Personal Service Contracts: Written By New York Entertainment Attorney And Film And Music Lawyer John J. Tormey III, Esq.

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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

Personal Service Contracts: Written By New York Entertainment Attorney And Film And Music 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.

1. What Items Should Appear In A Personal Services Contract?

An entertainment attorney will opine that personal services agreements in New York, California or elsewhere can be fairly complex in regard to the issues that they present - yes, even if the total compensation payable under the personal service contract is not too large. It would be beyond the scope of this article to set forth an exhaustive list of issues for the entertainment attorney to spot in any New York or other personal services contract. But some of the key issues for talent, in a personal services agreement in the entertainment world, are considered to be:

A. Compensation: The first talent-side entertainment attorney contract concern.

How much will one be paid, and how will one be paid, under the personal services contract?

B. Credit. The second talent-side entertainment attorney contract concern.

What credit, if any, will one get for one’s work, and in what manner, pursuant to the personal services agreement?

C. Term. The third talent-side entertainment attorney contract concern.

This is a critical point: For how long will one be required to render services under the personal services contract?

D. Territory. The fourth talent-side entertainment attorney contract concern.

In what country/city/state/territory is one required to render services pursuant to the personal services agreement?

E. Media. The fifth talent-side entertainment attorney contract concern.

In what specific media can, and can’t, one’s work product be used according to the personal services contract?

F. (Non)Exclusivity. The sixth talent-side entertainment attorney contract concern.

Is the artist exclusive to the hiring party; or alternatively, can the artist work elsewhere and/or in other ways during the Term of the personal services agreement?

G. Worker Status. The seventh talent-side entertainment attorney contract concern.

Is the worker an employee, or an independent contractor, under the personal services contract (choose only one answer!)

There are actually quite a number of other issues for an entertainment attorney, or the intended signatory client, to consider, in the context of personal services contracts, in addition. The above list will certainly start the contractual dialogue or respond to the contractual dialogue of any prospective hiring party, however.

2. What Should Be Avoided In A Personal Services Contract?

Again, it would be beyond the scope of this article to set forth an exhaustive list of all contractual traps for the entertainment attorney to avoid in personal service agreements, as a matter of New York law or otherwise. Indeed, there are probably at least as many contractual traps, as there are New York and Los Angeles in-house entertainment lawyers working at these hiring corporations! (and I say this with all due respect to my friends who work in-house, of course). But some of the more colossal mistakes that an artist could make in a personal service contract, typically without first consulting an entertainment attorney, might be as follows:

A. Back-End: Taking the entirety of one’s compensation under the personal services agreement, as contingent or “back-end”. This Hollywood hustle is just as familiar a phenomenon in New York City’s TriBeCa and elsewhere, as well. The fact of the matter is, if the artist is a professional, or if the artist otherwise values his or her own skills and time, then the artist’s work product is valuable and should be recognized as such under the contract. The “buyer” of services and work product under the personal services contract should be required to put at least some earnest money on the barrel, first – whether that barrel be located in New York or anywhere else. One of the entertainment attorney’s functions should be to make this happen. And, the artist should not be expected to commence services under the personal services agreement until those numbers first show up in the artist’s bank account, whatever the numbers are negotiated to be, by and between the entertainment attorneys on either side of the contract.

B. Vagueness: Leaving the Term, Territory, Media and Exclusivity provisions vague in the personal services contract. Artists have found their careers paralyzed for huge amounts of time, due to contractual mistakes like this. No non-lawyer should try to write or edit these personal services agreement clauses on his or her own, and the drafter and/or editor of the contract really should be an entertainment attorney solely representing the artist. No one should blindly sign on to these contractual clauses as offered, particularly if they are vague. (In other words, don’t try this at home. Get professional help from an entertainment attorney, period). For example, if the artist only intended to bind himself or herself to a manager exclusively for New York work alone, imagine her surprise when the manager seeks a commission for a Los Angeles gig that the artist booked on the artist’s own.

C. Forever: Failing to limit the Term of the personal services contract to a reasonable and precise period of time. “Perpetuity”, if ever agreed to, is guaranteed to become one’s own private Hell – sort of like a New York City subway tunnel at 3:00 AM, but worse. The contractual Hell would be forever, and after all, the entertainment attorney may not live to see the artist through a period of time that long. Leaving the Term quantitatively vague in a personal services agreement is just about as bad a mistake as calling it “Perpetuity”, and an entertainment lawyer should prevent an artist from making this contractual mistake. Life is too short and valuable to make open-ended and blank-check commitments to people – in personal services contracts, or otherwise.

