THE PRICE OF POPCORN: The Personal Service Contract

IVAN HOFFMAN, B.A., J.D.


        If you want to know the origins of the high price of popcorn and drinks at your local movie theater, you’ve got Olivia De Haviland to thank at least in part.  This famous actress from the 1930’s and well into the 1960’s (“Santa Fe Trail,” “Gone With the Wind” to name but a few), got herself involved in a litigation against Warner Bros. Pictures which resulted in a small but significant destruction in the “studio system,” which had been the way Hollywood engaged the services of actors and actresses pretty much from its inception.  As such, this litigation was a step toward the development of the “free agency” performer which, over the ensuing decades, led to $15 to $20 million per picture deals which led to 90/10 box office splits with the lion’s share going to the distributor (to help pay for those salaries) and the smaller share being left to the exhibitor leading to those high prices for consumables at the movies.  It’s a pretty straight forward “connect the dots” once you know where to start.

        Ms. De Haviland had been under contract to Warners, which, as indicated, was how most studios engaged the services of actors.  Under the said “studio system,” an actor would sign an agreement for a fixed term for a weekly salary and had to perform in the pictures chosen by the studio.  Ms. De Haviland’s agreement ran for 1 year and the studio had 6 successive one year options to extend the term.  The agreement commenced May 5, 1936 and extended to August 13, 1943 and gave the studio the right to suspend the operation of the agreement under certain circumstances including in the event the actress “should fail, refuse or neglect to perform her services to the full limit of her ability and as instructed by the producer and for any additional period or periods required to complete the portrayal of a role refused by plaintiff and assigned to another artist. Plaintiff [Ms. D] was to receive no compensation while so suspended or thereafter until she offered to resume her work. It was provided that the producer had the right to extend the term of the contract at its option, for a time equal to the periods of suspension.”  [Quoted from decision]

        In the words of the Court, “[t]he sole question is whether the provisions for suspension, and for extension of the term of the agreement, were lawful and effective insofar as they purported to bind plaintiff beyond seven years from the date her services were commenced.  If they were lawful, plaintiff still owes twenty-five weeks of service; otherwise the contract came to an end May 5, 1943.”

The Statute

        The Court analyzed the history of the relevant California statute which had gone through some changes over the years but was essentially as of the time of the litigation Labor Code section 2855, which read:

“A contract to render personal service, other than a contract of apprenticeship as provided in Chapter 4 of this division, may not be enforced against the employee beyond seven years from the commencement of service under it.  Any contract, otherwise valid, to perform or render service of a special, unique, unusual, extraordinary, or intellectual character, which gives it peculiar value and the loss of which cannot be reasonably or adequately compensated in damages in an action at law, may nevertheless be enforced against the person contracting to render such service, for a term not to exceed seven years from the commencement of service under it.  If the employee voluntarily continues his service under it beyond that time, the contract may be referred to as affording a presumptive measure of the compensation.”
        The statute means that generally speaking when a party enters into a contract to provide his or her personal services, the maximum time for which the contract can be enforced is 7 years “from the commencement of service under it.”

        The studio argued that the provisions of the statute allowed for a contract to be enforced against the actress for up to 7 years of actual service even though the agreement itself ran beyond 7 years.  The Court disagreed and the result of the case was that the agreement was held to have expired by the expiration of the said 7 years.

The Current Statutes

        Personal service contracts are governed by the laws of the respective states.  For the sake of example, however, I will discuss the laws of California since these issues come up frequently in regards to actors, recording artists and others performing creative services.

        The current version of Labor Code section 2855 which is virtually the same as Civil Code section 3423 adds further provisions to the above provisions that provide:

(b) Notwithstanding subdivision (a):

   (1) Any employee who is a party to a contract to render personal service in the production of phonorecords in which sounds are first fixed, as defined in Section 101 of Title 17 of the United States Code, may not invoke the provisions of subdivision (a) without first giving written notice to the employer in accordance with Section 1020 of the Code of Civil Procedure, specifying that the employee from and after a future date certain specified in the notice will no longer render service under the contract by reason of subdivision (a).

   (2) Any party to such a contract shall have the right to recover damages for a breach of the contract occurring during its term in an action commmenced [sic] during or after its term, but within the applicable period prescribed by law.

   (3) In the event a party to such a contract is, or could contractually be, required to render personal service in the production of a specified quantity of the phonorecords and fails to render all of the required service prior to the date specified in the notice provided in paragraph (1), the party damaged by the failure shall have the right to recover damages for each phonorecord as to which that party has failed to render service in an action which, notwithstanding paragraph (2), shall be commenced within 45 days after the date specified in the notice.

