The Talent Agency Act’s Regulation of Talent Managers

In Hollywood, talent agents and personal managers often disagree over the boundaries of their respective roles in developing their clients’ acting careers. Generally, the agent’s role is to procure work for the talent, though how this is accomplished varies depending on the branch of the entertainment industry. The personal manager’s role is much broader, and can encompass a high degree of time and attention in advising the client on career development strategy. Managers, however, are prohibited from engaging in procurement of work under the Talent Agency Act (“Act”). Because they serve different functions, both agents and managers are vital to the success of an acting career. Problems arise, however, when personal mangers are perceived as crossing the fuzzy line of “procurement of employment” in their efforts to market or promote their clients.

Generally, the only compensation for an agent’s efforts is a commission on the clients’ entertainment industry employment, and thus, the agent has a vested interest in ensuring that its clients are employed in the highest paying roles possible. Personal managers are also compensated by commission, but because they are not regulated by the Labor Commissioner they often charge a higher commission rate than talent agents. Managers can justify this higher commission rate because of their greater investment of time and attention, and the higher risks taken in working with unknown or less marketable talent. Indeed, many agents will not sign actors who have never earned commissionable income, and without an agent, the actor has no one to procure employment on his behalf. In practice, therefore, the manager is the only business partner working to obtain the all-important role that could make the actor recognizable and lead to further employment.

Yet the manager cannot obtain employment for the actor without risk of violating the Act. Some actors/entertainers who have become successful due to the efforts of a personal manager have successfully used the Act to invalidate personal the management agreements, and thereby renege on commissions owed under those agreements. The Labor Commissioner has a history of invalidating the entire management agreement, and disallowing the fees earned under these contracts, where the manager has engaged in any procurement, no matter how minor. Personal managers may resolve this quandary by becoming licensed under the Act, but in doing so they lose the freedom of their unregulated status and must abide by the commission caps and other requirements imposed upon talent agency licensees by the Act.

In 2008, the California Supreme Court decided a case that adopts a more flexible standard for the Labor Commissioner in deciding cases that allege violation of the procurement prohibition. The Court applied the legal doctrine of severability and held that the Labor Commissioner should no longer completely invalidate the entire management contract when there has been a small amount of unlicensed procurement as compared to the overall contract. Instead, the Labor Commissioner can sever the illegal procurement conduct from the manager’s performance as a whole. This should result in a more fair result and should protect honest managers from disgorgement of the entire fee earned under the management contract.

Overview Of The Talent Agency Act

The Act delineates the restrictions and requirements of artists’ representatives under California law. A “[t]alent agency means a person or corporation who engages in the occupation of procuring, offering, promising, or attempting to procure employment or engagements for an artist or artists[.]” “Procurement includes any active participation in a communication with a potential purchaser of the artist’s services aimed at obtaining employment for the artist, regardless of who initiated the communication or who finalized the deal.”

The Act applies to all persons who procure employment for artists, even where there is no commission paid for the service. Thus, the Act applies to personal managers when personal managers function as talent agents by procuring employment. Even occasional or incidental procurement by an unlicensed personal manager is prohibited under the Act. If the personal manager is unlicensed, any procurement is illegal.

One important exception to a manager’s inability to legally procure employment allows a personal manager “to act in conjunction with, and at the request of, a licensed talent agency in the negotiation of an employment contract.” This exception is read narrowly. For example, a personal manager may not procure employment for an artist with the help of a “hip pocket” agent used for purposes of sidestepping the requirements of the Act. In the context of procurement, a seminal case states the following: “The court, or as here, the Labor Commissioner, is free to search out illegality lying behind the form in which a transaction has been cast for the purpose of concealing such illegality.” To avoid the appearance of impropriety, any procurement arrangement between an agent and manager should be documented in advance on the manager’s letterhead. It is highly advisable that the parties work with a lawyer experienced in these matters.

The Act expressly prohibits the referral of artists to other businesses in which the agent has a financial interest, including personal management firms or businesses. Thus, while a talent agent may provide services of the type a personal manager would provide, the talent agent cannot refer the artist to a separate business that operates as a personal management firm if the talent agent has a financial interest in the personal management firm.

The Act also prohibits conduct by the talent agent that would endanger or harm the artist. For example, the Act prohibits an agent from publishing false, fraudulent or misleading information or advertising; sending an artist to a place where the health, safety or welfare of the artist could be adversely affected; sending a minor to a place where liquor is sold for consumption on the premises; permitting persons of bad character to frequent or be employed in the place of business of the talent agency; or placing any minor in employment that would violate laws pertaining to the employment of minors.