3. How Can A New York Entertainment Attorney Tell If A Personal Services Contract Is One-Sided In The Hiring Party’s Favor?

The answer is, if the hiring party furnished the personal services agreement to an artist, then the contract is one-sided in the hiring party’s favor! That was a rhetorical question. And the ability to answer it is not really limited to New York entertainment lawyers alone.

The hiring party is under no obligation to protect the artist’s interests in a legal document, personal services contract or otherwise. If upon receipt of the intended contractual document, you snooze, then you lose. One’s entertainment attorney is one’s hope for re-calibrating the scales of justice evenly, in this type of proposed contract and in this type of fact-pattern. The New York courts might even look to whether both sides of the contract were represented by counsel at the time of signing, before upholding the contract or any of its specific clauses. Retaining entertainment lawyer counsel could have multiple and long-term benefits throughout the life of the contract.

And many entertainment lawyers can speak to this phenomenon from their own “personal” experience. Many of us entertainment attorneys, in New York and elsewhere, have drafted, edited, negotiated, and reviewed hundreds or even thousands of contracts. Many of these were personal service agreements. If polled, few New York or other entertainment lawyers can remember even one personal service contract first offered by a hiring party to any talent clients, that was ever fair.

There is a reason why many New York and other entertainment attorneys and others in the entertainment industry refer to the first-offered personal service agreement form, as the (euphemism) “F.U. Form”. Once an artist retains entertainment lawyer counsel to represent the artist on the personal services contract, one of that entertainment attorney’s first functions is:

A. To get the hiring party to cough up a real personal services contract form in lieu of the “F.U. Form”; if not

B. Take over the drafting of the personal services agreement, entirely.

And yes, signing any entertainment industry proposed personal services agreement, either: (i) on-the-spot, or (ii) in the version exactly as first offered for signature with no contractual edits made, without an entertainment attorney advising you, often turns out to be a mistake.

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My New York entertainment law practice includes the drafting, editing, negotiation, and closure of personal service agreements as well as all other contracts and entertainment transactional and advisory matters in the fields of 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)
brightline@att.net
http://www.tormey.org

 

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LLC’s, Corporations, And Other Business Structures - Part III: Written By New York Entertainment Lawyer And LLC Counsel John J. Tormey III, Esq.

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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/

LLC’s, Corporations, And Other Business Structures - Part III: Written By New York Entertainment Lawyer And LLC Counsel 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 II of this article discussed how individuals historically incorporated their businesses in the hopes of avoiding personal liability, but then often became dissatisfied with the so-called “double taxation” thereby resulting. This, among other motivations, brought the S-corporation and then, the limited liability company (LLC), into being. As a New York entertainment lawyer practicing in this day and age, I most often see limited liability companies (LLC’s) as opposed to other forms of entities used in film, music, television, publishing, and Internet businesses. However one cannot understand and appreciate the advantages typically provided by the limited liability company (LLC) unless superimposed as bas-relief upon the entity’s historical context – which gives further meaning to the LLC across all sectors and industries including entertainment and media.

Society clearly benefits from encouraging people to start businesses - and take some commercial risks without an attendant risk of personal ruin. Yet otherwise well-intentioned and well-motivated people were either quitting businesses or exposing themselves to personal liability - in both instances due to their aversion to the so-called “double layer of taxation” engendered by the C-corp. Additionally, the “double” taxation of the C-corp was creating a disincentive for new people to go into business - particularly those who were risk-averse. There had to be a better way.

That better way, at the time, was the S-corp, which came into existence a number of years ago principally for the above types of reasons and rationales. It was named after a “Subchapter-S” in the Internal Revenue Code of the United States, and was regularly recognized by the IRS and state tax authorities alike. One of the familiar tasks for an entertainment lawyer became the act of ensuring that clients timely made their appropriate S-corp elections (see below) with appropriate governmental authorities – hardly the romantic notion one would have of what it is like to interact with talent and go to celebrity premieres..

