Not so long ago (last May), right here in our own galaxy, SAG-AFTRA focused its laser cannons directly at a squadron of six third party signatory companies that it considered to be a threat to the Galactic Empire. Specifically, as I recounted in a previous blog post, the union revoked the signatory status of Checks in Motion, Inc., CMC/Forecast, Inc., CMS Productions, Talent Direct, Inc., Talent Solutions, and Waving Cat. Now, after months of negotiations, the battle has ended, and the parties are poised to sign a treaty in the form of a unique (and truly extraordinary) Letter of Adherence ("LoA"). (It is reported that other third party signatories will have to sign the same LoA.)
Even a cursory review of the LoA leaves little doubt that, this time around, the Force was with the union. Indeed, the union describes the settlement as a "significant victory" that imposes "rigorous new requirements" on the third party signatories that will help achieve "a core union mission: properly protecting our members working under the Commercials Contracts." (The operative provisions of the LoA go into effect on January 1, 2020.)
In this post, I offer my initial thoughts on this important development. (A redacted version of the LoA (here) provides the details.) The settlement can be summarized succinctly as embodying two "commandments" that will govern third party signatories going forward: (1) Thou shalt be the bona fide employer of talent, and (2) Thou shalt not work for non-signatory agencies. I’ll examine each "commandment" in turn.
Thou Shalt Be the Bona Fide Employer of Talent (Paragraph 1)
The union had alleged that third party signatories were not bona fide employers of talent: in other words, they were employers on paper only, and the non-signatory brands and agencies were, in reality, acting as the talent’s employers. According to the union, this arrangement presented various ills – worse, perhaps, than being encased in carbonite or strangled by a dianoga in a trash compactor – because it meant that union had a direct relationship only with a middleman (the third party signatory) and not with the "real" employer (the brand or agency that hired the third party signatory). Here’s how the union frames the concern:
The union must have direct relationships with employers so we can enforce the standards established in our contracts. This includes: a safe work environment, timely and proper payment, health insurance and pension contributions, responsible use of performance, and protection against sexual harassment and workplace abuse.
The signatories disputed the union’s characterization and argued that, in fact, they were co-producers of the commercials. They also disputed that there was evidence that SAG-AFTRA compliance issues were more prevalent on productions in which third party signatories were involved.
The very first operative sentence of the LoA addresses the union’s concern head on: "Company must be the employer of the performers." But what does it mean to be "the employer of performers"? This LoA specifies that in order to qualify as "the employer," the signatory must perform "at least" each of ten listed activities. Moreover, these ten activities must be performed by an "actual W2 employee" of the signatory and are "non-delegable." This means that signatory companies cannot engage freelancers to perform any of these activities, nor may they delegate these activities to the production company, the advertiser, the advertising agency (see Part 2 below), or anyone else that they may encounter in the canteen when looking for safe passage to Alderaan.
The ten required "employer" activities are:
- Securing the casting agent in collaboration with client;
- Resolving all cast clearance issues;
- Hiring and contracting with performers in collaboration with clients;
- Having personnel on-set for each and every production (except voiceover sessions or shoots taking place outside of the United States) to address issues arising under the SAG-AFTRA Commercials Contract;
- Ensuring proper payment of session fees and residuals to all performers and being available to engage promptly with SAG-AFTRA staff to resolve claims;
- Attending pre-production meetings (in person or via conference call) if any of the activities in this list will be discussed;
- Participating in selection of a production company;
- Reviewing scripts and storyboards for purposes of determining the number of performers to employ;
- Being involved in selection of performers; and
- Negotiating union talent agreements with the performer’s representatives in collaboration with client.
A few observations:
- Many of the activities on the list (e.g., activities #2, #3, #5, #8, and #10) are services that third party signatories traditionally have performed (or, at least, were available to perform at the request of their clients). Not much new there. And even before SAG-AFTRA revoked their signatory status, many of the "Gang of 6" already had begun insisting that their personnel be on set to assist with talent-related issues that might arise during production (activity #4). However, without a doubt, the LoA requires third party signatories to perform services that go beyond what was customary for most of them for most productions (e.g., activities #1, #6, #7, and #9).
- The LoA doesn’t spell out how much involvement signatories must have in the ten "employer" activities to be in compliance. For example, third party signatories now must "participate" in the selection of the production company (activity #7). What level of "participation" is required? When choosing a production company, many factors are considered, including the expertise of the production company (some are known for certain kinds of work), the desire to work with a particular director (most directors are exclusive to a single production company), the reputation of the production company (some are better than others), whether the production company is a preferred vendor of the client, scheduling conflicts, and (of course) price. Few, if any, signatory companies have expertise that will enable them to make meaningful contributions on these issues. Keeping in mind that the union’s stated goal for the settlement is to protect performers, it may be that the signatory is supposed to assess the ability of the production company to provide a working environment for performers that complies with the SAG-AFTRA Commercials Contract. However, since the signatory promises to act as the talent’s employer and have an employee on set for union compliance purposes, it is not clear that this assessment is mission critical. In any event, it seems pretty clear that the third party signatory’s "participation" in selecting the production company will be modest at best.
- Similar questions can be asked of other activities on the list. What role will the signatory have in "securing" the casting agent? Does that mean that the signatory must select the casting agent? Contract with the casting agent? Pay the casting agent? How should the signatory "be involved in" casting decisions for the performers? Is it expected to provide their assessment of the ability of the performer to play a role? Or something else?
