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Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.

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Speaker 2: The film and television industry has ground to a halt

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Speaker 2: as actors join picket lines alongside screenwriters in Hollywood's biggest

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Speaker 2: labor fight in more than six decades. Fran Dresher, the

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Speaker 2: SAG after president, said, workers across the entertainment industry are

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Speaker 2: being exploited.

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Speaker 3: We're all suffering from the threads of streaming.

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Speaker 1: I'm digital and AI and we must pull in the

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Speaker 1: reins on this wild pony.

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Speaker 2: Right here and now joining me is Brianna Hill, a

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Speaker 2: partner prior cashman. People hear, you know, the salaries of

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Speaker 2: movie stars, and then they see that actors are fighting

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Speaker 2: for better wages. Explain how the average actor is different

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Speaker 2: from the movie star.

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Speaker 4: Well, the most basic is the is the business demand.

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Speaker 4: But the compensation structures are different. And I would say

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Speaker 4: this applies to both the SAG membership and the WGA membership.

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Speaker 4: There are a smaller group of members at the top

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Speaker 4: of the compensation structure, and then there's the much larger

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Speaker 4: body of the membership is in the middle. So, for example,

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Speaker 4: a movie star is going to negotiate let's say a

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Speaker 4: multimillion dollar deal for a feature, whereas your average working

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Speaker 4: actor is going to be working at the scale rate

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Speaker 4: under the agreement.

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Speaker 2: And so they want to raise the scale rate.

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Speaker 4: Yes, and the AMPTP has offered an increase on the

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Speaker 4: scale rate. The increases that sag Aftra is asking for

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Speaker 4: are more than that. And I believe that the increase

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Speaker 4: offered by the AMPTP mirrors that which the DGA agreed

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Speaker 4: to in their recent agreement.

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Speaker 2: So the actors want eleven percent. That's much more than

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Speaker 2: the director's deal, which includes increases every year of the

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Speaker 2: contract of five percent, four percent and three point five percent.

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Speaker 2: The actors say that streaming has led to significantly lower residuals.

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Speaker 2: Tell us about the fight over residuals.

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Speaker 4: So for a residuals fight, the issue is it's a

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Speaker 4: much larger structural issue than it is just a simple

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Speaker 4: one of the numbers needing to be increased because prior

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Speaker 4: to streaming, the business model of television was different, and

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Speaker 4: so there was a much bigger opportunity to make more

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Speaker 4: money for actors. And also this carries over to the

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Speaker 4: writer's strike as well. In residuals and the residual structures

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Speaker 4: in streaming are different and the amounts are different, and

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Speaker 4: ultimately the move to increase the residuals is not apples

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Speaker 4: to apples to necessarily. The compensation structures pre streaming are explain.

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Speaker 2: A little bit more about how the streaming revolution has

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Speaker 2: affected residuals and why actors want changes.

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Speaker 4: So the calculations for the residuals structure with streaming are different,

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Speaker 4: and part of the issue is these things like residuals

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Speaker 4: and scale minimums can be taken in a vacuum, but

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Speaker 4: what they represent is overall much greater shift that results

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Speaker 4: in a larger cumulative impact the compensation structures in entertainment

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Speaker 4: more broadly, and you see similar issues in WGA strike

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Speaker 4: as well. And it's a difficult place to be because

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Speaker 4: it is on one hand understandable that the memberships would

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Speaker 4: want to continue to increase their compensation. On the other hand,

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Speaker 4: it is also difficult because the larger business has shifted

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Speaker 4: and involved as well, and so as the agreements come

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Speaker 4: up for renegotiation every few years. With the guilt, it's

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Speaker 4: both having to address how things are currently and where

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Speaker 4: the collective parties think they're going to go in the future.

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Speaker 2: Do you know what actors are asking for as far

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Speaker 2: as streaming is concerned.

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Speaker 4: So the residuals increase is one piece. The much bigger

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Speaker 4: piece from my perspective, and this is what I hear

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Speaker 4: from a lot of talent representatives as well, is the

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Speaker 4: revenue share. They're asking for a two percent of the

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Speaker 4: revenue share for a show to go to the performers.