Akin to the C-corp in most other respects, the S-corp only mandated a single layer of taxation, as opposed to the C-corp’s double layer of taxation. But there were also a few catches.

One had to make a formal written “election” (or in some cases, “elections”) to qualify as an S-corp. If one didn’t do so in time by a strict deadline, one would lose S-corp status and be “doubly” taxed like a C-corp instead. As most entertainment lawyers can attest, this kind of eventuality could actually snuff out a fledgling entertainment or media start-up business in its first years of existence, already engaging in risky and speculative business activity as is often the case in media and entertainment.

There were other restrictions on S-corps, too, such as a limit on the number of shareholders, a limit on foreign ownership, and a limit on corporate parent-subsidiary ownership. Some of these restrictions have been loosened - and in some cases eliminated - in recent years; so one should not rule out the S-corp without first updating its tax code requirements with one’s lawyer – entertainment lawyer or otherwise – as well as one’s tax accountant. The historical restrictions of the S-corp put business owners in a “Catch-22” situation - they clearly wanted a single layer of taxation, but in the context of an entity that wasn’t so restricted. The newer solution: scrap the idea of a corporation at all, and instead form a limited liability company, or LLC.

The limited liability company (LLC) is akin to the S-corp but without most of the attendant historical restrictions. Yes, there were a certain number of restrictions on the LLC, too, when it first appeared on the scene - most of which were subsequently lifted by either the IRS or state legislatures, or both. Again, S-corp restrictions have also been lifted in recent years, making the S-corp and limited liability company (LLC) look more similar to each other as time goes on.

But even as of this writing, the limited liability company (LLC) is usually considered the most advantageous entity from a tax perspective of all 3 most commonly available forms, for the small business owner to create. As a media and entertainment lawyer, the LLC is the entity which I am most often asked to create. The LLC is also considered the most flexible of all 3 entities. What does “flexible” mean? Well, it is considered easier to adapt the LLC to later-occurring additional equity-holders in one’s business, for example, which is another familiar task for an entertainment lawyer in the context of artistic co-ventures - and the word “easier” in this context translates to “less legal fees”. The LLC is in most cases an entity which is easier to manage and administrate.

There are some disadvantages to the limited liability company (LLC), too. The LLC can take more time to finalize, and in some cases can be more expensive to form and/or file with the government - as compared to an S-corp. Some states historically prohibited 1-person LLC’s. Some states still have an underdeveloped body of judicial case law on the LLC, since the entity is still quite new in many states - so the treatment of the LLC under the law may be less certain than the treatment of a corporation. We in New York have an odd restriction, too, as a result of the powerful newspaper and media lobby galvanized during the legislation’s enactment which as a media and entertainment lawyer I suppose that I should not begrudge. This restriction may be present in another state or two as well in analogous form. The restriction is this: if one elects to form a New York LLC, one must publish its existence in periodicals for a number of weeks, before being accorded the legal privilege of initiating a litigation - as a plaintiff - in the LLC’s name in the New York courts. Publication of an LLC’s naissance in Manhattan is expensive - the publication of a limited liability company in periodicals of the creation of a proposed Manhattan LLC can range between $1,000 and $3,000 (the figures can vary and are smaller in other parts of New York State apart from Manhattan).

Even so, the limited liability company (LLC) is considered the trend-setting entity of those “in the know”, across the country. As an entertainment lawyer in New York, I have noticed that hipster Californians gravitate to LLC’s just as much as hipster New Yorkers seem to do. And part from hype, assuming that one can afford to form an LLC, and assuming that one can live with whatever restrictions apply to the LLC in one’s jurisdiction, it may in fact be the entity of choice, and an improvement over the older S-corp and C-corp structures.

A limited liability company (LLC), though frequently mistaken for a corporation, is technically not considered a corporation – rather, it is an unincorporated entity under the tax code, more like a partnership than anything else, but one that (like the S-corp and C-corp), if properly formed and maintained, should provide its members with insulation against personal liability.

If one doesn’t incorporate or form a limited liability company (LLC), the business will likely be what is known as either a sole proprietorship (if a 1-person company), or a general partnership, de facto or otherwise, (if comprised of 2 or more persons). Any entertainment lawyer or other lawyer will opine that this could result in unlimited personal liability for the entity’s owner or owners. Again, that means that an owner’s personal assets can be at risk to satisfy the obligations and debts of the business. Any entertainment lawyer or other lawyer will opine that personal liability is not a risk worth taking. In addition, using a corporate entity or limited liability company (LLC) – particularly an LLC in this day and age - could add a good deal of “cachet” or credibility to one’s business endeavors, in the eyes of other persons and companies with whom the business has contact.

