We have written and lectured on the topic of paying severance (cash) to agents and reps upon contract termination many times. This article is for the benefit of those of you who may falsely believe that just because you have a written severance clause in your signed representation agreement, you are obligated to abide by it. Such may not be the case. We now offer you hope and perhaps, your freedom.
Generally the first thing a prospective agent will do when the creative is discussing the possibility of hiring that agent is out-negotiate the creative. Reps or agents are, as a rule, more skilled in negotiating than photographers and are thus (presumably) hired for their superior negotiating skills with potential customers. The rep then supposedly works for the creative, not the other way around.
If you want to understand the difference between an agent and a rep, we will publish an article in the coming weeks titled “Words Matter”, pulled from our upcoming book Photographer’s Survival Manual.
It is downright foolish for a creative to sign any rep agreement without first having it reviewed by both an attorney and an accountant on his/her behalf. Yes, it is that important. Yes, there is more than enough of the creative’s money at stake to justify that investment in expert advice. One of Jack’s photographer friends was effectively forced to retire because an onerous severance clause.
We have repeatedly and stridently informed photographers and illustrators that when a relationship with an agent ends, absent a specific agreement to the contrary an agent is not entitled to any payment of so called “severance”. We use the term “so-called” because severance as used in normal business parlance, generally means payment to a W2 employee of X number of weeks’ salary because that employee has been let go by the employer. In rep agreements the term is used in quite a different manner. The word is retained as a ploy intended to trick the unwary.
Severance clauses which provide for payments upon termination of the agreement (even to a fired rep who has failed to perform) are typically put in by reps for one or more of the below reasons:
- The rep makes money post termination by doing absolutely nothing;
- The rep makes money by negotiating deals and earning commissions post termination even though you want that rep as far away from your clients as possible;
- The severance provision effectively prevents the creator from terminating and/or from hiring another rep because the creator can not pay two commissions and still earn a living;
- Any/all of the above can be used to force the creative to pay a sum of money to release them from the obligation of the clause – the creator can of course, buy his or her freedom. We call that, “greenmail”;
- The rep has substantially negotiated and/or secured “new” accounts for the benefit of the creative and wants to get paid for work performed and/or an account secured by their efforts, even if that client works with the creative after the termination of the rep agreement.
Number “5″ has some legitimacy and merit. Numbers 1 – 4 have none.
Severance clauses come in all shapes and sizes. Nothing is “standard”. Some provide for payments by the creative to the rep based on prior billings during a given time period (ie. the 12 months prior to termination) Such clauses are never, ever to be agreed to by a creative. One reason (of many) is that there is no way to know what your billings will be in the upcoming year and thus no way to know if you will be able to pay X% of the prior year’s billings. A review of the buffet of specific severance clauses is for another day.
Now we go down a slightly more complicated path. Say you were dumb enough to sign an agreement containing a severance provision. Does that agreement bind you to what are often onerous, punitive or predatory terms? Can you free yourself of the handcuffs placed on you by your former rep or agent? The answer is often, “yes”.
You will need a lawyer for this. No, you cannot try this at home. Certainly do not ask a fellow photographer or rep about the below listed items because this is legal stuff for your lawyer to look at. Your attorney will determine whether one or more factors can in fact be used in your case to secure your freedom. Do not assume that the document that you willingly signed is actually enforceable and valid.
Some courts (state laws vary) will not enforce certain severance provisions if one or more of the following factors are in play. The below list is by no means exhaustive:
A. The clause is really a damages clause forcing the artist to pay the rep a sum of money which would be wholly disproportionate to any damages the rep could conceivable suffer;
B. The clause effectively prevents the photographer from making a living;
C. The clause pre-sets a damage figure which has no relation to compensation or work performed by the rep but rather serves as a penalty to prevent the artist from leaving or terminating or in the alternative – severance becoming a winning lotto ticket for the rep;
D. If the rep will not suffer any monetary damages by the termination of the contract yet gets paid upon termination by either party;
E. The provision is utterly irrational, unreasonable or unconscionable under the circumstances;
F. The clause serves as a “restraint on trade” (see also “B” above);
G. The clause violates public policy;
H. The rep has breached the terms of the agreement and is thus not entitled to benefit from his/her failure to perform his/her duties;
I. The rep has co-mingled, converted or stolen funds due the photographer or has otherwise committed some horrendous act(s) preventing him/her from deriving any benefits from the contract.
The above is but a short legal checklist. The applicability of one or more of these legal concepts (or others) to your situation is a matter to be determined by you with your lawyer and ultimately, by a court under your state’s laws. Many reps rely on the creative falsely believing that they are in fact bound by an unenforceable (or even illegal) severance provision and thus will not consult with a lawyer. It is our experience that such reliance by reps is well placed as most photographers stare at what they in fact signed, get depressed and rather than seek legal counsel, commence paying or negotiating to buy off their former rep. If you enjoy being a victim and paying through the nose for the privilege, then by all means do not call a lawyer.