Thou Shalt Not Work for Non-Signatory Agencies (Paragraph 2)
Paragraph 2 is where things get interesting. In this section, third party signatories agree that they "will only serve as signatory for advertisers, and only when the advertiser has not engaged and will not engage an advertising agency to perform any of the employer functions set forth in Section 1 above in connection with the commercial for which the Company is being engaged."
Translation: third party signatories can only work for advertisers (not ad agencies), and they must ensure that no agency performs any of the ten "employer" activities. To make sure signatories live up to this commandment, the LoA requires the following:
- The signatory and advertiser must affirm in writing (using a form attached to the LoA) that the advertiser "has not and will not engage an advertising agency to perform" any of the ten activities listed above.
- If an advertising agency is attached to the commercial in any capacity that is not prohibited by the LoA (for example, if an advertising agency developed the creative for the spot), then the signatory and the advertiser must provide to the union (1) "a description of the services to be provided" by the agency, (2) the contract between the signatory and the advertiser (appropriately redacted for any confidential or proprietary financial information), and (3) "a signed agreement between the advertiser and the advertising agency reflecting that the agency will not provide" any of the ten "employer" services listed in the first section.
- In addition, the signatory and the advertiser must affirm in writing that "any entity that has a corporate affiliation or relationship with the advertising agency (such as being owned by the same corporate parent)" will not perform "any of the Section 1 tasks for the production." This additional prophylactic measure was added because (in the words of the LoA) "it may be impossible to ensure that that advertising agency is not performing any of the Section 1 tasks if the advertising agency is affiliated with the entity performing any such task."
- The signatory must provide the signed form at least three working days in advance of the production. Heck, sometimes the production job hasn’t even been awarded until the day before the production! To get the paperwork in on time, signatories may need a ship that made the Kessel run in less than twelve parsecs.
- Finally, the signatory agrees that "[a]bsent such submissions in advance of production, [they] will not serve as signatory for the commercial."
As a result of these procedures, the union secures written commitments from three parties – the signatory, the advertiser and the agency (if there is one) – that no agency will perform any of the ten "employer" activities. ( This belt and suspenders approach makes you wonder if during negotiation the signatory companies ever said to the union "I find your lack of faith disturbing."). I suspect that the union demanded these strict procedures because it was concerned that a renegade advertising agency might, perhaps by employing a Jedi mind trick, attempt to get a third party signatory to "look the other way" and allow it to participate, on the sidelines, in a union production. ("This is not the non-signatory agency you are looking for. You can go about your business. Move along.")
The advertising agency that developed the creative concept for a commercial has a compelling argument that it is in the best position to make sure that its creative vision is realized in the final production. The LoA, however, will limit its ability to do this. It is true that the LoA does not prohibit agencies from developing the creative, providing post-production services (such as editing), or providing (at least within parameters) certain kinds of creative consultation services. However, by prohibiting the agency’s involvement in the selection of the production company, director, and cast, the LoA bars the creative agency from providing input on key creative decisions.
Why did the union focus on agencies (and not advertisers)? In part, the union appears to be responding to concerns raised by some in the industry that it was unfair to allow non-signatory agencies to continue to use third party signatories to produce union commercials when it suited them, while still retaining the flexibility to produce non-union commercials. Previous efforts by the union (and the JPC) to address this concern have largely consisted of barring third party signatories from taking advantage of key provisions in the SAG-AFTRA Commercials Contract. For example, third party signatories already are not able to use the Low Budget Digital Waiver, the testimonial waiver, the hardship waiver, or the new Alternate Compensation System, and third party signatories must pay higher pension and health contributions than brands and agencies that are JPC-authorizers. (For a more detailed examination of this issue, see Section 12 of my prior blog post.) Those restrictions will remain in place for brands that produce union commercials through third party signatories. However, those prior efforts were modest in comparison to the regime ushered in by the LoA. Third party signatories were the bridge that allowed non-signatory agencies to cross back-and-forth between union and non-union productions. By blowing up the bridge, the union is forcing non-signatory agencies to choose a side: union or non-union? Perhaps forcing this choice – with the hope that more agencies will sign on to the SAG-AFTRA Commercials Contract – is another motivation behind the union’s actions.
Finally, while the union clearly won this battle, did it win the war? If winning the war means protecting union performers from the potential perils of having anyone other than a signatory act as the bona fide employer, then, yes, the union won. But if winning the war means taking actions that will result in more union jobs in the long run, then patience you must have, my young padawan. Nobody can predict whether the net effect of this settlement will be more or fewer union productions (and union jobs). Will brands that previously hired non-signatory agencies to produce union spots shift their work to signatory agencies? Or will they stick with their cherished non-signatory agencies, resulting in fewer union gigs? Will non-signatory agencies find a way to stay in the mix to protect their creative and comply with the letter and the spirit of the LoA? Will non-signatory agencies relent and become signatories? It is too soon to tell, and certainly too soon to have a princess pin a medal on anyone.
Brian Murphy is Partner at Frankfurt Kurnit Klein & Selz where he counsels advertising agencies, advertisers, and entertainment companies as they develop and produce advertising and entertainment properties across all media. Mr. Murphy was named 2018 Attorney of the year for Advertising and Entertainment Law by Best Lawyers.
This column presents a general discussion of legal issues, but is not legal advice and may not be applicable in all situations. Consult your attorney. To contact Brian Murphy ESQ click here.