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My law practice as an entertainment lawyer includes incorporations and the formation of limited liability companies (LLC’s). 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/

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Business Structures - Part III

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LLC’s, Corporations, And Other Business Structures - Part II: Written By New York Entertainment Attorney And LLC Counsel John J. Tormey III, Esq.

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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

LLC’s, Corporations, And Other Business Structures - Part II: Written By New York Entertainment Attorney And LLC Counsel 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 process of selecting a new name for a business, typically a limited liability company (LLC) or a corporation in this day and age. Many people choose to incorporate or form an LLC, so as to minimize their personal liability for the debts, liabilities, and obligations of their business. There is cost to forming an entity, but the cost is often worth it. What follows is a brief discussion of “personal liability”, and the types of entities that may be available. These types of issues regarding corporations and limited liability companies (LLC’s) are often brought to an entertainment attorney such as myself in the context of new entertainment venture start-up companies and otherwise, but are in fact universal concerns across manifold sectors and industries besides entertainment.

2. Choosing an Entity.

A full description of all the differences between an S-corporation (S-corp), a C-corporation (C-corp), and a limited liability company (LLC) would be beyond the scope of this article. Besides, the distinctions are often altered - some would say “blurred” - by changes in the Internal Revenue Code and state laws. Even by the time you read this article, further changes to relevant tax laws and state laws may be made, further affecting your entity choice as between a limited liability company (LLC), a corporation, or other available form of entity such as a partnership or trust. The bottom line is that a choice of entity should be made upon current information only, with the assistance of a lawyer and an accountant. To do it any other way is to risk making a bad choice that one will later regret, especially when the first or successive tax returns relating to the LLC or corporation are filed. Though in this day and age an entertainment attorney will typically be asked to form and file a limited liability company (LLC) rather than an alternate form of entity in the context of a new media or entertainment business start-up, the choice of entity should still be carefully examined by the entertainment attorney and the business-owner at the outset – just as it should be carefully examined in any other sector or industry.

The distinctions between an S-corp, C-corp, and limited liability company (LLC) make sense when taken in the historical perspective. Look at them as the product of a kind of Darwinian evolution. In that vein, the S-corp and C-corp may someday become but extinct historical artifacts, while the LLC could become the only entity “fittest” to survive. The LLC may be the best choice of entity - if affordable, and if one is not otherwise precluded from forming it by virtue of one’s own tax profile or one’s home state’s current restrictions on LLC’s.

At some point in history it was realized that persons involved in businesses could be thereby putting their own personal assets at risk as a result. That principle still applies, by the way. If one runs an unincorporated or non-LLC business out of one’s house, that business owner may risk later losing that same house, not to mention cars, bank accounts, and other assets, to the debts, liabilities and obligations of one’s business. This is what “personal liability” is all about. A business owner wants to avoid personal liability, at all costs. The owner wants to shield his or her assets - like a house, cars, and personal bank accounts - from the risks engendered by the business. For these reasons, understandable and common to all humanity, the concept of a corporation was first formulated, many years ago. Rights deals in the context of film, music, television, and publishing, particularly, tend to be liability-evocative, and so it is not uncommon for an entertainment attorney to first focus on the structure of the business vehicle through which the deal is intended to run, before looking at the proposed deal itself.

The traditional and old-fashioned form of corporation in the U.S. still exists as of this writing - in the form of the C-corporation, named after a “Subchapter-C” in the Internal Revenue Code. When properly filed and maintained, the C-corp shields the business-owner/principal from personal liability. For example, if there is US$10,000 in the C-corp’s corporate bank account, then, in theory, only that US$10,000 amount can be used to satisfy a civil (court) judgment against the corporation - even if the President and sole shareholder of the corporation has an additional $50,000 in his/her personal bank account. A “wall”, “shield”, or “veil” is put up between the two sets of assets.