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Speaker 4: And this is from a deal making respective. The biggest

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Speaker 4: issue because under the older models for television, when there

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Speaker 4: was a back end participation, people with back end, which

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Speaker 4: could be the showrunner actors would benefit from the success

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Speaker 4: of the show. And it was essentially a long tail participation,

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Speaker 4: so if a show went into syndication, if it had

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Speaker 4: a long life cycle, so things like Cheers, Friends, Bone Seinfeld,

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Speaker 4: these are all long running popular shows that resulted in

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Speaker 4: significant compensation for you know, some of the participants. The

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Speaker 4: streaming model changed that kind of compensation structure in that

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Speaker 4: in many cases it's what's called a cost plus or

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Speaker 4: a premium, and so the compensation is increased upfront, but

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Speaker 4: don't get the same kind of long tail, more speculative compensation,

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Speaker 4: so everybody is not necessarily treated the same, but the

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Speaker 4: upfront compensation is higher comparatively whether or not the show

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Speaker 4: is a success. But the flip side of that, so

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Speaker 4: you can have a show that's a failure and someone

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Speaker 4: has been paid out this agreement, or you can have

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Speaker 4: a show that is a huge success but there's nothing additional.

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Speaker 4: And so what Sag proposed is that there's a way

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Speaker 4: to calculate the value of each show and that actors

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Speaker 4: should participate in that calculated value. And I need that

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Speaker 4: the very polarizing topic because the value of a show,

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Speaker 4: it's not just direct viewership, but social media mentioned and

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Speaker 4: a lot of other data points. I think there's a

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Speaker 4: lot of disagreement in the industry in terms of how

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Speaker 4: that would work in a practical way.

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Speaker 2: So even just your attempt to describe it shows how

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Speaker 2: complicated and confusing it is. And then you have the

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Speaker 2: group presenting the studios saying that streaming isn't making money

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Speaker 2: yet most streaming networks.

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Speaker 4: Well and see. And that is a really key point

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Speaker 4: to the timing about this because in many ways, everyone,

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Speaker 4: a lot of people in entertainment have been the beneficiaries

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Speaker 4: of all of these streaming platforms launched. There was a

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Speaker 4: tremendous push for content so there's been a tremendous amount

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Speaker 4: of deal making in the last few years, and then

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Speaker 4: there are you know, there are far more writers working

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Speaker 4: than there used to be, So in some ways it's

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Speaker 4: been really good. But in the last eighteen months there

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Speaker 4: have been some significant resets because the reality is is

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Speaker 4: that the economics of launching a streaming platform that, for example,

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Speaker 4: a subscriber base, it's very different. And so what we've

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Speaker 4: seen in the last year and a half industry wide,

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Speaker 4: and this is both an entertainment and a tech industry issue,

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Speaker 4: is companies pulling back and there have been layoffs of

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Speaker 4: both of those industries. And I'd say almost probably every

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Speaker 4: studio and production company out there is looking at their

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Speaker 4: development spends and really looking at cutting costs. And so

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Speaker 4: you have this larger move towards belt tightening at the

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Speaker 4: studio level, and you have a situation where we have

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Speaker 4: the two major guilds that are on strike now asking

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Speaker 4: for increased compensation across all key areas. And those two

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Speaker 4: things are really in conflict because we are not in

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Speaker 4: a situation as an industry where it's just unbettered financial success.

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Speaker 2: Let's talk a little bit about the use of the AI,

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Speaker 2: which is apparently an another problem or sticking point in

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Speaker 2: the negotiations where does each side stand on that?

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Speaker 4: And there are slight differences between and between w J

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Speaker 4: and ZAG, So I think everyone is in agreement that

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Speaker 4: AI has become one of, if not the largest issue

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Speaker 4: currently and it is a particular concern to book writers

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Speaker 4: and actors because it goes to their livelihoods because it

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Speaker 4: can be used in ways to supplement or substitute. And

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Speaker 4: I do think that the TAG membership is slightly better

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Speaker 4: situated to find a workable model with the AMPTP in

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Speaker 4: the agreement because there are contractual systems in place to

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Speaker 4: already deal with certain approval rights and limitations over use

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Speaker 4: of likeness in content. So there seems to be some

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Speaker 4: disagreement between the two sides about to what extent they

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Speaker 4: are near agreement on it or not. But ultimately it

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Speaker 4: is such a quickly evolving space, both legally and in

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Speaker 4: practicality and how it can be used that I think

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Speaker 4: that it's also very difficult to identify how something is

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Speaker 4: going to evolve because the agreements are in place until

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Speaker 4: the next round of negotiations. Something that is going to

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Speaker 4: be perspective as well when it is in the world

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Speaker 4: being developed, so quickly.

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Speaker 2: Basically explain what the concern is for actors in AI,

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Speaker 2: what they're afraid of.