The application requirements for would-be talent agents include the payment of $250 in application fees, the processing of fingerprints, plus the posting of a surety bond in the amount of $50,000. The Labor Commission will investigate the character and responsibility of the applicant and of the premises. Once licensed, the agency must submit for approval by the Labor Commission the form of the contract with artists to be utilized by the agency. The talent agency must also file with the Labor Commissioner a schedule of the fees to be charged to artists, and must post a copy of the fee schedule in a conspicuous place. According to a telephone interview with the California Labor Standards Division, the Labor Commission will approve commissions in amounts up to 20%.

Other Restrictions Imposed On Talent Agents

Talent agencies can elect to become franchised with the artists’ unions, the Screen Actors Guild (“SAG”) and the American Federation of Television & Radio Artists (“AFTRA”). A “franchised agent” is a person, firm or corporation that has entered into an agreement with the union under which the talent agent or talent agency agrees to abide by certain rules and conditions when dealing with performers who work within the unions’ jurisdiction. In most cities, SAG and AFTRA members are required to deal only with franchised agents for the purpose of securing and negotiating employment contracts. Thus, the unions effectively prevent agents from dealing with their members unless franchised.

One important union restriction is the limitation on the rate of commission to 10%. In addition, SAG Rule 16(g) prohibits an agency from possessing various kinds of financial interests that would transform the agency into producers and employers of the artists. This rule prohibits agents from becoming motion picture producers, limits their participation in television production and also prevents agents from owning, or being owned by, production companies. The rule allows agents to package productions, whereby the agent receives a percentage of the production budget rather than commission on the artists’ pay. In practice, however, only the major agencies are able to package such deals.

Talent agencies may also elect to join industry associations, including the Association of Talent Agents (“ATA”) and the National Association of Talent Representatives (“NATR”). The ATA and NATR advocate on behalf of the talent agency industry and bargain with the unions for better franchise agreement terms. Currently, the SAG franchise contracts with talent agencies affiliated with ATA and NATR are expired, although SAG and ATA/NATR have been negotiating a renewed agreement for several years. ATA and NATR are attempting to pressure SAG into relaxing its restrictions, however a majority of SAG’s members oppose the waiver of restrictions in fear that serious conflict of interest issues will arise. In light of the current impasse, SAG has temporarily suspended the application of Rule 16(g), which requires SAG members to be represented by a franchised agent. SAG members who choose to secure the services of an agent may be represented by either an independent agent that is SAG franchised, or one that is affiliated with either the ATA and/or the NATR.

Interpretation Of The Act

The Act is a remedial statute, with the primary goal of protecting artists from exploitation. Thus, “to ensure the personal, professional, and financial welfare of artists, the Act strictly regulates a talent agency’s conduct.” With this perspective, the California Labor Commission, which has jurisdiction over disputes brought under the Act, has traditionally taken an inflexible stance in the adjudication of disputes in which an unlicensed personal manager is alleged to have engaged in procurement practices. The Labor Commission has interpreted procurement to include activity broader than actual solicitation of contracts. Procurement activity includes negotiation of contracts, and “means either to secure employment or to bring about employment or cause employment to occur.”

Under the Labor Commission’s historical interpretation of the Act, any procurement activity by an unlicensed representative is deemed to be illegal, and the contracts upon which the representative earned commission for the employment were deemed to be void ab initio, requiring reimbursement of all compensation paid under the void contract. A contract that is void ab initio effectively nullifies the representative’s right to any commission under the contract, although in practice, the Labor Commission limits the nullification to commission earned within one year prior to the filing of the petition. The Labor Commissioner and the courts have voided contracts even where the unlicensed representative sought no commission for the bookings. Moreover, the Labor Commissioner has also held that once the contract is void ab initio, the manager has no enforceable rights under the contract, including the right to collect expenses incurred by the manager on behalf of the artist.

In the environment created by the Labor Commissioner’s prior rulings, personal managers who procured employment for their clients, even if only occasionally, were at the mercy of artists who, once they became successful (and profitable for the personal manager), could sue for reimbursement of commissions and nullification of the contract.

