The following is an article written by attorney Jonathan Stern that discusses the unlicensed agent/mamager issue:

For almost a decade, the California Labor Commission and the California Courts of Appeal have relayed one consistent message to entertainment industry managers: Don’t procure employment on behalf of your clients, because if you do, you’re liable to lose your commissions. Just in case managers needed reminding, the Court of Appeal provided it in Yoo v. Robi.

Yoo holds that the unlicensed procurement of employment on behalf of celebrity clients-no matter how infrequent or minimal-violates the Talent Agencies Act. Furthermore, the violation results in the loss of commissions earned under a contract. In reaching this conclusion, the court correctly reaffirmed the purpose behind the Act’s enactment: to protect artists from unscrupulous individuals willing to exploit an artist’s talents irrespective of the impact on an artist’s career or personal safety.

Although the Talent Agencies Act evolved out of California’s Private Employment Agencies Law of 1913, it was not until 1959 that the State Legislature recognized that procuring employment for artists carries many complexities and therefore provided talent agents with their own chapter of the Labor Code.

The Act is now embodied in sections 1700 through 1700.46 of California’s Labor Code and contains two safeguards that aim to protect artists from unethical businesspeople.

First, the Act contains detailed licensing requirements that seek to weed out individuals of questionable moral character from talent agencies and otherwise protect artists. Second, the Act severely punishes those who act as talent agents without the required license.

As the California Supreme Court noted, both the Labor Commissioner and California Courts have voided contracts whereby unlicensed personal managers procured employment for artists. See Styne v. Stevens, 26 Cal. 4th 42, 55 (2001). Subject to the Act’s one-year statute of limitations, both bodies have gone so far as to disgorge all amounts paid to a manager from the unlicensed procurement of employment. See Cuomo v. Atlas/Third Rail Management, Inc., TAC No. 21-01; Wachs v. Curry, 13 Cal. App. 4th 616, 626 (1993).

The Act defines a talent agency as any “person or corporation who engages in the occupation of procuring, offering, promising or attempting to procure employment or engagements for an artist or artists. . . .” To obtain a license under the Act, an individual must undergo an extensive inquiry into his or her moral character and community standing based on references and background checks. In addition to paying fees, an applicant must also deposit a $50,000 surety bond with the Labor Commissioner to ensure that that an aggrieved artist will receive some measure of reimbursement in the event of a violation.

Once licensed, agents must submit all contracts with their artists to the Commissioner for approval. The Commissioner is authorized to withhold approval of any contract deemed “unfair, unjust, and oppressive to the artist.” Upon approval, agents must deposit all funds collected on behalf of their artists into a trust-fund account. Within 15 days after receiving the funds, the agent must distribute the funds to the artist, less the agent’s commission. Detailed records of an artist’s income are maintained and must be made available to the Labor Commissioner upon reasonable demand.

When it comes to the purpose for which an agent is hired-procuring employment-an agent faces further constraints. The agent may not publish false, fraudulent or misleading information or advertisements. The agent is also forbidden from sending artists to unsafe locations, splitting fees with an employer, or charging artists a “registration fee” for services such as writing letters or selling photographs of the artist.

In addition to these cumbersome requirements, agents’ commissions are limited to between 10% and 20% pursuant to various entertainment union and guild agreements.

Personal managers, meanwhile, operate largely unfettered by the constraints of the Talent Agencies Act. Free from licensing limitations, managers have much greater flexibility to negotiate compensation provisions in their contracts and may receive up to a 25% commission on an artist’s earnings. Managers may also leverage additional income from artists by producing projects in which their clients perform.

But there’s more. The Act outlines limited circumstances in which managers can actually procure employment. Recognizing that an emerging recording artist typically cannot secure the services of an agent without a recording agreement in hand, the Act permits unlicensed individuals to engage in “procuring, offering, or promising to procure recording contracts for an artist or artists.” Additionally, managers may negotiate employment contracts for clients so long as the manager acts “in conjunction with, and at the request of, a licensed talent agent.”

The only mechanism restraining managers in a manner similar to agents is the threat of lost income earned as a result of unlawfully procuring employment. This approach has been emphasized for nearly 20 years.

In 1985, the California Entertainment Commission-established in 1982 by amendment to the Talent Agencies Act-reported that “anyone not licensed as a talent agent should not, under any condition or circumstances, be allowed to procure employment for an artist.” This policy recommendation was not heeded, however, until the landmark decision, Waisbren v. Peppercorn Productions, Inc., 41 Cal. App. 4th 246 (1995). In Waisbren, the Court of Appeals reversed its earlier decision in Wachs v. Curry, 13 Cal. App. 4th 616 (1993), and, relying on the Commission’s Report, established that managers are barred from independently procuring employment even when devoting only a “minimal” or “incidental” portion of their time to these activities. Four years later, the court in Park v. Deftones, 71 Cal. App. 4th 1465 (1999) bolstered the policy arguments underlying the Commission’s Report and the enactment of the Talent Agencies Act. A musical group, the Deftones, petitioned the Labor Commission to void its management agreements with its manager, Dave Park, on the grounds that Park had obtained performance agreements for the group on 84 separate occasions without possessing a talent agent’s license.

The Park court, siding with the musical act, dismissed the fact that Park had not received commissions for procuring employment for the Deftones and emphasized that the “remedial purpose of the Act and the statutory goal of protecting artists from long recognized abuses” require the possession of a license before employment may lawfully be procured.

Yoo illustrates that the policies underlying the Waisbren and Park decisions remain unchanged and are as valid today as when the Act was first implemented.

Yoo involves a typical fee dispute between a manager and artist. Howard Wolf, a former manager of Paul Robi, one the original members of the Platters, sued Robi for an unpaid commission arising from his personal management contract. Under the agreement, Wolf was to obtain a percentage of all money that Robi received as a result of Robi’s activities in the “entertainment, amusement, and publishing industries.” The contract further provided that Wolf was to act “solely as a personal manager” because, the agreement continued, Wolf was “not licensed to seek or obtain employment or engagements for” Robi.

The Yoo court upheld the trial court’s ruling for Robi, voiding Wolf’s entire contract with Robi and thereby barring any recovery under the agreement.

In so doing, the court affirmed that an agent’s role is entirely unlike that of an artist’s other personal representatives. An agent is distinguished from other personal representatives, the court explained, in that the agent’s “primary function” is marketing an “artist’s talent to buyers within the entertainment industry” and negotiating the “the particulars of employment.”

Given that an agent is the only representative of an artist who has been evaluated based on his or her character, the court reasoned, only the agent can be trusted to provide an artist with employment that would not endanger an artist’s well-being. Finding that this rationale remains unchanged some 45 years since the Act’s enactment, the court stated that an agent’s trustworthiness stems from being subjected to “fingerprinting . . . investigations into [his or her] character, posting of bonds, [] labor commission approval of talent agency contracts . . . [rules] prohibiting a talent agent from sending an artist to an unsafe place, sending a minor to a saloon[,] and [rules preventing] gamblers, and drunks to frequent or be employed in a talent agent’s place of business.”

Yoo reaffirms that the unlicensed representatives may not procure employment on behalf of artists. Managers: consider yourselves forewarned . . . again.

— Jonathan E. Stern is an associate in the entertainment litigation department at Alschuler Grossman Stein & Kahan. He can be reached at [email protected] or (310)255-9138