Testimony Of Thomas F. Lee, President, AFM
California State Senate Hearings on Recording Artist Exemption to Seven Year Statute

By MusicDish [09-06-2001]

Thomas F. Lee
President
American Federation of Musicians of the United States and Canada

Before the California State Senate
Select Committee on the Entertainment Industry
Hearings on Recording Artist Exemption to Seven Year Statute
(Labor Law Section 2855 (b))
September 5, 2001

I. Introduction

Good afternoon, Senator Murray and members of the Select Committee on the Entertainment Industry. My name is Thomas F. Lee. I am the International President of the American Federation of Musicians of the United States and Canada, an international labor organization with over 110,000 members.

I want to thank you for your interest in the economic and working conditions that recording artists face today. As you know, California law has an important and complex effect on those artists. For over one hundred years, California law protected artists as well as other workers from the economic hardships that can be caused by excessively long-term employment contracts. But in 1987, the California legislature weakened those protections for one group only – recording artists.

The AFM and its members firmly believe that the 1987 amendment was ill-advised. It causes serious and unjustifiable harm to successful recording artists. The AFM supports artists of such stature as Don Henley and Courtney Love in their call for the repeal of the 1987 amendment. But it is also important to note that the harm done by the 1987 amendment does not stop with famous artists. The AFM also calls for the repeal of the 1987 amendment on behalf of thousands of lesser-known or unknown artists. Indeed, we believe that repeal of the 1987 amendments is in the interest of the general public welfare.

II. The American Federation of Musicians

Before turning more directly to the California Labor Code and the 1987 amendments, I want to provide some background about my organization. As I have said, the AFM has over 110,000 members across the United States and Canada. Nearly 20,000 of those members belong to AFM Locals located in cities throughout California, including Los Angeles, Sacramento, Long Beach, Richmond, Sacramento, San Diego, San Francisco, San Jose, Santa Ana, Santa Barbara, Santa Rosa, Stockton, Vallejo and Ventura. Our members include thousands of royalty artists in the recording industry and celebrity performers in the live performing arts. They also include many thousands of professional musicians whose names you may never learn but whose artistry is critical to American cultural and commercial life. These include musicians who give live performances in every sort of venue, and session musicians who record phonograph records, movie soundtracks, commercials, and television and radio programming.

The AFM is a labor union, and one of the important things it does for professional musicians is to negotiate collective bargaining agreements that cover live and recorded performances. For example, the AFM’s industry-wide Phonograph Record Labor Agreement has protected recording musicians since the beginning of the recording industry. The labor agreement mandates decent working conditions, basic scale wages, pension contributions, health and welfare contributions, Special Payments Fund payments, and additional payments when sound recordings are exploited in a different medium. These protections, wages and benefits create a floor, or minimum, that applies to all work performed at recording sessions that fall under the labor agreement.

Of course, royalty artists – the star performers who are featured on a recording – perform a great deal of creative work that does not fall within the purview of the Phonograph Record Labor Agreement. As other witnesses will surely tell you in more detail, they often are responsible for the conception of the album as a whole, the creation of its new music and lyrics, and the supervision of every facet of the creative project. These royalty artists have individual personal service contracts with their record companies that ideally (if not always actually) provide compensation far exceeding the minimum session compensation provided by the labor agreement. Historically, the AFM has not acted as a royalty artist agent in negotiating these royalty contracts.

However, a great many royalty artists are AFM members, and the AFM has worked for fairness and equity for them in other arenas, particularly the legislative arena. The structure of the Copyright Act has always prevented recording artists from receiving any income based on the radio broadcast of their recordings. The AFM fought to amend the Copyright Act to correct this inequity. The AFM was an important part of the movement that finally succeeded in amending the Copyright Act to at least require payments for the digital broadcast of sound recordings. And, together with its fellow union, AFTRA, the AFM succeeded in ensuring that, under the new law, royalty artists would receive 45% of the receipts from the new compulsory licenses for digital broadcasts.

The AFM and AFTRA also have fought together in the United States Congress on other issues of importance. In particular, the unions succeeded in preventing changes to the federal bankruptcy laws that would have unfairly disadvantaged royalty artists. Most recently, the unions, together with other artist groups, succeeded in obtaining the repeal of the work-made-for-hire amendment to the Copyright Act – an amendment that, if left in place, would have deprived many royalty artists of the ability ever to own their own copyrights.

As I indicated at the outset, the 1987 amendment of the California Labor Code has also created a situation of great inequity for royalty artists. I am happy to give them the AFM’s support on this issue, and to assist you in your investigation.

III. California Labor Code Section 2855

The state of California has had some version of California Labor Code Section 2855 for over one hundred years. The statute has always had the same purpose – to protect individuals from unreasonably long employment contracts. Since 1931, it has prevented an employer from enforcing a personal service contract against an employee after 7 years.

