• A National Ban on Non-Compete Agreements • Paid v. Unpaid Interns • More Artist Visa News, Nausea, and Updates • A Shameless Self-Congratulations
LAW & DISORDER
Performing Arts Division
May 15, 2024
Legal Issue of the Month: Will a New National Ban on Non-Compete Agreements Force Agents and Managers to Rethink Their Employee Agreements?
On April 23, 2024, the Federal Trade Commission (FTC) issued a nation-wide ruling banning non-compete clauses in all employment contracts, regardless whether an individual is hired as an actual “employee” or as an independent contractor, paid or unpaid, an intern, or a sub-contractor hired to provide service to another party’s client or customer. You can read the announcement HERE.
Whilst the official effective date has yet to be announced, unless the new regulation is pre-empted by a lawsuit or other judicial action, then the ruling will likely go into effect sometime in Fall 2024. At that time, all employers in the U.S. will be required to provide notice to any worker subject to an existing non-compete clause that it is no longer enforceable.
In the arts and entertainment industry, the FTC’s ruling will likely have the largest impact on agents and managers. For example...
Regardless of whether or not you fire one of your chickens or it flies the coop on its own, you will no longer be able to prohibit them from immediately going to work for another agent/manager, opening their own agency or management across the street from yours, or working with any of your current or former artists.
The new ruling also prohibits imposing any financial penalties for exercising their competition rights, such making them pay a fee for the right to work for another agent/manager, open their own agency or management, or work with any of your current or former artists.
The new FTC rule further clarifies that you can’t impose a “reverse non-compete” by adding terms to your artist agreements prohibiting your artists or groups from working with any of your former employees or other agencies or managements after they leave your roster.
This will NOT apply to:
Non-Solicitation Agreements. You can still prohibit an ex-employee from soliciting or encouraging an existing artist to leave your agency/management and work with them instead. However, the artist or group can choose to leave on their own accord assuming they are free to do so. (Though, admittedly, actual “solicitation” is a difficult nuance to prove without dragging everyone through muddy waters crossed by burned bridges.)
Agent/Manager Representation Agreements. Just because your ex-employee is allowed leave and work with one of your current or former artists does not mean the artist is free to go if they are subject to an agent/management agreement with you for a fixed term that has not yet expired. So, for example, if you have an agent/management agreement with an artist that appoints you to be their exclusive agent/manager for a three year term, and they have another year to go, they cannot leave and join the roster of another agent or manager until that year is up. That would be a breach of contract. Moreover, an ex-employee who encourages one of your existing artists to breach your agent/management agreement and/or offers to pay their legal fees if they choose to do so, can be sued for a claim of “Tortious Inference with Business.”
Non-Disclosure Agreements. To the extent you have any confidential information, trade secrets or proprietary materials, you can continue to prohibit an ex-employee from taking, using, copying, or disclosing any of those for themselves or third parties. Whilst artist engagement fees, presenter contact lists, or anything else which is publicly available, already known, or can be learned from other sources are neither confidential nor trade secrets, physical or digital materials you have created and paid for—such as images, contract templates, address lists, files, and other written data—are your physical property to control. In other words, while you can’t prohibit an ex-employee from using a presenter’s super-secret personal cell phone number that you told them, they are going to have to remember it themselves and can’t steal the post-it note you wrote it on.
501(c)(3) Tax-Exempt Non-Profits. For arcane, esoteric reasons, they are not subject to the FTC’s ruling. So, you can continue to prohibit your ex-ushers from passing out programmes at the rival theatre across the street.
An Owner or Partner in your Business. Non-Compete agreements between individuals who own at least a 25% ownership interest in the same business entity are still allowable. So, the ownership or operating agreement between you and your business partner can continue to prohibit either of you from stealing all of the artists and walking out the door in a petulant parade.
You can read the full version of the final rule HERE or, an easier read would be an article in the Hollywood Reporter addressing the impact of the new rule on the entertainment industry which you can find HERE.
Dear Law and Disorder: Actual questions we get asked and the answers people actually don’t want
"Must All Interns Be Paid?”
Dear Law & Disorder:
Our organization gets a lot of requests for internships. We’d be more than happy to sponsor those, but I was told that there are new laws saying that interns have to be paid. Is that true? We’d love the help, but don’t have the budget for paid internships.
