The Personal Services Contract in California
Everyone knows and understands that slavery and involuntary servitude were abolished in the United States in 1865 by the passage of the Thirteenth Amendment to the Constitution. Something of a corollary to the Thirteenth Amendment was enacted in California in 1872, which provided that a contract for personal services for a period of more than two years was unenforceable. The legislation was, presumably, initially intended to prevent “employers” from making an “end run” around the Thirteenth Amendment by voiding any purported “contract” by which an employer could claim an employee was bound to perform continuing services. Through the years since its enactment, legislation has been amended, expanded and, in 1937 repealed, and re-enacted in the California Labor Code.
In Hollywood in the 1920s and 30s, being the entertainment capital of the world, the entertainment industry began finding young talent, promoting that talent to the point of making them “larger than life,” signing the talent to long contracts and hoping that their efforts would eventually bring a large pay-off. Law and Business of the Entertainment Industries, Donald E. Biederman (5th Ed. 2007). In the years subsequent to Hollywood’s heyday, studios and record companies alike have used the personal service agreement to bind their book of talent to faithfully perform for them unique skills to the exclusion of other studios and recording companies. Today, personal service contracts are governed by California Labor Code Sections 2850 – 2866. Section 2855 provides, in part: “Except as otherwise provided in subdivision (b), a contract to render personal service, other than a contract of apprenticeship as provided in Chapter 4 (commencing with Section 3070), may not be enforced against the employee beyond seven years from the commencement of service under it.” The implications for small business are far-reaching. Simply put, any contract by which an employer seeks to bind an employee must be for a duration of no longer than seven years. That obviously leaves the employee with the option of looking for other, more lucrative, employment with competitors. The simple solution, which many movie studios and recording studios employ – allow the “talent’s” contract to expire, leaving the “talent” unemployed for a single day, then reacquire those services under a new personal services agreement.
Deciding whether and when to use a personal services agreement in California can be a complex and challenging endeavor. If you are considering using a contact to bind your key employees, a complete understanding of the California Labor Code is essential. Michael Leonard, Esq. of San Diego Corporate Law is that attorney. To schedule a consultation with Mr. Leonard to discuss when and how to use a personal service contact, as well as or any business-related matter, you can contact him by e-mail or by telephone at (858) 483-9200.