But the C-corp posed historical problems, principally that of so-called “double taxation”. Those C-corp owners filed corporate tax returns as well as individual tax returns. The unsuspecting were thereupon often disheartened to find out that they were subjected to an extra tax hit. The C-corp would be taxed on corporate earnings. In addition, the shareholders could also be taxed personally on monies withdrawn from the corporation by way of dividends. The net effect wasn’t always necessarily a 100% increase in otherwise-prevailing tax (as the somewhat-misleading phrase “double taxation” might otherwise suggest). But, on the other hand, the monies generated by the C-corp were required to filter through two “layers” of taxation as opposed to one.

In this regard, a number of business owners, including some in the entertainment business, realized that they would have oddly been better off from a tax perspective if not incorporated - a bizarre result if there ever was one. Why should the tax code and state corporation law encourage you to take unacceptable personal risk, after all? Some persons thereupon decided to simply not incorporate (or “un-incorporate”, dissolving a pre-existing corporation), and thereupon take the oft-significant risk of individual liability so as to minimize taxes. If continued, one would expect the rate of commercial litigations and personal bankruptcies to rise as result, an event which in no way would be in the public interest. Other persons instead opted out of corporate and business ownership entirely. As an entertainment attorney practicing in New York, I still encounter many companies who have yet to incorporate or form a limited liability company (LLC) – they are typically either sole proprietorships or de factopartnerships, the risks of which their principals are still assuming personal liability whether aware of it or not.

The next installment of this article will address how society responded to the growing dissatisfaction with the C-corp - namely, the creation of the S-corp and the limited liability company (LLC) thereafter.

Click the “Articles” button at:

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My entertainment law practice includes incorporations and the formation of limited liability companies (LLC’s). 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

 

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Business Structures - Part II

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LLC’s, Corporations, And Other Business Structures - Part I: Written By New York Entertainment Lawyer And LLC Counsel John J. Tormey III, Esq.

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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/

LLC’s, Corporations, And Other Business Structures - Part I: Written By New York Entertainment Lawyer And LLC Counsel 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.

While many artists continue to do business as individuals, there often comes a point in their career when it makes sense to ascend to the next level - to create a business, to create a company, usually in this day and age a limited liability company (LLC) or a corporation, with its own name and identity. In the fields of arts and entertainment, this process is often handled by and through an entertainment lawyer, and is often the first reason for which a new client seeks counsel. If you are an artist who has reached that point in your career, or even if you have already surpassed it and want to revisit your decision, then this article is for you. I am a New York entertainment lawyer who regularly handles corporate and LLC matters and my contact information appears below.

1. Choosing a Name For A New Business

If one is choosing a structure for a small business, there are a number of different types of business entities that can be formed. At minimum, one likely will need to assess the relative merits of the subchapter-”S” corporation (“S-corp”); the subchapter-“C” corporation (“C-corp”); and the limited liability company (“LLC”). This choice will be described in more detail, below, and in Part II and Part II of this Article. But the first issues one should address, also typically addressed with and through one’s entertainment lawyer, are the trademark considerations which may arise as a result of the chosen name for the limited liability company (LLC), corporation, or other form of company.

“Fanciful” (i.e., fictitious) new business names for a limited liability company (LLC), corporation, or other form of entity should be searched as trademarks, especially in fields like entertainment where name recognition can be so important. Entertainment lawyers will routinely search and then issue opinions on proposed trademarks of properties for clients, including trademark-searches on LLC names and corporation names themselves. Why go through this process? Because a new LLC, corporation, or other form of business needs to confirm that no other businesses have prior rights or viable claims to its newly-proposed name (or a name substantially similar to its newly-proposed name). In any event, one may be barred from registering a corporate, LLC, or other business name, if someone else has already registered the same name in the jurisdiction in which the entity-filing is intended. Moreover, if one’s business is intended to ultimately be national or international in scope, as is often the case in entertainment-related and Internet-related LLC’s and corporations, a careful trademark search conducted through one’s entertainment lawyer becomes all the more important. One doesn’t want to invest sweat and equity in a fanciful business name, only to later find out that he or she is legally prevented from using it, or is unable to stop others from infringing on the newly-chosen business name.

Principal owners of a new business do sometimes elect to incorporate or form a limited liability company (LLC) under their own legal and given name (i.e., “John Doe, Inc., or “John Doe LLC”), instead of a fanciful name, in the hopes of saving money that they would otherwise spend on a trademark search through an entertainment lawyer. But there are at least two potential drawbacks to doing so:

Incorporating or forming a limited liability company (LLC) under one’s given name often makes it more difficult to later successfully develop a separate and distinct brand identity for one’s products and services.