While states such as California and New York have enacted stricter laws and requirements for when an unpaid internship crosses the line into an abusive labour practice, the laws in these states, as well as The Fair Labor Standard Act, provide that you do not have to pay interns so long as the internship provides a legitimate educational or practical learning experience for the intern. Usually, this is not an issue for interns seeking internships for school credit as the schools always need to approve those in the first place. There is also an exception for tax-exempt non-profits wherein the task of ensuring the visiting maestro’s pet leopard gecko is sufficiently satiated with live crickets is, in fact, considered a legitimate practical learning experience in arts management.
Otherwise, interns must be paid if they are merely “free employees.” A for-profit entity cannot get volunteer labour just to make copies, answer the phone, and bring you your latte merely by calling it an “internship.” In those instances, regardless of whether you call them “interns” or “free personnel on a trial basis for evaluation of employment potential,” they must be paid.
Artist Visa News, Nausea & Updates
It’s been a little over 1 month since USCIS began implementation of its new filing fees and policies for artist visas and its been about as predictable as one might expect—presuming one was expecting a clown car driven backwards by drunken squirrels through the front window of an un-licensed cannabis store. Here what to know so far:
1. All Fees Must Be Paid With Separate Checks.
Each of the new filing fees are actually comprised of two separate fees: a petition filing fee and an asylum fee. So, for example, if the petitioner of an O-1 visa petition is a small employer, then the filing fee of $830 is actually comprised of a $530 petition filing fee and a $300 asylum fee. USCIS has been rejecting petitions that do not provide separate checks for each: one for the filing fee and one for the asylum fee.
As a reminder, the filing fees are broken down as follows:
For O Petitions
$1066 filing fee + $600 asylum fee
Small-Employer Discount: $530 filing fee + $300 asylum fee
Non-Profit/School Discount: $530 filing fee + $0 asylum fee
For P Petitions
$1015 filing fee + $600 asylum fee
Small-Employer Discount: $510 filing fee + $300 asylum fee
Non-Profit Discount: $510 filing fee + $0 asylum fee
If you are also paying for premium processing, that will require a separate check, as well. So, for example, if the petitioner of a P-1 visa petition is a small employer, then they will write a check for the $510 petition filing fee, a check for the $300 asylum fee, and a check for the $2805 premium processing fee. On the other hand, if the petition is a non-profit, then they only need to write two checks: one for the $530 petition fee and one for the premium processing fee.
2. To Qualify For a Fee Discount You Must Provide Documentation of your Eligibility
If you are paying anything other than the maximum fee, then USCIS has been rejecting petitions that do not also include proof that the petitioner qualifies for either the tax-exempt non-profit or small employer discount. For petitioners who are non-profits, this means providing a copy of your most recent IRS 501(c)(3) designation letter or IRS tax exemption certificate. For petitioners who qualify as small employers (more on that next), this means providing a copy of your most recent IRS Form 941 (the form employers use to report federal withholdings for their employees.)
USCIS has been rejecting petitions from legitimate tax-exempt non-profits even where they have paid the correct fee but failed to provide their IRS 501(c)(3) designation letter or IRS tax exemption certificate.
Also, because I find it often needs repeating, simply being an artist or organization that does not make any money or can’t pay your debits, does not make you a non-profit.
3. “Small-Employer” Is Not the Same As “Small-Business”
To qualify for the USCIS “small employer” fee discount, the petitioner must employ at least 1, but less than 25, full-time employees. This can include a single owner LLC or corporation, provided the owner pays themselves as an employee through a payroll, taxes and withholding are deducted from each paycheck, and the employee is issued a W-2 at the end of each tax year. On the other hand, if the petitioner pays themselves through distributions, profit draws, or any payments (other than reimbursements) from which taxes are not withheld, then they do not constitute a “small employer” for USCIS purposes and must pay the full O and P fees.
This has been causing quite a bit of confusion and a lot of rejected petitions. So, for example, if Colin Schpastik Management is a single member LLC and Colin pays himself through a payroll, then he qualifies for the “small employer” discount when filing visa petitions for his artists. On the other hand, if Colin just writes himself checks whenever there is enough cash flow to do so, then he is a “small business,” but not a “small employer” and must pay the full fee.
A related complication is that the new I-129 form is filled out differently for petitioners that do not qualify for the “small employer” deduction. In the case of Mr. Schpastik, as he is a small business, but not a “small employer,” would complete his I-129 form as follows:
(1) On the I-129, Part 5, No. 14 "Current Number of Employees" – he would indicate "zero"
(2) In response to No 15, "Do you currently employ a total of 25 or fewer..." he would indicate "No" since he has no employees.