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Speaker 4: So they're afraid of two things. One is they're being

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Speaker 4: used in ways beyond, for example, one film, so they're

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Speaker 4: concerned about the potential of having their likeness used in

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Speaker 4: things outside of that and having performances attributed to them

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Speaker 4: that they didn't originally connect. The other issue is training.

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Speaker 4: They don't want what has been recorded to these just

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Speaker 4: to train the AI.

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Speaker 2: The Writer's Guild has been on strike I think since May,

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Speaker 2: and I don't even know if there have been negotiations lately.

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Speaker 2: So what are the prospects of the strike will be

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Speaker 2: settled within a reasonable period of time or could this

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Speaker 2: go on for months and months and months.

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Speaker 4: So my answer today is going to be different from

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Speaker 4: my answer a week ago. So the WGA has been

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Speaker 4: on strike since midnight on the first. There has, as

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Speaker 4: far as I'm aware, it not been any discussions with

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Speaker 4: the AMPTP. I think that some membership and representatives of

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Speaker 4: WGA have said, you know, they're ready, willing and able

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Speaker 4: to return to the negotiating table, and the ampp P

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Speaker 4: has not so. Prior to SAG going on strike, it

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Speaker 4: seemed likely that maybe the end of the summer would

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Speaker 4: be the time for the WGA agreement to be resolved.

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Speaker 4: So around Labor Day, everyone that back to school feeling

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Speaker 4: of getting back to work, because the other key timing

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Speaker 4: piece is the entertainment industry essentially shut down for the

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Speaker 4: last two weeks of the year, so usually after Thanksgiving

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Speaker 4: there's a big rush to get steels done, but a

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Speaker 4: lot of the calendaring of production and schedules is structured

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Speaker 4: around that. Now that SAG has gone on strike, it

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Speaker 4: is from my perspective, extremely unlikely that this will be

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Speaker 4: resolved by the end of the summer because we now

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Speaker 4: have two unions on strike. Everything that I have read

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Speaker 4: and heard for SAG, at least it's not just a

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Speaker 4: few issues. I think the WJA issues are narrowed down

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Speaker 4: more significantly. There are many more issues reportedly with the

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Speaker 4: SAG agreement.

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Speaker 2: Thanks so much for being on the show. That's Brianna Hill,

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Speaker 2: a partner prior Cashman.

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Speaker 3: The Federal Trade Commission is going to take a huge

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Speaker 3: step forward in banning non compete agreements that are designed

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Speaker 3: simply to lower people's wages. These agreements block millions of

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Speaker 3: retail workers, construction workers, and other working folks have taking

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Speaker 3: better jobs get better pay and benefits in the same field.

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Speaker 2: In January, President Joe Biden touted the FTC's proposal to

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Speaker 2: ban noncompete clauses in employment contracts, which about thirty million

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Speaker 2: Americans are subject to. But while the FTC's rulemaking process

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Speaker 2: is slow and not likely to conclude until April of

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Speaker 2: twenty twenty four, New York has already passed one of

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Speaker 2: the country's toughest bands on non compete agreements. However, as

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Speaker 2: the measure sits on Governor Kathy Hochel's desk awaiting her signature,

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Speaker 2: Wall Street is fighting back. Non Competes are particularly prominent

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Speaker 2: in financial firms and lobbying groups representing hundreds of firms,

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Speaker 2: including banks, private equity firms, law firms, retail giants, and

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Speaker 2: telecom companies have gone to work pushing for exceptions to

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Speaker 2: the bill. Joining me is labor and employment law expert

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Speaker 2: And Lafasso, a professor at the West Virginia University College

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Speaker 2: of Law, and what makes New York's.

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Speaker 5: Law so tough, Well, it's just that it doesn't have

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Speaker 5: exceptions in it right now, and so that's why it's tough.

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Speaker 5: So it would apply to everyone, and there seems to

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Speaker 5: be a growing consensus that non compete should be banned

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Speaker 5: for low wage journers, but not for certain workers who

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Speaker 5: have trade secrets and no certain information in their company

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Speaker 5: that they can then use against that company in competitive environment.

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Speaker 5: And that's what businesses are really concerned about. They're not

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Speaker 5: concerned about the low way journeers. On the other hand,

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Speaker 5: there is a problem because these non competes were being

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Speaker 5: used against workers who had no trade secrets. I mean,

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Speaker 5: if businesses concern are the trade secrets, then let's just

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Speaker 5: talk about those.

