Talent Agent: “But my Client is worth more than that!”
Producer: “Ya, well let me see her quotes!”
This is the most typical exchange between a Producer and Talent Agent in Hollywood when it comes to negotiating what an actor or actress will be paid for a project. Presenting “quotes”—what the “Talent” made on prior jobs is one of the primary ways that agents use to help get higher compensation for their clients.
But this practice is now highly questionable in light of California’s new Labor Code Section 432.3. Section 432.3, which became effective on January 1, 2018, prohibits employers from inquiring about a prospective employee’s salary history, or in other words, their “quotes.”
California Labor Code Section 432.3(b) provides as follows: “An employer shall not, orally or in writing, personally or through an agent, seek salary history information, including compensation and benefits, about an applicant for employment.” A plain reading of this section bars the above exchange and makes it illegal for a Producer to inquire about Talent’s (or any other employee’s) pay history or “quotes.”
The Legislature likely enacted Sec 432.3(b) to “prevent the perpetuation of discrimination in pay on the basis of protected classifications.” In the non-entertainment context, when employer’s seek to hire employees for a particular category of employment, they are using much narrower, predictable, and stable salary ranges. For example, if we were to hire a secretary or associate at our law firm, the pay range for those types of position is well defined and predictable.
However, in Film and Television, the pay range is anything but “narrow, predictable, or stable” across the industry. Producers, Talent Agents, and everyone else have historically relied on salary history – “quotes” — as a way to inform Producers or other prospective employers on what the Talent is actually worth and willing to work for. The new law effectively eliminates the Producer’s ability to request this information. It is likely to cause a disruption in the natural negotiating exchange of information that both parties actually rely on to make a deal.
How to Avoid Violating Section 432.3(b)
As the law just went into effect this past January, there is no case law for parties to rely on to inform them how to adapt to this new legal environment. There are at least two possible solutions to navigate this change. However, we can look at a couple of ways which may help in navigating this change: 1. The Employee Volunteer, or 2. The use of Loan-Out Corporations. (However, the use of Performer Loan Out Corporations may be limited by the recent California Supreme Court decision Dynamex Operations West, Inc. v. Superior Court of Los Angeles 2018, holding that to be classified as an independent contractor, “the worker performs work that is outside the usual course of the hiring entity’s business.”)
The Agent or Talent May “Volunteer” the Information
Employees or their Representatives (i.e. a “Talent Agent”) can just volunteer their “quotes” earlier in the negations, without the Producer asking for them. Section 432.3(b) does not prohibit employees from volunteering this information; it only prohibits employers from asking for it. Agents, Talent, and Producers will just have to change their practice on who asks first. One pitfall here may be that if the process is done verbally, and a claim is later made that Section 432.3(b) has been violated, how will a Producer prove that the information was volunteered. Certainly one way to hedge against such claims is to reduce this part of the negotiation to writing and for Producers and Production Companies to have written policies prohibiting asking for salary history.
Loan-Out Corporations
Many Entertainment Professionals are already using “Loan-Out Corporations”-a company set up for Talent to funnel all of their revenue and business expenses through. In essence, if a Producer engages Talent through a Loan-Out Corporation, they are making a deal with a corporation or other legal entity. They are not making a deal with an employee directly. So, in this case, a Producer may not be in violation of Section 432.3(b), because they are not seeking salary history from an employee, but rather from a Corporation with whom they are seeking to do business. However, the California Supreme Court’s recent decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles places in question the use of loan out corporations where the individual worker (in this case the Talent) should be treated and classified as an employee rather than an independent contractor.
Can We “Choice of Law Clause” Our Way Out of This?
Hey, only those radicals in California require this. What if we just put a “Choice of Law” clause in every agreement that is not California Law? Do not do this! You cannot “choice” your way out of California Labor Code. That would be like trying to “choice” your way into a lower minimum wage, by entering an agreement with an employee and agreeing to be bound by the law from a state with a lower minimum wage. Not going to happen with minimum wage! And, it’s not going to happen with Section 432.3(b) either. Obviously, if you are doing business in another state (or country) without such a legal restriction, then this is a non-issue.
What Are We Supposed to Do?
Producers: Do not ask for quotes anymore if you are doing business with California Employees. You are just going to have to tell prospective employees –including Talent—what the particular job pays. This may mean making make an initial offer lower than where you want to end up. Talent and Agents may be encouraged to offer up their quotes voluntarily to prove their value. If you have hired the same person before, refer to you records and you will already know their “quotes.” There is nothing wrong with asking an employee what their salary expectations are, just not what their salary was.
Where Is This All Going?
The purpose of the law was to prevent the perpetuation of discrimination in pay on the basis of protected classifications such as women and minorities. Although the entertainment industry was not specifically targeted, it will cause a major shift in the way it approaches deal making. I am not convinced that “not asking for quotes” will reach the intended goal in the Entertainment Industry. However, I do know that violating this law can cause significant problems for producers, studios, and networks It can open up these employers to individual claims as well as Class Actions and suits under California’s Private Attorney General Act (“PAGA”) Although it may seem harmless to keep asking for quotes and may go unnoticed for a while, it can expose an employer to significant civil legal liability.
By William J. Kay
William is an experienced entertainment lawyer and has been representing production companies, writers, producers, and other entertainment industry professionals for over 20 years. He can be reached at william@eanetpc.com or (310) 997-4185