Although the WGA strike is reportedly near an end, the strike has naturally made it harder to find paid acting jobs in film and television, causing a greater number of Hollywood celebrities (and their agents and other reps) to pursue endorsement opportunities and the money that follows.  The money, however, doesn’t just go to the celebrities and their reps.  It also goes to the trustees of the applicable guild’s Pension and Health Plan.  The amounts being claimed by the trustees, and in some cases the threshold issue of whether the trustees are entitled to ANY amounts, are increasingly being challenged.  This blog entry briefly discusses the allocation issue and the jurisdiction issue.

The Allocation Issue.

Most celebrities that advertisers want to do a deal with are members of (or will soon become members of) the Screen Actors Guild ("SAG") or the American Federation and Television and Radio Artists ("AFTRA").  When an advertiser enters into an overall endorsement agreement with a member of SAG or AFTRA, the advertiser needs to budget an amount sufficient to pay pension and health contributions to the trustees of the applicable guild’s Pension and Health Plan, not just the amount it is going to pay the celebrity directly.  Pension and health contributions increase the budget by more than 14% of the gross amounts payable to the celebrity for appearing in commercials or rendering other services that are subject to SAG or AFTRA’s jurisdiction ("Covered Services").

When the celebrity is being paid by a guild-signatory advertiser just to appear in a television commercial or render other Covered Services and for no other purpose, the trustees argue that the entire amount paid to the celebrity is subject to pension and health contributions under the SAG/AFTRA Commercials Contract.  But when an overall endorsement agreement provides that the celebrity will render Covered Services along with non-Covered Services, such as personal appearances on behalf of the advertiser or organically incorporating the endorsed product into the celebrity’s daily routine and hoping for the best, the guilds take the position that it becomes necessary to identify how much of the celebrity’s total compensation should be allocated to Covered Services (thereby subjecting such amounts to additional pension and health contributions) and how much should be allocated to non-Covered Services.  When the celebrity is being paid millions of dollars over a multi-year deal, or when the overall deal provides for performance bonuses if certain milestones are achieved, the pension and health contributions on the full amounts being paid to the celebrity can become significant.

To guide guild-signatories on the allocation issue, the Commercials Contract provides that the celebrity’s "customary salary" shall be given substantial consideration in deciding how much of the overall compensation should be allocated to Covered Services.  Because of the unique circumstances of every endorsement agreement — including the nature of the Covered and non-Covered Services — "customary salary" varies widely.  The lack of uniformity has lead to many disputes regarding proper allocations, and ultimately lead the trustee’s of SAG’s Pension and Health Plans to issue Multi-Service Commercial Allocation Guidelines, updated in August of 2007 (the "Guidelines").

The Guidelines essentially provide for a minimum allocation of 40% of the amount payable to a celebrity under a multi-service overall endorsement deal.  Click hereThe problem is that the Guidelines have arguably become the standard by which allocations under the Commercials Contract are judged.  The Commercials Contract is a collective bargaining agreement that was negotiated and agreed upon between the guilds, on the one hand, and the Association of National Advertisers, Inc. and the American Association of Advertising Agencies (collectively, "ANA-AAAA"), on the other hand.  The Guidelines were not negotiated or agreed upon by the ANA-AAAA.  They were unilaterally established by the trustees.  Thus, to the extent the Guidelines are being used as a standard, they arguably constitute an unauthorized, unilateral attempt to amend the collective bargaining agreement.

Arguing that point, among other things, the ANA-AAAA Joint Policy Committee on Broadcast Talent Relations (the “JPC”) has filed for arbitration against SAG, seeking an arbitration award: (1) declaring the Guidelines a nullity; (2) declaring that the pension and health contribution amount may not be changed by a non-party to the Contract (i.e., the trustees); and (3) ordering SAG to engage in collective bargaining with the JPC over this issue, rather than unilaterally issuing Guidelines.

The Jurisdiction Issue.

The allocation issue will play itself out, but the threshold issue many non-signatory advertisers are raising is whether they’re obligated to make ANY pension and health contributions to the guilds.  Many local, and even national, advertisers do not produce their own commercials and are not signatories to the Commercials Contract.  Instead, they engage advertising agencies to produce commercials on their behalf, and the advertising agencies are the signatories to the Commercials Contract.  When a celebrity renders Covered Services through an agency and the agency is the "employer" paying the celebrity and making the pension and health contributions to the guild under ERISA section 515 (29 U.S.C. § 1145), a non-signatory advertiser may reasonably take the position that the amounts it has agreed to pay the celebrity under an overall endorsement agreement are none of the guild’s business.

In an effort to make such amounts its business, the trustees of the guild Pension and Health plans commonly assert (1) that the non-signatory advertiser and its agency constitute "joint employers" for purposes of federal labor law, such that either the non-signatory is obligated to make contributions under the Commercials Contract that it neither signed nor assumed or the agency signatory is obligated to make contributions based on the amounts set forth in the overall endorsement agreement that the agency neither signed nor assumed, and/or (2) that the plan trustees are third party beneficiaries of the overall endorsement agreement entitled to enforce whatever allocations are made therein or, barring an allocation that’s favorable for the guild, an allocation that satisfies the "customary salary" language in the Commercials Contract.

On the first point, the joint employer argument hasn’t found much support.  Indeed, it seems that every published decision that has considered the issue has rejected the "joint employer" argument as a basis for finding a non-signatory liable under federal labor law, with various courts holding that there are only two situations where a non-signatory can be liable (if at all) for contributions under federal labor law: (a) if the non-signatory is the alter ego of the signatory; or (b) if the non-signatory and the signatory are engaged in a fraudulent scheme to deprive the guild of contributions.  See, e.g., Hotel Employees & Rest. Employees Int’l Union Welfare Fund v. Genter, 50 F.3d 719, 722 (9th Cir. 1995).

On the second point, courts in this context have been reluctant to confer third party beneficiary status on the guild trustees just because the overall agreement provides that the advertiser will reimburse or make pension and health contributions to the plans on the celebrity’s behalf.  See, e.g., Transpersonnel, Inc. v. Roadway Express, Inc., 422 F.3d 456, 462 (7th Cir. 2005) (concluding that the obligation to reimburse for contributions made by another is not equivalent to the obligation to contribute in the first instance).  And once the federal labor claims have been dismissed, the guilds lose their ability to pursue the draconian penalty provisions under ERISA, and if the circumstances permit, courts may take the opportunity to dismiss the third party beneficiary issue for lack of subject matter jurisdiction. See Trustees of the SAG Pension Plans et al. v. J. Walter Thompson Co., et al., CV 06-174 RGK (PLAx) (C.D. Cal, April 14, 2006)(chamber minutes granting motion to dismiss on jurisdiction and various other grounds).

The guild contribution issues will continue to be raised in every endorsement arrangement of consequence, and some attention should be given to them in structuring the endorsement relationship and in documenting the agency and other relationships that go into activating the endorsement.

Authored by:

Benjamin R. Mulcahy