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Speaker 2: Yeah, can't they protect themselves with confidentiality or non solicitation

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Speaker 2: agreements and trade secret laws.

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Speaker 5: They could do that, and that's why in some sense

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Speaker 5: you have to question what their motives are. I would

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Speaker 5: say their motive is probably to be really cautious and

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Speaker 5: they want to protect it in many different ways, and

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Speaker 5: so they're very concerned about that. But you're right, they

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Speaker 5: can probably protect this information in many other ways. Now

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Speaker 5: here's the problem. Once they start working for another company,

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Speaker 5: if that employ u then gives the trade secrets, it

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Speaker 5: may be harder to prove, So it's just easier to

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Speaker 5: keep them from giving away the secrets by not letting

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Speaker 5: them work at all. And so that's what the issue

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Speaker 5: really is, and I think that's probably what's motivating in

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Speaker 5: the companies right now.

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Speaker 1: So let's back up a bit.

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Speaker 2: Can you give me basically the pros and cons of

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Speaker 2: banning non competes.

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Speaker 5: Well, if you ban noncompete, what you're really doing is

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Speaker 5: you're creating a more competitive environment. So you're saying, if

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Speaker 5: we really are a free market, capitalist country, let's take

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Speaker 5: that seriously, and you're allowing for the free movement of workers.

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Speaker 5: And it goes hand in hand with at will. At

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Speaker 5: will is you can be fired for any reason, good

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Speaker 5: or about it for no reason at all, and you

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Speaker 5: can leave for any reason, good about it for no

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Speaker 5: reason at all. And New York is a strong at

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Speaker 5: will state. And the point of that, supposedly is the

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Speaker 5: free market. So this allows for this free movement of workers.

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Speaker 5: The con to banning these agreements is really the trade secrets.

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Speaker 5: That the companies are concerned about their trade secrets. But

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Speaker 5: our whole country has been built on allowing innovation to

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Speaker 5: freely move around companies. I mean, if you look back,

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Speaker 5: the cotton gin was stolen from British inventors and brought

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Speaker 5: over here. So really what companies are worried about is

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Speaker 5: they want to keep that competitive advantage. So if your

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Speaker 5: pure free market, you should be in favor of bands

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Speaker 5: on non competes. If you're trying to protect companies, you

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Speaker 5: should be in favor of certain exceptions. I guess another

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Speaker 5: thing is though, that companies might be shy to develop

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Speaker 5: certain secrets if they know that they can be stolen

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Speaker 5: very easily. So maybe there's a good compromise there where

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Speaker 5: you can protect those secrets for a certain amount of time.

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Speaker 5: And that's what intellectual property law is made for, is

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Speaker 5: to kind of figure out what that right balance is.

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Speaker 2: Groups representing hundreds of firms, including banks, private equity law firms,

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Speaker 2: retail giants, and telecom companies, are lobbying the governor to

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Speaker 2: make changes, and Paul Zuber of the Business Council of

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Speaker 2: New York State told Bloomberg, I think the legislature was

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Speaker 2: trying to help that person who's a low wage worker

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Speaker 2: that has a non compete. I don't think it was

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Speaker 2: ever their intent to go as broad as senior management

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Speaker 2: at financial services, banking, tech, entertainment sectors and more. Do

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Speaker 2: you think that's true? I mean, doesn't the legislature understand

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Speaker 2: what they're outlying here?

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Speaker 5: I have no idea what the legislature is thinking. I

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Speaker 5: think that's probably his charitable way of saying, Look, if

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Speaker 5: you go too far with this, then we are going

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Speaker 5: to have to litigate this really hard, and this is

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Speaker 5: going to be a problem. Remember, New York is a

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Speaker 5: big important center for these types of companies. And maybe

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Speaker 5: also what he's suggesting is they'll move out of state. Right,

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Speaker 5: you always have to worry about the free movement of capital. Also,

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Speaker 5: so he does make a persuasive case that might allow

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Speaker 5: for New York to get most of its cake and

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Speaker 5: eat it too. This does allow the parties to open

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Speaker 5: up a conversation about how best to protect those trade

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Speaker 5: secrets and how best to deal with those types of workers.

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Speaker 5: And it does show a concession on his part that, wait,

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Speaker 5: maybe we have been enforcing this too broadly. I know

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Speaker 5: in West Virginia where I teach, they were trying to

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Speaker 5: enforce non competes against gymnastics coaches, and in a rural

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Speaker 5: area like West Virginia, they'll have like one hundred mile

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Speaker 5: geographic ban or something like that. I mean, it just

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Speaker 5: it doesn't make a lot of sense for a gymnastics

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Speaker 5: coach to have a non compete enforced against him or her.

