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Tag Archives: music business lawyer

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WILL CALIFORNIA’S MUSIC INDUSTRY SURVIVE AB5?

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Categories: Uncategorized, Tags: , , , , , , , , , , , , , ,

By: Erin M. Jacobson, Esq.

This article was previously published on Synchtank.com.

The music industry is comprised of very specific customs and practices as to how business is done. The music industry functions in its own world, and its customs and practices are foreign to and widely misunderstood by most people not working in the music business. Therefore, when those outside the music industry place restrictions on how music’s business can be carried out, the results can be disastrous.

Case in point, the new AB5 law in California. AB5 stands for Assembly Bill 5. It was introduced at the end of 2019 and went into effect on January 1, 2020. While this is a California law, it can affect the music business on a global scale.

Summary of the Law

AB5 was enacted with the aim of equalizing benefits and fair treatment for workers, especially those with part-time gigs, like Uber drivers. The intention of the bill was to make sure these types of workers also received the benefits of full-time employees, such as health care, and also to enforce businesses to pay employment taxes to the state instead of circumventing those taxes by classifying all of its workers as independent contractors.

AB5 takes the decision of a recent California Supreme Court case [1] and enacts it into law. AB5 dictates a new test for determining who is an employee versus who is an independent contractor. The determination of whether a worker is an independent contractor is now subject to what is called the “ABC Test”. In order for a person to be considered an independent contractor rather than an employee, the hiring entity must show all of the following:

  1. The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact. [2]
  2. The person performs work that is outside the usual course of the hiring entity’s business. [3]
  3. The person is customarily engaged in an independently established trade, occupation, or business of the same nature that is involved in the work performed. [4]

Here’s the translation in plain English:

Part A basically means that the worker is hired for a job and determines how he or she will do the work. This has to be shown in the written agreement between the hiring entity and the worker, and also has to be true in practice. For example, when one hires a bookkeeper, the bookkeeper will determine when and how he or she works, and how the work gets done. This will also be reflected in the agreement between the hiring entity and the bookkeeper. The hiring person is not going to tell the bookkeeper how to perform the work of a bookkeeper, nor is one business owner going to tell another business owner how and when to conduct business.

Part B means that the worker is performing work that is not the same business as the hiring entity. Again, using the bookkeeper example, if a musician hires a bookkeeper, the bookkeeper does very different work than the musician.

Part C means that the worker has his or her own separate business doing the type of work the hiring entity hired the worker to perform. Staying with the bookkeeper example, the bookkeeper would have his or her own bookkeeping business and perform bookkeeping work for other clients.

By default, workers are now considered employees unless the hiring entity can show the worker is an independent contractor. There are many exceptions to this rule, such as doctors, lawyers, accountants, graphic designers, repossession people, and more. However, there was no exception granted for those who work in the music business.

How Does This Affect the Music Industry?

Because there is no exception for the music industry, music professionals are subject to this law.

This means that a musician is now an employer when he/she hires:

  • another musician to play in that musician’s band (even if it’s just for one show instead of an on-going arrangement);
  • someone to perform on a record (even as a one-off, work for hire session);
  • a producer (or beatmaker) for their record
  • and more!

If that musician is an employer, then he or she would be required to take out withholding tax from the workers’ pay, pay payroll taxes to the state, potentially provide health care benefits, file all appropriate tax forms, etc. This could be crippling to independent musicians, both financially and administratively.

What About Companies?

Companies are not exempt from these requirements either. By contract and in practice, artists have always been considered independent contractors in relation to record labels, and this practice continues today. Songwriters have been considered independent contractors to music publishers, as composers have been to music libraries. This could all potentially change if AB5 is enforced based on a literal interpretation of the ABC Test. It could force companies to completely change the way they do business, which may be at the detriment of musicians. It is possible that companies like record labels will make sure their contracts are issued only from their offices outside of California.

It also may force many in the music industry to move their business outside of California where the “gig” way of doing business continues. This would be a blow to the California economy both from losing the revenue from the music industry, as well as the taxes from all the musicians and companies that would move out of California to continue their current ways of doing business.  AB5 may also affect independent film companies and non-union film projects. As the California economy relies heavily on the entertainment industry, this surely would greatly reduce the benefits legislators hoped AB5 would bring to California by increased income from employment taxes.

What Do We Do Next?

No one knows. The law was drafted so broadly and is so new, that it is completely untested. No one really knows how to proceed and how this law will be applied in practice.