        Let me explain.  Often a recording agreement will require the artist to record and deliver, to the satisfaction of the record company, a certain number of recordings (called in the copyright law and picked up by the above California law, “phonorecords”) generally according to a certain time-defined schedule.  Often as well, such delivery gets far behind schedule due to creative factors or for reasons related to touring or any number of other factors.  Thus, even though the agreement may also provide for the suspension of the provisions of the agreement during any period that the artist fails to deliver, the provisions of section 2855 (a) [first quoted above in regard to the DeHaviland case] apply and thus the agreement cannot extend for a term beyond 7 years.  However, as a result of the further provisions under (b) cited above, the recording company can bring a claim for damages based on the failure to deliver the undelivered recordings.  Whether the recording company can prove damages is a function of the evidence including but not limited to the track record of the recording artist and other factors.

        However, there are further California statutory provisions related to personal service contracts.  One very significant legal weapon is the ability to obtain an injunction.  An injunction is a legal court order preventing a party from doing a certain act.  There are also injunctions that require a party to do a certain act, sometimes called “specific performance.”  Generally speaking however, a party cannot obtain such an injunction to prevent the breach of a personal service contract, the rationale being that to mandate that a party perform personal services is tantamount to a forced servitude.  In other words, generally speaking a court will not prevent a party from breaching a personal service agreement but instead will limit the other party to the right to collect damages.  [For a related, but in other ways very different set of facts and circumstances, read “Inevitable Disclosure of Trade Secrets.”]  However, under the provisions of Code of Civil Procedure section 526 (b), there are certain exceptions to the above rule and the following provisions apply:

   (b) An injunction cannot be granted in the following cases:

   (5) To prevent the breach of a contract the performance of which would not be specifically enforced, other than a contract in writing for the rendition of personal services from one to another where the promised service is of a special, unique, unusual, extraordinary, or intellectual character, which gives it peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law, and where the compensation for the personal services is as follows:

   (A) As to contracts entered into on or before December 31, 1993, the minimum compensation provided in the contract for the personal services shall be at the rate of six thousand dollars ($6,000) per annum.

   (B) As to contracts entered into on or after January 1, 1994, the criteria of clause (i) or (ii), as follows, are satisfied:

   (i) The compensation is as follows:

(I) The minimum compensation provided in the contract shall be at the rate of nine thousand dollars ($9,000) per annum for the first year of the contract, twelve thousand dollars ($12,000) per annum for the second year of the contract, and fifteen thousand dollars ($15,000) per annum for the third to seventh years, inclusive, of the contract.

   (II) In addition, after the third year of the contract, there shall actually have been paid for the services through and including the contract year during which the injunctive relief is sought, over and above the minimum contractual compensation specified in subclause (I), the amount of fifteen thousand dollars ($15,000) per annum during the fourth and fifth years of the contract, and thirty thousand dollars ($30,000) per annum during the sixth and seventh years of the contract.  As a condition to petitioning for an injunction, amounts payable under this clause may be paid at any time prior to seeking injunctive relief.

   (ii) The aggregate compensation actually received for the services provided under a contract that does not meet the criteria of subparagraph (A), is at least 10 times the applicable aggregate minimum amount specified in subclauses (I) and (II) of clause (i) through and including the contract year during which the injunctive relief is sought.  As a condition to petitioning for an injunction, amounts payable under this subparagraph may be paid at any time prior to seeking injunctive relief.

   (C) Compensation paid in any contract year in excess of the minimums specified in clauses (i) and (ii) of subparagraph (B) shall apply to reduce the compensation otherwise required to be paid under those provisions in any subsequent contract years.  [balance of section omitted]

        What these provisions provide is that even though the personal servant is providing unique services and thus damages in the event of their breach might be inadequate, the party engaging that personal servant cannot obtain an injunction preventing the breach of the agreement unless the indicated monetary thresholds are met.

Conclusion

        Next time you go to the movies and want popcorn and a drink and the concessionaire asks for you to provide a co-signer because the cost is so high, remember this article.
 

Copyright © 2006 Ivan Hoffman.  All Rights Reserved.

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This article is not legal advice and is not intended as legal advice.  This article is intended to provide only general, non-specific legal information.  This article is not intended to cover all the issues related to the topic discussed.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  This article is based on United States law.  You should consult with an attorney familiar with the issues and the laws of your country.  This article does not create any attorney client relationship and is not a solicitation.

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