Incorporating or forming a limited liability company (LLC) under one’s given name (or even a variant thereof) marginally increases the chances that a court may be inclined to let a plaintiff “pierce” one’s “corporate veil” in a litigation, if the “corporate veil” issue ever arises. “Piercing” means “finding individual economic liability” on the part of the owner/principal. The plaintiff’s argument would be that a self-titled corporation (or LLC) is more likely to be the “alter ego” of its individual principal. Now, although the odds of one’s “veil” being “pierced” may not be that high - assuming that the business owner observes all other corporate or LLC filings and formalities up until that point - the risk of individual liability is still worth mentioning. After all, for many people, the avoidance of “personal liability” and the avoidance of possible “veil piercing” is the whole reason for their incorporating or forming an LLC in the first instance.

What do I mean by “personal liability”? That is probably the most important legal concept that a limited liability company (LLC) owner, corporation owner, or other form of business owner will ever seek to avoid! Please read the next installment of this article.

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My law practice as an entertainment attorney includes incorporations and the formation of limited liability companies (LLC’s), as well as work relating to trademarks and service marks. If you have questions about legal issues which affect your career, and require representation, please contact me:

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Publishing And Digital And Electronic Rights - Part I: Written By New York Entertainment Attorney And Publishing Lawyer John J. Tormey III, Esq.

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Law Office of John J. Tormey III, Esq. – Entertainment Lawyer, Entertainment Attorney

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Publishing And Digital And Electronic Rights - Part I: Written By New York Entertainment Attorney And Publishing 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.

The following publishing industry article addresses some of the legal issues arising for publishing lawyers, entertainment attorneys, authors, and others as a result of the prevalence of e-mail, the Internet, and so-called “digital” and “electronic publishing”. As usual, publishing law generally and the law of the digital right and electronic right specifically, governing these commercial activities, has been slow to catch up to the activity itself. Yet most of the publishing industry “gray areas” can be resolved by imposing old common-sense interpretations upon new publishing lawyer and entertainment lawyer industry constructs, including the digital right and electronic right, and others. And if after reviewing this article you believe you have a non-jargonized handle on the distinction between “digital right” and “electronic right” in the publishing context, then I look forward to hearing from you and reading your article, too.

1. “Electronic Right[s]” And “Digital Right[s]” Are Not Self-Defining.

All publishing lawyers, entertainment attorneys, authors, and others must be very careful about the use of jargon - publishing industry jargon, or otherwise. Electronic and digital publishing is a recent phenomenon. Although as a publishing lawyer and entertainment attorney and unlike some others, I tend to use the phrase “electronic right” or even “digital right” in the singular number, there probably tends to be no single consensus as to what constitutes and collectively comprises the singular “electronic right” or “digital right”. There has not been sufficient time for the publishing, media, or entertainment industries to fully crystallize accurate and complete definitions of phrases like “electronic publishing”, “web publishing”, “electronic right[s]”, “e-rights”, “digital rights”, or “first electronic rights”.

These phrases are therefore usually just assumed or, worse yet, just plain fudged. Anyone who suggests that these phrases alone are already self-defining, would be wrong.

Accordingly, anyone, including a publishing lawyer or paralegal representing a book publisher or entertainment lawyer representing a studio or producer, who says that an author should do - or not do – something in the realm of the “electronic right” or “digital right” because it is “industry-standard”, should automatically be treated with suspicion and skepticism.

The fact of the matter is, this is a great era for authors as well as author-side publishing lawyers and entertainment attorneys, and they should seize the moment. The fact that “industry-standard” definitions of the electronic right and digital right have yet to fully crystallize, (if indeed they ever do), means that authors and author-side publishing lawyers and entertainment attorneys can take advantage of this moment in history.

Of course, authors can also be taken advantage of, too – particularly those not represented by a publishing lawyer or entertainment attorney. There is a long and unfortunate history of that happening, well prior to the advent of the electronic right and digital right. It has probably happened since the days of the Gutenberg Press.

