Restoring the Seven Year Rule in the Music Industry

INTRODUCTION The United States boasts a bigger entertainment industry than any other country, with Los Angeles regarded as the entertainment capital of the world. Accounts differ as to the explanation for California’s rise to entertainment prominence. One version attributes the flocking to the west coast as a product of Cecil B. DeMille’s last-minute location change for The Squaw Man in 1914 to Los Angeles; but, by 1910, movies had already been filmed in the area. Another explanation focuses on Thomas Edison, who operated in New York and New Jersey, and exerted a significant amount of control over the industry in its early days because he held many patents on the technologies necessary to make movies. Edison created the Motion Picture Patent Company (“MPPC”), which essentially established a monopoly on all aspects of filmmaking by limiting the sale of necessary items to its members. Producers who did not join the MPPC and pay the associated fees in order to use the technologies would likely be sued for using Edison’s technologies. Thus, many early filmmakers decided to leave the east coast for California, where judges were less sympathetic to Edison and the power of his patents. Regardless of the historical explanation, cinema in America took off in popularity, establishing “Hollywood,” the neighborhood where movie studios had set up shop, as synonymous with the industry itself. Coincidentally, the birth of the music industry is also owed in part to Edison; his discovery of the phonograph in late 1877 began the cultural phenomenon of recorded music that continues today. Unlike the film industry’s Hollywood, no single region became the home of American music, as many major cities had at least one phonograph company to make recordings and many nickelodeons, establishments at which a person could listen to music for a nickel per song. Still, despite the prevalence of popular music genres in many American cities, the “Big Three,”—Sony Music Group (“Sony”), Universal Music Group (“UMG”), and Warner Music Group (“WMG”)—represent a large share of the music market; many well-known, though seemingly smaller, regional record labels actually fall under the corporate umbrella of one of these three players. Of these, UMG’s headquarters is located in California, and Sony and WMG are both headquartered in New York. Thus, most recording contracts by major labels are signed in, or otherwise made subject to, the laws of California or New York. This Note focuses on the effects of a provision in section 2855 of the California Labor Code. The history of this statute is important to understand the impact the statute has had on the ∗I would like to thank Professor Aditi Bagchi for her guidance and feedback in developing this Note; the IPLJ XXVI Editorial Board and Staff, especially Elizabeth Walker and Madhundra Sivakumar, for their hard work throughout the editorial process; and most of all, my parents, Marie and Ben, and my sister, Rebecca? for their constant love, support, and willingness to read anything I’ve ever written since kindergarten. entertainment industry, but more specifically, the music industry. Section 2855(a) limits the length of time personal service employment contracts may be enforced to a period of seven years, which is why the entire statute is often referred to as the “Seven Year Rule. ” It states that a contract for personal service of a “special, unique, unusual, extraordinary, or intellectual character,” like those in the entertainment industry, “cannot be enforced against the employee beyond the term of seven years from the commencement of service under it. ” Initially enacted in 1872 as section 1980 of the California Civil Code, the law originally prohibited employers from enforcing contracts of personal service after two years. In 1931, the statute was amended to increase the term to seven years. Finally, six years later, section 1980 was repealed and section 2855 of the Labor Code was enacted, which adopted and streamlined the language of the old provision. For fifty years, section 2855 did not change at all; even now, nearly eighty years later, the Seven Year Rule is an “accepted tenet of entertainment law,” a “given” in contract negotiations. In 1987, however, the California legislature amended the statute to add an additional subsection, which will be the focus of this Note. This music industry-specific amendment, section 2855(b), represents a “carve out” that essentially exempts musicians from protection under the statute. Part I of this Note will explain the legislative history of section 2855 and related lawsuits in order to contextualize the 1987 amendment within the entertainment industry. It will also give a brief background on the nature of recording contracts and explore the typical structure of a deal between musicians and labels. Part II will examine the conflicts between different areas of contract law that arise from the amendment, including the freedom to contract, unconscionability, unjust enrichment, and inequity in bargaining power between parties. Lastly, Part III will outline potential solutions to resolve conflicts created by the law, including two possible amendments to section 2855(b), and repealing section 2855(b) altogether. Ultimately, I argue that the best option for ensuring fair outcomes is repealing section 2855(b) through collective action of recording artists.