Section 2855 and its predecessors express an important public policy of the state of California – that no individual should be bound for an excessive period of time to any one employer. As one commentator put it: Section 2855 reflects the legislative determination that after seven years an employee should be able to reassess his employment situation, change employers or occupations, and be in a position to negotiate freely with a present or new employer for compensation commensurate with his fair market value.

In the famous case involving Olivia De Haviland, the California Court of Appeals made clear that the restriction on long employment contracts benefited the general public. It said that the welfare of the vast majority of working men and women, and their communities, would be enhanced by the freedom to change employers and increase compensation after no more than seven years. The court in the De Haviland case also said, "As one grows more experienced and skillful there should be a reasonable opportunity to move upward and to employ his abilities to the best advantage and for the highest obtainable compensation." Throughout the history of the so-called "seven year rule," actors, musicians, and artists of every kind enjoyed the same protection as every other individual in California who found that time and increased skill had improved their true value in the marketplace.

IV. The 1987 Amendment to Section 2855

In 1987, this longstanding principle of California law got turned on its head – but only for one employment group and only in one industry. The record companies came to your predecessors in the California legislature, and convinced them to amend Section 2855. The amendment gave the record companies the right to sue a recording artist who exercised his or her rights under the seven-year rule, and to collect damages for any albums that have not been delivered, but might have been required under the artist’s royalty contract.

It is easy to see that this was a victory for the record companies. It is less obvious why it was unfair, and thus bad policy for California. I’m quite sure that the record companies suggested to your predecessors that without the amendment, the record industry would be victimized by heedless artists who failed to deliver albums out of negligence, laziness or sheer disregard for contractual commitments. But the truth is quite different. At all levels of the industry, royalty contracts contain impossible delivery requirements and one-sided option terms, so that at the end of seven years even the most dedicated and hard-working royalty artist may face potential liability for undelivered albums. The 1987 amendment did not close the door to free agency for only a few n’er-do-wells. It effectively closes that door for the entire class of recording artists.

There is a popular image of recording artists as rich, glamorous, frivolous and free. But I can tell you from the one-hundred year experience of the American Federation of Musicians that most artists do not become rich, no matter how talented and hard working they are, and that neither artistic merit nor commercial success come to the frivolous. The truth is that talented musicians work long and hard to develop their art.

After all that hard work, musicians who aspire to recording careers as royalty artists are faced with an absolute reality at the beginning of their careers: they have virtually no bargaining power against the record companies. Royalty contracts are filled with non-negotiable, take it or leave it requirements, including royalty structures that favor the companies, requirements that the artists bear all their own production costs but still have to assign their copyrights to the companies, and one-sided provisions that give the companies the option to dump artists at will – or, conversely, to tie them up exclusively for seven or even eight albums.

I am confident that you will hear plenty of evidence today from artists explaining how options for seven albums realistically can mean fourteen years of service and even more. It takes time to create an album even before the recording sessions can begin. And it takes considerable time and effort to promote an album after it is recorded.

Thus, a new artist, with little or no leverage, is forced agree to onerous terms that potentially will govern the duration of his or her career. And, at the end of seven years, many if not most of them will be vulnerable to undelivered album claims, not because they were lazy or negligent, but because the contract they were forced to sign years previously created impossible and conflicting requirements and schedules.

I believe that what I have told you, and what you will hear from artists and their representatives today, lead to three conclusions about the 1987 amendment to Section 2855.

First, it is vastly unfair to the stars of the recording business who, at the peak of their market value, are denied the same rights that other individuals have to seek their true market value in a free negotiation.

Second, it is unfair to the mid-range recording artists who have reached the seven year mark in their royalty contracts. Make no mistake – artists at the seven year mark are successful, because under the option structure of the royalty contract, the record company would have dropped them long before if they were not. But they, like the top stars of the industry, will be prevented from seeking their true market value by the threat of litigation over albums that they could not, realistically, have delivered.

Third, it is unfair to new and struggling artists, because it helps to perpetuate an industry system in which a first negotiation determines terms of employment for ten years and more, and in which bargaining power never really becomes equal.

Recording artists are the foundation of the recording industry, and their well-being is not only important to the cultural life of our nation but also to its domestic and international commerce. But I am not asking for something special for them. They simply should enjoy the same protection from excessively long contracts as all other artists and workers do in California. That protection, and not its abrogation in 1987, is what supports the general welfare of the residents of California.

IV. Conclusion

It is not uncommon for recording artists to say that their royalty contracts make them no more than slaves to their record companies. You may have heard or read similar comments, and you may have dismissed them as colorful language, or hyperbole. But an unfair contract of excessive duration is not as far off from slavery as we might like to think. One law professor, writing about contracts, noted that after the Thirteenth Amendment abolished slavery, former slave owners still had a method of keeping their former slaves on the plantation – they entered into employment contracts with them, and sued for damages if any person enticed their "employees" away to a better situation.

Recording artists, alone of all employees, should not suffer from involuntary servitude by virtue of their royalty contracts. After seven years, they, like others, should be able to obtain freedom.

Source: http://www.musicdish.com/mag/?id=4453


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