touring act, at least some of the incremental money above expenditures is going towards someone’s profit. It is reasonable to assume that the Dixie Chicks sued because they didn’t think they were receiving their fair share of same under the signed contract, and then convinced one or more music and entertainment lawyer litigators to same effect.

What logical deductions can we make from this case study, that apply to other individual musicians and bands – and perhaps to other media and art forms like film, television, and publishing in the context of royalties, “net profits”, and “points”? First, we need to back up, and keep in mind the first thing that music and other entertainment lawyers learn in practice. There are two principal ways for an artist to get paid for services under a contract: (1) “fixed compensation”, and (2) “contingent compensation”. Royalties are “contingent compensation”, and in the traditional but now fast-evaporating record contract model usually contingent upon either the manufacture or the sale of (non-returned) units. Strictly defined, “contingent” also means that it is possible they will never get paid. In film, television, and other realms, “points”, “back-end”, and “net profits” are all terms suggestive of forms of contingent compensation in a contract. One of my law professors back in the 1980’s was a well-known practicing entertainment lawyer with a music, film, and television practice, and much of our classroom workshops were comprised of haggling over proposed net profit definitions in draft contracts. The song remains the same today, in large part.

Music royalty calculations and film and TV “net profit” or back-end “points” definitions often take many pages of contract text to define - as a music, film, or entertainment lawyer will tell you. In defense of the companies, this verbosity is not always simply a product of the labels and studios and their entertainment lawyers so conspiring. Rather, the income streams in the music and film and TV businesses are truly hydra-headed and fairly sophisticated, and take some care and patience to define. As an entertainment lawyer I realize that this is all scant consolation to a screenwriter working through a studio’s or network’s 50-page written contract definition of “net profits” - or, in the music context, a recording artist immersed in arcane label record contract text purporting to delineate methods of royalty computation. Yet the complexity of calculating contingent compensation is a reality of the industry to which the film net profit or music royalty definition relates.

However, make no mistake about it. Accepting any form of contingent compensation, be it net profits, “points”, music royalties or otherwise, is tantamount to accepting someone else’s “trickle-down”, as any artist-side music and entertainment lawyer will argue. That is, the artist deputizes the company to collect the artist’s money, hold it (presumably) in trust, and then remit it in installments to the artist over time on a deferred basis. Do most people even do that with their own family members? As the music and entertainment lawyer will attest from observing others, and human nature and greed being powerful motivators that they are - the company will often thereupon pay the musical or other artist when it feels like it, and how much it feels like it, sometimes no matter what the contract says. And company “deductions” from the gross payment stream to arrive at “net” or “royalties”, can become extremely creative to say the least. Music and other entertainment industry audit contract disputes often revolve around the acceptability and fairness of such “deductions” from “net profits” or “points”, as fought and argued between entertainment lawyers on either side.

There are contractual ways for musical and other artists to even the proverbial scales of justice regarding their royalties, “net profits”, “points”, or other form of contingent compensation - typically best deployed through the artist’s entertainment lawyer. The most familiar method is the deployment of contractual “accounting” and “audit” clauses or provisions. The music or other artist can endeavor to contractually require the company to remit detailed written accountings of all revenues collected, and (carefully-circumscribed) deductions taken therefrom, on a regular basis. The clauses can be drafted by the artist’s entertainment lawyer. Accordingly, the music artist can also endeavor to reserve the contractual right to audit the books and records of the record company to ensure correct remittance of royalties. In the professional entertainment industry context, audits like this take place all the time, thus ensuring a livelihood for many entertainment industry accountants, entertainment lawyers, and others. It has been reported that wholly two-thirds of all entertainment industry audits result in findings of underpayments. Usually thereafter, the parties reach an economic settlement and move on with their lives. Sometimes, they don’t, and they litigate using music or entertainment lawyers instead. And as indicated above, the majority of litigations themselves settle before going to trial.

And there is hope. Industry custom, and film, music, and entertainment lawyer practice, does often contemplate that recording and other artists may also be paid on a “fixed” as well as on a “contingent” basis. In theory, the contractually-specified recording “advance” represents a fixed up-front payment to the music artist. But many - uh - “creative” record label forms transform the advance into a contingent payment as well, at least in part - this is sometimes referred to as the “recording fund” concept. Film producer compensation may be manipulated by the studio in similar fashion, by payment into a budget as opposed to payment directly to a producer’s bank account. For example, if the musical artist receives a US$300,000 “advance” under the contract, but must himself or herself direct-pay for the first album’s recording expenses out of his or her “own” pocket, then it would behoove the artist not to blow all US$300,000 on one weekend at Monte Carlo. In other words, the bulk of that US$300,000 may not in fact be a fixed payment to the artist, but instead may need to be applied to things like studio time and fees for session musicians. There are many artists out there who briefly thought they were rich for this reason, until the record contract was actually read and reviewed with their music and entertainment lawyer. Similarly, maybe the film producer should not write a check for that Lamborghini just yet, either.