In Marathon Entertainment Inc. v. Blasi, the California Supreme Court addressed the issue of whether the act of unlicensed procurement of employment by a talent manager can be severed from the permissible management services performed under a management contract. In the contract at issue, actress Rosa Blasi agreed to pay fifteen percent of her earnings from entertainment employment obtained during the course of the contract, and in exchange Marathon agreed to counsel and promote Ms. Blasi’s career. Two years later, in 2000, Ms. Blasi obtained a lead role in the Lifetime television series Strong Medicine. She subsequently reduced payment to Marathon to ten percent, and later in 2001 she unilaterally terminated the contract, stating that her talent agent would take over management duties. Marathon sued to recover unpaid commissions, and alleged that it had provided lawful personal management services, including payment of the downpayment on Ms. Blasi’s home, payment of her business manager’s salary, payment of Ms. Blasi’s travel expenses and advice on personal and professional matters. The Labor Commissioner found that Marathon had engaged in illegal procurement and voided the parties’ contract ab initio and barred recovery. On trial de novo, the trial court rejected Marathon’s constitutionality argument and invalidated the management contract “as an illegal contract for unlicensed talent agency services in violation of the Act[.]” The Court of Appeal reversed in part, applying the doctrine of severability of contracts. The Court of Appeal found that the unlawful portions of the contract could possibility be severed from Ms. Blasi’s obligation to pay the contractual commissions.

On review, the California Supreme Court rejected Marathon’s contention that personal managers are categorically exempt from regulation under the Act. Based on the uniform application of the Act by the Courts of Appeal and Labor Commission, “a personal manager who solicits or procures employment for his artist-client is subject to and must abide by the Act.” “[E]ven the incidental or occasional provision of such services requires licensure.” Personal managers “remain exempt from regulation insofar as they do those things that personal managers do, but they are regulated under the Act to the extent they stray into doing the things that make one a talent agency under the Act.”

The Supreme Court next addressed the proper remedy for illegal procurement. The Court applied Civil Code section 1599, which codifies the doctrine of severability of contracts. The Court concluded that “the full voiding of the parties' contract is available, but not mandatory; likewise, severance is available, but not mandatory.”

This ruling gives the Labor Commissioner and the courts the discretion to remove the portions of a contract based on illegal procurement and allow the manager to obtain commissions on their legal, non-procurement work. Thus, commissions earned on procurement efforts may be carved out without invalidating the entire contract. The remaining, legally-earned commission on personal management services may now be fully enforced, especially where “the illegality is collateral to the main purpose of the contract[.]”

Since the Blasi case, the Labor Commissioner has considered two cases dealing with unlicensed procurement. In both cases, the Commissioner applied the Blasi ruling and considered severing the contract as a remedy. Different outcomes resulted from the different factual situations.

In the first case, Blanks v. Riccio, the Labor Commissioner found that the personal manager unlawfully attempted and actually procured entertainment opportunities for his clients without being licensed as a talent agent. The Labor Commissioner elected not sever the unlicensed conduct from the contract and instead voided the entire management contract. This ruling was based on the finding that procurement was the central purpose of the contract and that much of the entertainment work performed by the Blanks had been procured by Riccio, their manager. Thus, although the result was the same as if it were a pre-Blasi case, the Commissioner’s analysis followed Blasi’s guidance.

The second case involved a more famous celebrity, Dwight Yoakam, and his former personal management company. The Labor Commissioner determined that the management company did engage in some illegal procurement, but found that any procurement was collateral to the central purpose of the management services contract. Significantly, Mr. Yaokam was represented by a licensed talent agency that had procured the great majority of Mr. Yoakam’s work, including concert tours and other live appearances.

It appears that the Labor Commissioner is now taking an equitable approach, balancing the strong interest of protecting vulnerable artists while also holding those artists to honor the contracts they made. The cases illustrate the level of risk inherent in unlicensed procurement at the different levels of an artist’s career. The Blanks were virtually unknown at the time their manager worked on their behalf, and there was no licensed agent involved. This management contract was ultimately voided. On the other end of the spectrum, Mr. Yoakam had a major agency working on his behalf and had reached a level of fame such that he likely did not need his management company to make an effort to procure work. Mr. Yoakam was unsuccessful in using the Act as a shield against paying past due commissions, and the management company was protected against disgorgement of the management fees it had legally earned. In the middle is Rosa Blasi, who stopped paying commissions after achieving a degree of success. Again, the management company was protected for work that did not violate the Act.

In both the Blanks and Yoakam cases, the amount of money actually disgorged was zero because all the illegal procurement had taken place more than one year prior to the filing of the petition. In future cases, apportionment of money earned from procurement versus management may be more difficult to determine.

Conclusion

The manager may choose from several alternatives: 1) refrain from all procurement activity; 2) seek licensure under the Act; 3) work in conjunction with and at the request of a licensed talent agent; or 4) proceed without a license at the risk of having the illegal portions of the contract severed. This article discusses the requirements of the Act and the recent decisions addressing procuring of entertainment employment without a license.