USCIS has been rejecting petitions, even where a petition pays the correct fee, where the I-129 is inconsistent with the fee paid.
4. USCIS’s Is Using New Receipt Number Letters
For decades, I-797 Receipt Numbers for O and P have begun with either the letters “EAC” (Eastern Adjudication Center) when they go to the Vermont Service Center or “WAC” (Western Adjudication Center) when they go to the California Service Center. Starting in December 2023, after all petitions began going to Texas Service Center, we began seeing receipt numbers beginning with the letters “SRC” (Southern Receipt Center). Since April 1, 2024, we have begun seeing I-797 receipt numbers beginning with the letters “IOE.” No one, not even USCIS, has been able to say with any degree of consistency what, exactly “IOE” refers to. However, the consensus is that it appears to designate that a petition has been digitally scanned and sent electronically for adjudication to another service center, most often either Vermont or California, (More on that next) without being able to determine which service center actually has it.
Not only was there no official USCIS announcement to expect this, but there has been no announcement as to whether this will continue. So, henceforth, you should expect I-797 Receipt Notices to begin with EAC, WAC, SRC, IOE, or whatever random letters or numbers USCIS slurps from its fetid cauldron of dyslexic alphabet soup on any given day, including SOS, RIP, and WTF. So, artists should use whatever receipt number they get for purposes of completing DS-160 Visa Stamp Applications.
5. The Texas Service Center Is Just A Mail Room
The Texas Service Center does not adjudicate petitions. They just receive them and then farm them out to either the Vermont or California service centers, which then either approve them or issue inane RFEs (Requests for Evidence) and then send them back to Texas. Ever since this new system began in December 2023, there has continued to be a squirrel’s circus of problems. Sometimes petitioners will receive a “transfer” notice indicating which service center a petition has gone to. Sometimes they will receive an I-797 Receipt Notice within a few weeks, whereas other times the receipt notice will arrive after the approval notice. Sometimes when you file two petitions together (such as a P-1 and P-1S), you may get a receipt notice for one, but not the other. Sometimes when you file a petition for 15 artists, only 12 names will appear on the receipt notice whereas all 15 will be on the approval notice. It also appears that Texas is selecting service centers at random. For example, some petitioners based on the east coast are finding their petitions being processed in California.
The bottom line is that there is really no way to know any more with any degree of certainty whether your petition has been sent to Vermont, California, or some other yet to be disclosed repository. However, it really doesn’t matter as, except for premium processing, USCIS appears to be taking anywhere from 6 – 8 weeks (or longer) to process petitions regardless of which service center gets them. On the positive side, such as it is, premium processing has been taking only a day or two—though we suspect this is because USCIS has been rejecting so many petitions lately that they have extra time on their hands.
A Shameless Self-Congratulations!
Brian has been honoured and humbled to have received the 2024 Karalee Dawn Mackay Adjunct Faculty of the Year Award in the Masters of Arts Management Program at George Mason University. Given annually to “the professor that shows outstanding excellence in teaching and service to the students in the MA in Arts Management program,” the award is selected by students in a random poll. In Brian’s case, anonymous student comments from the poll included:
"Brian really helps us understand essential legal elements in arts management in an interesting way with rich educational materials."
"His humor and knowledge of every topic and examples for every question really brought things home."
"Of all the professors I have had, I enjoyed his class the most. He created a truly safe space for learning, making mistakes, and asking questions."
Best essay assignment ever: “The Shape of Poo”
Including classes on “Non-Profit 911,” “Never Negotiate With a Pigeon,” and “Everything You Need To Know In Life You Learn In Theatre,” Brian relishes in the work of teaching the professional cat wranglers otherwise known as arts managers. There truly are an amazing new crop of rising arts leaders out there who are the ones who really deserve awards for taking on the challenges of bearing the torch of the performing arts into the future.
Deep Thoughts…
We don’t stop playing because we grow old, we grow old because we stop playing.
– George Bernard Shaw.
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The purpose of this blog is to provide general advice and guidance, not legal advice. Please consult with an attorney familiar with your specific circumstances, facts, challenges, medications, psychiatric disorders, past-lives, karmic debt, and anything else that may impact your situation before drawing any conclusions, deciding upon a course of action, sending a nasty or threatening email to someone, filing a lawsuit, or basically doing anything that may in any way rely upon an assumption that we know what we are talking about.