What independent and unsigned artists will discover with or without a music or entertainment lawyer, particularly those music artists with talent, is that there may be plenty of folks along the road who will be willing to bargain for their exclusive recording services, promising no money in advance, but some fuzzy and inchoate “points” later on – with or without waving a proposed contract in front of the artist. This phenomenon is usually exactly what it sounds like - Wimpy’s “I will gladly pay you Tuesday for a hamburger today”. Would-be entertainment company impresarios try to play actors and writers like this, all the time, too.

Sure, the music company and its entertainment lawyer may have a valid point that the artist should be required to share in some of the down-side risk that the recorded finished product will not sell. But by that analysis, the artist-side entertainment lawyer must also conclude that the musical artist should be paid some fixed compensation or “earnest money” up-front, and then some additional contingent compensation later should the project succeed. Otherwise, what assurance does the artist have that this company is truly serious, committed to the music project, and acting in good faith? And arguably, the up-front fixed payment to the artist should be at least sufficient to enable the artist to retain music and entertainment lawyer counsel to draft and negotiate an agreement clearly specifying how the back-end contingent compensation should be paid, and what the artist’s accounting and audit rights should be. The same rationale applies for back-end “net profits” or “points” deals in the film and television realms. The up-front payment at minimum should be the glue that cements the contract.

It is astounding, however, how many artists, typically without music or entertainment lawyer counsel, will agree to be paid for their hard work and their music or other work-product by “points” or “net profits” or other “back-end” alone, perhaps commemorated with writing on the back of a cocktail napkin, or even (gasp) on a handshake alone. Why are these artists selling themselves so short? Perhaps because they are dying for their first big break, and perhaps because they do not have sufficient confidence in their abilities such that they believe that another valuable opportunity will come along. So they don’t enlist the help of a music or entertainment lawyer, and often sign bad contracts or otherwise agree to bad deals.

But the point is, there should be some minimum standard of decency, perhaps along the lines of a well-known California case on point, Foxx v. Williams, and a California statute on point, Civil Code Section 3423:


Some deals are simply not worth an artist’s making. Some contracts are not worth signing, and perhaps shouldn’t even be allowed to be signed. Even a Santa Monica tenant desperate for a beachfront apartment should not move into a condemned premises where the floor is in danger of collapsing. And in that real estate situation, the local government - through the building code or equivalent - serves as “watchdog”, and prevents those tenants from striking those bad lease deals even if the tenant otherwise wants to do so. However, there is typically no governmental or other “watchdog” that prevents a music artist from entering into a bad recording contract, only perhaps case law and statutes that can be invoked only if the question is ever later litigated – and additionally perhaps, only an artist-side music and entertainment lawyer, if ever enlisted for the situation. Rather, as a practical matter, in the recording agreement context, the “watchdog” needs to be prospective and internalized. So too must the watchdog be internalized in every artist, in the film, television, and other industries and art forms. The music or other artist can only look to his or her common sense, and hopefully in some cases the artist’s music or entertainment lawyer’s experience and judgment - and this assessment must be made before signature of any contract.

In any case, the following is for certain. If a proposed music recording agreement with royalty covenants as exchanged between the music and entertainment lawyers does not contain these 3 components:

(A) an up-front advance “fixed compensation” payment to the music artist, (if only to show the company’s good faith, but sufficient enough that the artist will have been happy to have done the deal even if no back-end compensation is ever later collected by the artist); and

(B) an accounting clause; and

(C) an audit clause with teeth;

then, serious doubts should be raised as to whether the music artist should indeed look elsewhere for other career opportunities. At minimum, the proposed deal, as the Dixie Chicks might say, needs fixin’.

And the music artist should take heart, I suppose. Getting the “back-end payment”, “net profits”, or “points” bum’s contract rush from a company happens to music artists and other types of artists in all media and sectors, at all calibers and levels of experience and success, whether or not they are represented at the time by a music or entertainment lawyer. No matter how commercially-successful a musician becomes, there may always be doubts as to whether he or she is being royaltied or otherwise paid correctly – and sometimes it takes the music and entertainment lawyer litigators and the court system to scrutinize the contract to find out.

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My music and film law practice as an entertainment lawyer includes the drafting, editing, negotiation, and closure of all contractual matters relating to film, music, television, publishing, Internet, and all other media and art forms. If you have questions about legal issues which affect your career, and require representation, please contact me:

Law Office of John J. Tormey III, Esq.
John J. Tormey III, PLLC
1324 Lexington Avenue, PMB 188
New York, NY  10128  USA
(212) 410-4142 (phone)
(212) 410-2380 (fax)


Page:
Trickle-Down

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