Every author should be represented by a publishing lawyer, entertainment attorney, or other counsel before signing any publishing or other agreement, provided that their own economic resources will allow it. (But I am admittedly biased in that regard). Part of the publishing lawyer and entertainment attorney’s function in representing the author, is to tease apart the different strands that collectively comprise the electronic right or digital right. This must be done with updated reference to current technology. If your advisor on this point is instead a family member with a Smith-Corona cartridge typewriter or a Commodore PET, rather than an entertainment attorney or publishing lawyer, then it may be time to seek a new advisor.

Even authors who cannot afford publishing lawyer or entertainment attorney counsel, however, should avoid agreeing in writing to give broad contractual grants to publishers of “electronic publishing” - or the “electronic right”, or “electronic rights” or “digital rights”, or the “digital right”. Rather, in the words of “Tears For Fears”, the author and author counsel had “better break it down again”. Before agreeing to grant anyone the author’s “digital right: or “electronic right”, or any elements thereof, the author and his or her publishing lawyer and entertainment attorney need to make a list of all the possible and manifold electronic ways that the written work could be disseminated, exploited, or digitally or electronically otherwise used. Notice that the author’s list will likely vary, month to month, given the fast pace of technological advancements. For example, these kinds of questions can be considered by the author and publishing lawyer and entertainment attorney alike:

Electronic Digital Right Question #1, Asked By The Publishing Lawyer/Entertainment Attorney To The Author: Can the work be published in whole or in part on the Internet? In the context of an “e-zine”? Otherwise? If so, how? For what purpose? Free to the reader? For a charge to the reader?

Electronic Digital Right Question #2, Asked By The Publishing Lawyer/Entertainment Attorney To The Author: Can the work be disseminated through private e-mail lists or “listservs”? Free to the reader? For a charge to the reader?

Electronic Digital Right Question #3, Asked By The Publishing Lawyer/Entertainment Attorney To The Author: Can the work be distributed on CD-Rom? By whom? In what manner and context?

Electronic Digital Right Question #4, Asked By The Publishing Lawyer/Entertainment Attorney To The Author: To what extent does the author, himself or herself, wish to self-publish this work, either before or after granting any electronic right or any individual “electronic publishing” rights therein to someone else? Will such self-publication occur on or through the author’s website? Otherwise?

Electronic Digital Right Question #5, Asked By The Publishing Lawyer/Entertainment Attorney To The Author: Even if the author does not self-publish, to what extent does the author wish to be able to use and disseminate this writing for his or her own portfolio, publicity, or self-marketing purposes, and perhaps disseminate that same writing (or excerpts thereof) electronically? Should that be deemed invasive of, or competitive with, the electronic right as otherwise contractually and collectively constituted?

The above list is illustrative but not exhaustive. Any author and any publishing lawyer and entertainment attorney will likely think of other elements of the electronic and digital right and other uses as well. The number of possible uses and complexities of the electronic right[s] and digital right[s] definitions will increase as technology advances. In addition, different authors will have different responses to the publishing lawyer and entertainment attorney, to each of the carefully-itemized questions. Moreover, the same author may be concerned with the electronic right in the context of one of his/her works, but may not care so much in the context of a second and different work not as susceptible to digital right exploitation. Therefore, the author must self-examine on these types of electronic and digital right questions before responding to the author’s publishing lawyer or entertainment attorney and then entering into each individual deal. Only by doing so can the author avoid the pitfalls and perils of relying upon lingo, and relying upon someone else to dictate to them what is the electronic right or digital right “industry standard”. As the publishing lawyer and entertainment attorney should opine, “There is no such thing as ‘industry standard’ in the context of a bilaterally-negotiated contract. The only standard that you the author should be worried about is the motivational ‘standard’ known as: ‘if you don’t ask, you don’t get’”.

Finally, the author should be aware that while the electronic right, digital right, and components thereof can be expressly granted, they can also be expressly reserved to the author, by a mere stroke of the pen or keystroke made by the publishing lawyer or entertainment attorney. For example, if an author wants to expressly reserve the “portfolio uses” mentioned in Electronic Digital Right Question #5 above, then the author should ask his or her publishing lawyer or entertainment attorney to clearly recite this reservation of the author portfolio electronic/digital right in the contract, and leave nothing to chance. In addition, if the author has some negotiating leverage, the author, through the publishing lawyer or entertainment attorney, may be able to negotiate the “safety net” of a “savings clause” which provides words to the effect that: “all rights not expressly granted to publisher, be it an electronic right or digital right or otherwise, are specifically reserved to author for his/her sole use and benefit”. That way, the “default provision” of the contract may automatically capture un-granted rights including any electronic or digital right for the author’s later use. This publishing lawyer and entertainment attorney drafting technique has likely saved empires in the past.