Some in the industry and online have tried to think of different ideas to continue doing business as usual without violating the law, but none seem to have a viable solution.There have also been lawsuits filed against AB5 and actions to move toward an appeal. One website (which is really part of one California Assembly candidate’s website for his election campaign) [5] allows the public to post their stories of how AB5 has or will affect their careers.

What most people are doing now is trying to proceed with caution and stay up to date with any changes. It’s a very uncertain time, but one can hope for a favorable resolution.

[1] Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County, 4 Cal.5th 903 (2018).

[2] Assemb. B. 5, 2019 Leg.,  Chapter 296, Statutes of 2019 (Ca. 2019).

[3] Id.

[4] Id.

[5] This campaign website is provided for informational purposes only. It is not an endorsement by Erin M. Jacobson, Esq. of any candidate or cause.

Note: This article does not constitute legal advice.

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Erin M. Jacobson, Esq. to contribute to Synchtank’s Synchblog!

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Categories: Articles, Tags: , , , , , , , , , , , , ,

I am very happy to announce that I will regularly be contributing articles to Synchtank’s Synchblog! To get started, here is my first article for Synchtank — “Copyright Terminations:  What Rights’ Owners Need to Know“. Synchtank is a software solution that helps music owners organize, maintain, and pitch their catalogues.  For more information on the services Synchtank provides, click here.  To check out their blog, click here.  

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The DOJ’s Discordant Decision: An Overview of the Ruling and Its Repercussions

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Categories: Articles, Legal Issues, Music, Music Industry, Music Publishing, Performance, Royalties, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

doj-decisionPerformance rights organizations (“PRO’s”) are organizations that track and collect performance royalties on behalf of songwriters and music publishers. In the United States, there are four PRO’s: ASCAP, BMI, SESAC, and Global Music Rights (“GMR”). ASCAP and BMI are the two largest U.S. PRO’s and are also non-profit organizations. Since 1941, ASCAP and BMI have been subject to consent decrees issued by the Department of Justice (“DOJ”). These consent decrees are agreements that allow the government to regulate ASCAP and BMI’s license fees and how they operate in order to prevent monopolization and encourage competition. SESAC and GMR are both independent, privately owned companies that operate on a for-profit basis and are not subject to consent decrees.

In 2014, the music community asked for a review of these decrees and requested the removal of digital licensing from the blanket licenses offered by the PRO’s, allowing publishers to negotiate directly with and be paid higher rates by companies licensing music for digital uses.  This is referred to as “Digital Rights Withdrawal” or “DRW.” Digital giants like Google, Pandora, and Sirius/XM, joined by terrestrial radio, lobbied against DRW in order to pay smaller licensing fees to music owners.   The DOJ denied the music community’s request for DRW and has now mandated that music publishers be either “all-in” or “all-out” with the PRO’s, meaning that publishers must allow the PRO’s to license all types of performances of their catalogues or none at all.

In its recent ruling, the DOJ also chose to enforce “full-work licensing,” also known as “100% licensing.”   Under the practice of 100% licensing, any person with a percentage of ownership of the work has the right to license 100% of the work, not just the percentage owned. That licensor is then liable to account to other co-owners of the work for those co-owners’ share of compensation. This principle is in line with the provisions of copyright law governing joint works, and the longstanding language of the consent decrees supports the practice of full-work licensing. Despite the language of the consent decrees, the music industry has never operated on a 100% licensing basis. The principle of allowing one co-owner to license an entire work can be overridden by a contract between the parties, and the music industry has always operated on a “fractional licensing” basis where most owners agree in writing that each owner will administer its own share. Music users obtaining licenses have also historically accepted the practice of fractional licensing, and those users experienced with PRO licenses know that one must get a license from each PRO so that all shares of co-written compositions are covered. PRO’s also collect license fees from music users and pay its members/affiliates on a fractional basis, i.e. the amount collected or paid is proportional to the share of the composition controlled by that PRO.

While the language of the consent decrees and the practice of the industry have long been out-of-sync, the DOJ’s sudden decision to enforce 100% licensing may force an entire industry to change its longstanding way of doing business. The DOJ’s ruling stipulated that if a PRO cannot license 100% of a composition, then that PRO cannot license that composition at all. This means that any compositions written by co-writers belonging to different societies would potentially become unlicensable by the PRO’s.

