End Credits: Exploring Termination Provisions in Entertainment Employment Agreements

May 6

In the dynamic realm of entertainment, where creativity meets commerce, the agreements between talent, executives, crew, and industry players hold significant weight. Among the clauses in these agreements, termination provisions stand out as crucial components governing the end of employment relationships. Understanding these provisions is vital for both parties to navigate the complexities of the industry with clarity and fairness.

As entertainment employment lawyers, we frequently field inquiries about termination clauses in employment agreements and severance packages. In this post, we'll dive deep into the complexities of when termination may occur, the typical components of termination clauses and severances, and the key considerations for both employers and employees.

We'll explore the nuances of termination provisions in entertainment employment agreements, from negotiating comprehensive severance packages to understanding the differences between just cause and at-will employment. We'll also examine post-termination restrictive covenants and strategies for safeguarding client relationships in the event of a departure. Our aim is to provide a high-level overview of the various elements that shape the termination landscape within the dynamic entertainment industry.

When Can Termination Occur?

Most employment relationships are at-will, meaning that either party (the employer or the employee) can terminate the employment relationship for any reason or none at all, as long as the reason is not discriminatory.

However, in the entertainment industry, it is common for certain positions, especially executives, to be subject to a “term” employment agreement, which provides for employment for a certain period of time. The agreement will typically outline scenarios when the employer can terminate the employee, such as:

Termination for cause: The employee is fired due to misconduct, breach of contract, or other reasons defined in the agreement. Severance is usually not paid in this scenario.
Termination without cause: The employee is let go, but not due to misconduct or poor performance. This could be due to layoffs, restructuring, etc. Severance may be paid as defined in the agreement.
Resignation: The employee voluntarily quits. Severance is not usually paid unless the employment agreement provides for payment if the executive resigns "for good reason" as defined in their contract.

These termination clauses are most common in term employment agreements where the executive is hired for a set period of time. They are less common for lower-level employees or crew, wherein employment is typically at will.

What is a Severance?

A severance is an agreement between an employer and a departing employee. The company agrees to provide the employee compensation and/or benefits, and in exchange, the employee agrees to certain terms. Severance agreements are sometimes offered even if not required by an employment contract, especially in cases of layoffs.

Typical terms in a severance agreement include:

Release of claims: The employee waives their right to sue the employer for wrongful termination, discrimination, etc.
Confidentiality: The employee agrees not to share confidential company information. This may reaffirm prior confidentiality agreements.
Return of property: The employee agrees to return any company equipment, files, etc. in their possession.
Non-disparagement: The employee agrees not to make negative statements about the company.

In exchange, the employer agrees to provide severance compensation, which could include salary continuation for a set period, a lump sum payment, continued health insurance, accelerated vesting of stock options, or other benefits.

Key Considerations

For employers, severance agreements help ensure an amicable parting and protect against potential legal claims. However, they do come at a financial cost.

For employees, severance can provide important transition assistance after a job loss. However, it's crucial to carefully review the terms and consult with an employment attorney before signing. You want to fully understand what rights you may be giving up.

Executives negotiating new employment agreements may want to pay particular attention to the termination and severance clauses. Ideally, the definitions of "cause" and "good reason" will be limited, any notice periods will be reasonable, and robust severance will be guaranteed if terminated without cause or resigning for good reason.

Negotiating Severance Packages for Creative Professionals

Negotiating Severance Agreements: Key Considerations for Executives

For executives, employment agreements often include severance provisions that outline the circumstances under which severance will be paid, such as termination without cause or resignation for good reason. These provisions are intended to provide financial protection and stability for the executive in the event of an unexpected departure from the company. However, the specific terms of the severance agreement may not be fully defined in the initial employment contract.

Frequently, the employment agreement will stipulate that the executive will only receive the severance benefits if they sign a severance agreement at the time of termination, with the form and content of that agreement determined by the employer in their sole discretion. This can create uncertainty and potential issues for the executive, as they are essentially agreeing to sign a future agreement without knowing all of the terms and conditions that may be included.