2. Publishers and Entertainment Companies Are Revising Their Boilerplate Agreements, As We Speak, In An Effort To Secure The Electronic Right[s].

It is well-known and should come as no surprise that right now, as we speak, publishers and their in-house and outside counsel publishing lawyers and entertainment attorneys are furiously re-drafting their boilerplate contracts to more thoroughly capture the digital and electronic right – that is, all of an author’s digital and electronic rights. The typical publishing agreement drafted by a company-side publishing lawyer or entertainment attorney will recite a broad grant of rights, then followed by a whole laundry-list of “including but not limited to” examples. If the author receives such an onerous-looking rights passage from a publisher or the publisher’s publishing lawyer or entertainment attorney, the author should not be intimidated. Rather, the author should look at it as an opportunity to make some money and have some fun. The author can first compare the list suggested in Electronic Digital Right Questions #1 through #5 above, to the publisher’s own laundry-list and the author’s own imagination. Then, the author can decide which if any of the separate digital or electronic rights the author wants to fight to keep for himself or herself.

If the publisher tells the author to blindly subscribe to their entire digital or electronic right[s] clause (or clauses), then the author still has the ultimate leverage, which is to walk away from the proposed deal prior to signature. Of course, this strategic approach wouldn’t be advisable in most cases - unless perhaps if the author has other written offers from other publishers already on the table. However, an author shouldn’t be forced by any publisher or any company-side publishing lawyer or entertainment attorney to sign away the electronic right, digital right, or any other rights that the author would rather keep - particularly rights which the author never specifically intended to shop to the publisher in the first instance.

The author should keep in mind the psychology and motivations of the publishers and their publishing lawyer and entertainment attorney counsel when doing all of this. A Vice-President (or above) at the publishing company probably woke up one recent morning, and realized that his/her company lost a great deal of money on a particular project by not taking a prospective license or assignment of an electronic right or digital right from another author. The VP probably then blamed the company’s in-house legal department publishing lawyers or entertainment attorneys, who in turn started frantically re-drafting the company boilerplate to assuage the angry publishing executive and thereby keep their jobs. When in-house publishing lawyers, entertainment attorneys, or others engage in this type of practice (some may call it “drafting from fear”), they tend to go overboard.

Accordingly, what you will probably see is a proverbial “kitchen sink” electronic right clause which has been newly-drafted and perhaps even insufficiently reviewed by the company-side publishing lawyers and entertainment attorneys, internally and themselves - wherein the publisher will ask the author for every possible electronic and digital right and every other thing, including (without limitation) the kitchen sink. The only response to such a broad-band electronic right or digital right clause is a careful, deliberate, and methodical reply.

Using the approach outlined in Section #1 above, the author and the author’s publishing lawyer or entertainment attorney counsel must separately tease apart each use and component of the electronic right and digital right that the publisher’s broad-band clause might otherwise capture, and then opine to the publisher a “yes” or a “no” on each line-item. In other words, the author, through his or her publishing lawyer or entertainment attorney, should exercise his or her line-item veto. It’s the author’s writing that we are talking about, after all. The author should be the one to convert the singular “electronic right” or “digital right” into the laundry-list of electronic rights. That’s why I use the singular number when referring to “electronic right” or “digital right” – I like to let the technologically-advanced author have all the fun making the list. That way, too, the author can tell me what he or she thinks the phrases actually mean, and what the difference between the two meanings really is, if anything.

The next installment of this article, Part II, will - believe it or not - have a few words in defense of the publishers and the publishing lawyers that work for them!

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My law practice as a publishing lawyer and entertainment attorney includes the drafting, editing, negotiation, and closure of agreements including digital and electronic rights matters as they may arise therein, as well as in the fields of music, film, television, Internet, and 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)

brightline@att.net

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

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Law Office of John J. Tormey III, Esq. – Entertainment Lawyer, Entertainment Attorney

John J. Tormey III, PLLC
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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.

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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

 

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