In light of the risk inherent in the procurement of entertainment industry employment by an unlicensed talent representative, personal managers may consider obtaining a talent agent license. There are no indications that would prohibit a personal manager from obtaining a talent agency license for the purpose of allowing the personal manager (as an agent) to procure employment. Indeed, the Act states that talent agencies may, in addition to procuring employment, “counsel or direct artists in the development of their professional careers.” This particular issue, however, has not been addressed in the Labor Commissioner’s opinions. As set forth in this article, any person who obtains a talent agent license must adhere to the Act’s restrictions and requirements.

For many managers, licensure under the Act, and the required adherence to the commission cap and posting of a surety bond, may not be feasible, especially where the manager’s client base is smaller or less marketable. These managers may prefer to work with an agent, if possible, or find a reputable entertainment attorney to assist with the negotiation process. Managers who elect to forego licensure must be prepared to have commissions earned on their procurement efforts disgorged by the Labor Commissioner. Where the client does not have his own agent, as in the Blanks v. Riccio case, procurement may be deemed a significant portion of the management contract and the contract is at risk of being voided in its entirety by the Labor Commissioner.

For managers who work with a licensed talent agent, the arrangement must be well documented. Involvement of legal counsel is highly recommended. A personal manager should carefully weigh the restrictions and requirements against the benefits of the ability to procure employment before making the decision to apply for a talent agency license. Such a decision is highly personal based upon the pertinent business operation and should be made only upon examination of the applicable restrictions and regulations.