From the employee's perspective, this arrangement can be problematic because it leaves them vulnerable to potentially unfavorable or burdensome terms in the severance agreement. For example, the employer may include non-compete clauses, broad non-disparagement provisions, or other restrictive covenants that limit the executive's ability to work or speak out after leaving the company. The severance agreement may also require the executive to waive their right to bring any legal claims against the employer, even if they believe they have been wrongfully terminated or discriminated against.

Moreover, the severance agreement may not include all of the benefits or protections that the executive was expecting based on the initial employment contract. For instance, the employer may not agree to provide the same level of salary continuation, benefits continuation, or equity vesting that was originally discussed. This can leave the executive in a difficult position, forced to choose between accepting a less favorable severance package or potentially forfeiting their severance altogether.

To mitigate these risks, executives should ideally seek to negotiate the specific terms of the severance agreement at the time of entering into the initial employment contract. This can be done by including the severance agreement as an exhibit or addendum to the employment agreement, with the key terms and conditions clearly defined. By negotiating the severance terms upfront, the executive can have greater certainty and protection in the event of a future termination.

However, if the employer is unwilling to define the severance terms in the initial contract, the executive should still push for as much clarity and specificity as possible regarding the severance provisions. This may include negotiating a minimum severance amount, specifying the duration of any non-compete or non-disparagement clauses, and ensuring that the employee will receive all promised compensation and benefits (such as earned bonuses, vested equity, back-end compensation, or deferred compensation) regardless of the reason for termination.

Ultimately, while it may not always be possible to fully define the severance agreement terms at the outset of employment, executives should be aware of the potential risks and uncertainties associated with agreeing to sign a future severance agreement in the employer's sole discretion. By negotiating as much as possible upfront and being prepared to carefully review and negotiate the final severance agreement, executives can better protect their interests and ensure a fair and reasonable severance package in the event of a termination.

Approach with Caution

If you find yourself as an employee negotiating the terms of a proposed severance, remember that in some circumstances, severance may be a gift. If the severance is not a contractual right, negotiating too hard on the terms may lead the employer to retract the offer altogether, leaving you with little legal recourse. Therefore, approach severance negotiations with caution and ideally with the advice of an experienced employment lawyer.

Special Considerations (a few from a long list):

1. Mutual Release: While not always common, a mutual release is ideal from the employee's perspective. It prevents a scenario where the employee signs a release, only for the employer to turn around and bring a suit against them. If the employer is not agreeable to a mutual release, they may agree to state they have no known claims against the employee at the time of signing.

2. Non-Disparagement and No Defamation: Certain terms like non-disparagement may violate the National Labor Relations Act, especially for non-managerial employees. However, a no-defamation clause may be legal. The employee may request the term to be mutual or ask for a neutral reference.

3. Inclusion of All Employment Promises: Ensure that all other employment promises, such as back-end compensation or credit, are included in the severance agreement. If the terms aren't included and you sign the release, they are likely waived.

4. Work-for-Hire Provision: Be cautious of work-for-hire provisions. If you were developing your own projects, executing this may give the company rights over those projects. Consult with an experienced IP or employment lawyer before signing such an agreement.

5. Choice of Law: Pay attention to the choice of law, as it will control the law that applies. Under California Labor Code 925, an employee who primarily works and resides in California must be provided the benefits of California law.

In summary, negotiating severance agreements requires careful consideration and a thorough understanding of the potential implications. Employees should approach these negotiations with caution and seek the advice of experienced legal counsel to ensure their rights and interests are protected.

Conclusion

In the fast-paced and competitive landscape of the entertainment industry, termination provisions play a critical role in defining the rights and responsibilities of employers and employees. From negotiating severance packages to navigating the nuances of just cause versus at-will employment and implementing post-termination restrictive covenants, understanding these provisions is essential for fostering fair and mutually beneficial employment relationships. By embracing transparency, accountability, and respect for both parties interests, the industry can uphold its reputation as a dynamic and rewarding sector for creative professionals worldwide.

Ready to ensure your entertainment employment agreements are legally sound? At Wagner Legal PC, our experienced team specializes in entertainment law and contract review services. Whether you're negotiating severance packages, navigating termination provisions, or crafting employment agreements, we're here to provide expert guidance tailored to your unique needs. Subscribe to our blog for in-depth insights and subscribe to our newsletter to stay updated on the latest industry trends and legal developments. Contact us today to safeguard your career in the entertainment industry.