What Problems Does This Create?

Those that lobbied against reforming the consent decrees failed to realize that their efforts to pay less may also prevent them from using or playing a large percentage of music, or may require them to remove music from rebroadcasts of older programming, because much of the music they wish to use may become unlicensable by the PRO’s.   If compositions are unlicensable by the PRO’s, then music users will have to go directly to music owners for performance licenses. While obtaining direct licenses may be feasible for more experienced users, many music users will not know where to find composition owners or how to go about obtaining licenses from them. If compositions become unlicenseable by the PROs and licenses are not obtained directly from the music owners, it is possible that many compositions may not be used, or many compositions may be used without permission resulting in copyright infringement.

All of these scenarios may hinder music owners from receiving payments for performance royalties, and without the PRO’s, music owners will be responsible for tracking and policing all uses of their music, which is normally too labor intensive and financially burdensome for most music owners.

Foreign performance societies, writers, and publishers are also affected by the DOJ’s ruling. Via reciprocal agreements, U.S. and foreign PRO’s work together to track and collect royalties for performances in a work’s home country and foreign countries. If certain works become unlicensable by U.S. PRO’s, then foreign societies and owners may have to track U.S. performances of their works in the U.S. Anyone in the U.S. wishing to use a foreign work not licensable by a U.S. PRO will have to get a direct license from the foreign licensor. In addition, U.S. owners issuing direct licenses may have to track and collect on foreign performances outside of the societies. Again, this creates burdens on all societies and owners, as well as opening the door for mass amounts of infringement and owners not receiving payments.

The DOJ proposed a solution of modifying all past agreements between co-writers of different societies to allow administration by one owner or PRO. This would apply to both U.S. and foreign writers and publishers. However, this is an impractical solution because many writers will not want another PRO that is not their chosen PRO collecting on their behalf; many writers do not speak to past co-writers or know where to find them; many writers are deceased, leaving one or more co-writers to deal with heirs that may not understand the principles involved or cannot be found; and many writers will not have the financial resources to have their agreements amended.

From a creative standpoint, many writers feel the DOJ’s decision will restrict them to only writing with co-writers from their chosen PRO. Restricting the freedom of writers to collaborate would be a fatal blow to creativity itself and cause many musicians to relegate music to a hobby rather than a career.

Where Are We Now?

The DOJ has allowed ASCAP and BMI a period of one year to comply with the new mandated changes, and if they are still non-compliant after one year, the DOJ can sue ASCAP and BMI for non-compliance with its decision. However, the one-year compliance period has not started yet, and will be delayed by the current efforts of BMI and ASCAP to get this decision reversed.

As of this writing, BMI has sued the DOJ and is appealing the ruling through legal proceedings. ASCAP is developing a lobbying strategy to seek much needed Congressional support and achieve changes from the legislative side. Those of us on the forefront of this issue feel it is best to wait until we have a definite outcome before spending time and resources on modifying agreements or making other changes to longstanding industry practices.  However, consult with me on this issue if you are concerned.

Some resources to take action and stay up to date include www.standwithsongwriters.org and www.artistrightswatch.com.

 

Disclaimer: This article is for educational and informational purposes only and not for the purpose of providing legal advice. The content contained in this article is not legal advice or a legal opinion on any specific matter or matters. This article does not constitute or create an attorney-client relationship between Erin M. Jacobson, Esq. and you or any other user. The law may vary based on the facts or particular circumstances or the law in your state. You should not rely on, act, or fail to act, upon this information without seeking the professional counsel of an attorney licensed in your state.

If this article is considered an advertisement, it is general in nature and not directed towards any particular person or entity.

 

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Don’t Get Screwed Over : 3 Scenarios Where a Handshake Deal Isn’t Enough – Video Format

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Categories: Legal Issues, Music, Music Contracts, Music Industry, Music Publishing, Videos, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

In case you didn’t read the whole article I just posted and you’d rather watch me explain it to you – here are the videos!

Part 1:  Songwriter Split Agreements

Part 2:  Producer Agreements

Part 3:  Band Agreements

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Client Gary Kuo Wins Sixth Emmy Award

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Categories: Clients, Tags: , , , , , , , , , , , , , , , , ,

Congratulations are in order for my client Gary Kuo who has just taken home his sixth Emmy Award as composer for All My Children.

garyemmy6

Visit www.garykuo.com for more information on Gary and to purchase music.