1.Cal. Labor Code, §§ 1700 – 1700.47.
2. Personal managers justify the higher commission on their greater investment of personal service and higher level of risk in representing lesser-known talent.
3. Marathon Entertainment Inc. v. Blasi, 42 Cal. 4th 974; 70 Cal. Rptr. 3d 727 (2008).
4. Cal. Labor Code, § 1700.4(a).
5. See Jones v. The La Roda Group, TAC No. 35-04. See also Hall v. X Management, TAC No. 19-90. 6. Siegel v. Bradstreet, 2008 WL 4195949 at *4 (C.D. Cal. Sept. 8, 2008) (rejecting the contention that the Act violates the equal protection clause of the Fourteenth Amendment as applied to personal managers).
7. See Park v. Deftones, 71 Cal. App. 4th 1465, 1472 (1999).
8. See Waisbren v. Peppercorn Productions, Inc., (1996) 41 Cal. App. 4th 246, 255 (recognizing that the Labor Commissioner “has long taken the position that a license is required for incidental procurement activities.”). The Waisbren court reasoned that the limited exception at Section 1700.44(d) allowing an unlicensed representative to work in conjunction with a licensed agent would be unnecessary if occasional procurement efforts did not require a license. Waisbren, 41 Cal. App. 4th at 259.
9. See Cal. Labor Code § 1700.44(d).
10. See Jones v. The La Roda Group, TAC No. 35-04.
11. See Anderson v. D’Avola, TAC No. 63-93 at 10 (noting “it would defeat the obvious legislative purpose of the Talent Agencies Act to permit an unlicensed person to act in conjunction with any licensed talent agent other than an agent previously selected and approved by the artist.”).
12. Buchwald v. Superior Court, 254 Cal. App. 2d 347, 355 (1967).
13. Cal. Labor Code § 1700.40(b) (“No talent agency may refer an artist to any person, firm, or corporation in which the talent agency has a direct or indirect financial interest for other services to be rendered to the artist, including, but not limited to, . . . personal management.”).
14. See § 1700.4(a) (“Talent agencies may, in addition, counsel or direct artists in the development of their professional careers.”).
15. § 1700.32.
16. § 1700.33.
17. § 1700.34.
18. § 1700.35.
19. § 1700.36.
20. See Labor Code §§ 1700.6, 1700.12, and 1700.15.
21. Labor Code § 1700.7.
22. Labor Code § 23.
23. Labor Code § 1700.24.
24. See Tian Wilson, Talent Agents as Producers: A Historical Perspective of Screen Actors Guild Regulation and the Rising Conflict with Managers 21 Loy. L.A. Ent. L. Rev. 401, 403 (2001) (hereafter, “Wilson”).
25. Wilson at 406.
26. Id.
27. Wilson at 408.
28 See www.sag.org/content/your-agent-and-you-faq.
29. Waisbren, 41 Cal. App. 4th 246, 254 (1996).
30. Hall v. X Management, Inc., TAC No. 19-90 at 31. See also Sevano v. Artistic Productions, Inc., TAC No. 8-93 p. 5 (initiating or attending meetings with executives in order to advertise the artist’s talent and make them aware of the talent’s availability violates the Act); Anderson v. D’Avola, TAC No. 63-93 at p. 10 (discussions with producers or casting directors in an attempt to obtain auditions for an artist violates the Act); Baker v. BNB Associates, Ltd., TAC No. 12-96 at p. 3, 6 (manager secured “promotional” television appearances on, among other things, various award shows).
31. See Hall at 37; Smith v. Chuck Harris aka Oaky Miller, TAC No. 53-05.
32. See Hall at 50; Church v. Brown, TAC No. 52-92. The statute of limitations for bringing a claim under the Act is one year. Thus, commissions paid more than one year prior to the filing of the petition with the Labor Commission are not disgorged. See Cal. Lab. Code § 1700.44(c).
33. See Cuomo v. Atlas/Third Rail Management, Inc., TAC No. 21-01 (contract void as of date of illegal procurement, not void ab initio). See also Park v. Deftones, 71 Cal. App. 4th 1465, 1472 (1999).
34. Jones v. The La Roda Group, TAC No. 35-04.
35. Blasi, 42 Cal. 4th at 981; 70 Cal. Rptr. 3d at 730-31.
36. Blasi, 42 Cal. 4th at 981; 70 Cal. Rptr. 3d at 730-31.
37. Blasi, 42 Cal. 4th at 982; 70 Cal. Rptr. 3d at 731.
38. Blasi, 42 Cal. 4th at 982; 70 Cal. Rptr. 3d at 731.
39. In support of Blasi’s argument in favor of strict regulation, the Screen Actors Guild Inc., the American Federation of Television and Radio Artists, the Directors Guild of America Inc. and the Writers Guild of America, West Inc. filed an amicus brief stating that actors, musicians and other entertainers “rely on a small army of people” to further their careers. “Although it is the agent who is technically retained by the artist, most artists are not in a position of power vis-a-vis their agents. To the contrary, it is the agent who hold the keys to the artist's career and who is in the unique position to come between an artist and his work. For this reason, agents are strictly regulated.”
40. Blasi, 42 Cal. 4th at 986-87; 70 Cal. Rptr. 3d at 735.
41. Blasi, 42 Cal. 4th at 987; 70 Cal. Rptr. 3d at 735 (quoting Styne v. Stevens, 26 Cal.4th at p. 51, 109 Cal.Rptr.2d 14, 26 P.3d 343).
42. Blasi, 42 Cal. 4th at 989; 70 Cal. Rptr. 3d at 737.
43. Blasi, 42 Cal. 4th at 991; 70 Cal. Rptr. 3d at 738-39.
44. Blasi, 42 Cal. 4th at 996; 70 Cal. Rptr. 3d at 743.
45. Blasi, 42 Cal. 4th at 980-81; 70 Cal. Rptr. 3d at 730-31.
46. Blasi, 42 Cal. 4th at 996; 70 Cal. Rptr. 3d at 743 (quoting Armendariz v. Foundation Health Psychcare Services, Inc. 24 Cal.4th 83, 124, 99 Cal.Rptr.2d 745, 6 P.3d 669 (2000)).
47. See Blanks v. Riccio, TAC No. 7163.
48. Interestingly, the parties had also entered into a partnership agreement for the purpose of marketing a jointly developed “Cardioke” project. The manager received a 30% interest in the joint venture. Noting that the Act does not exempt “business partners,” the Labor Commissioner found that procurement efforts made for the purpose of promoting Cardioke were in violation of the Act. The Labor Commissioner made no determination on the effect of the Act on the validity of the partnership, and left that issue for the Superior Court to decide. See id.
49. See Yoakam v. The Fitzgerald Hartley Co., TAC No. 8774.
50. There is a perception among personal managers that the Labor Commissioner is biased against personal managers. This perception is based on the long history of management contracts voided by the Labor Commissioner and was reinforced by the Commissioner’s letter to the Supreme Court regarding Blasi while that case was still under consideration. On January 5, 2007, The National Conference of Personal Managers (NCOPM) reported that they had asked Governor Schwarzenegger to investigate the Labor Commissioner for bias demonstrated in the Blasi case. “The Commissioner’s comments in his letter to the Supreme Court were not made in an advisory position, but as an advocate in a case still before him. His actions were biased, improper and illegal[.]” NCPOM’s letter to the Governor sought to prevent future bias by the Labor Commissioner. See www.ncopm.com.
51. Cal. Labor Code § 1700.4(a).

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