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Speaker 5: No sense. And they're also doing this coal miners. I mean,

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Speaker 5: why does it matter whether coal miner works for one

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Speaker 5: coal company or another coal company. So then you really

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Speaker 5: start to see that they're just trying to poach workers,

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Speaker 5: which is a problem on the free market. So I

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Speaker 5: think the trade secrets and the intellectual property is a

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Speaker 5: legitimate business interest. Even in a free market. It is

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Speaker 5: some restraint on trade, but I think we have to

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Speaker 5: recognize it's a legitimate interest and that the governor's office

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Speaker 5: needs to at least engage in those discussions and come

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Speaker 5: to some sort of agreement that everyone can live with.

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Speaker 2: I understand that, especially financial firms have prohibitions on employees

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Speaker 2: moving to a new job that can run as long

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Speaker 2: as two years, right, doesn't that effectively bind them to

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Speaker 2: their job unless they want to change careers or they

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Speaker 2: have enough money to last two years.

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Speaker 5: It's a problem. There's usually a geographic restraint on it

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Speaker 5: as well, though, so they can and leave new York.

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Speaker 5: But in the financial industry, where you're going to go

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Speaker 5: it is New York, right, So I suppose they can

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Speaker 5: go to London or Frankfort, But who's going to pick

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Speaker 5: up and move all the way over there. And that's

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Speaker 5: another thing, these geographic restraints. How willing are most Americans

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Speaker 5: to even move out of state? So most courts have

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Speaker 5: found that non compete clauses, even where they're legal, are

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Speaker 5: void where they're not both time and geographically restricted. And

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Speaker 5: you're right, two years is a long time, but that's

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Speaker 5: what's been allowed as reasonable and then a reasonable geographic restriction.

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Speaker 5: But those are still problematic from the employee's point of view.

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Speaker 2: I mean, is there a lot of litigation over non

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Speaker 2: compete clauses.

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Speaker 5: Yes, they're litigated quite frequently. I've seen people have non

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Speaker 5: competes and even if they're a specialized worker, I've said, well,

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Speaker 5: why don't you just ask for your employer to let

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Speaker 5: you out of it. A lot of times employers will

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Speaker 5: just let you out of it when you don't have

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Speaker 5: a trade secret, or even though you're making a lot

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Speaker 5: of money, you're not very high level. But a lot

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Speaker 5: of times employers either just feel the need to impose

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Speaker 5: their power over an employee. I mean, there's litigation over

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Speaker 5: coal miners. It seems ridiculous the coal miners can't go

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Speaker 5: from one mind to another. And this really does lower wages.

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Speaker 5: So there's been studies about that where when you have

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Speaker 5: these broad non competes, you really are lowing wages. So

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Speaker 5: that again I would say, that's an illegitimate interest of

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Speaker 5: employers because they're saying they don't want to compete freely.

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Speaker 5: So I think if they can focus with the Governor's

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Speaker 5: office on what they really care about and what's the

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Speaker 5: really legitimate interest, which are these trade secrets, I think

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Speaker 5: likely that the Governor's office will come to some sort

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Speaker 5: of agreement with them. Now whether or not the two

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Speaker 5: chambers of the New York Legislature will then agree to that,

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Speaker 5: because in New York, if there are any amendments, they

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Speaker 5: have to go back to the legislature for approval, and

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Speaker 5: so time will tell.

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Speaker 2: So and let me ask you this, when a court

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Speaker 2: is looking at a non compete, what are some of

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Speaker 2: the things they're looking at.

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Speaker 5: The reasonableness of it? And reasonableness will vary from state

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Speaker 5: to state, but the two things they really look at

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Speaker 5: are time in geography, So most courts, we'll say up

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Speaker 5: to two years is reasonable, and most courts will say

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Speaker 5: twenty five miles fifty miles. But what's reasonable also could vary,

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Speaker 5: like what's reasonable in New York City may not be

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Speaker 5: reasonable in rural New York. So this is something courts

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Speaker 5: are very good at. They're very good at balancing things.

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Speaker 5: So that's what courts will look at, are those two

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Speaker 5: variables within the context of the industry and the geography

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Speaker 5: of that particular jurisdiction.

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Speaker 2: Thanks so much, Anne Best, Professor Alfasso of the West

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Speaker 2: Virginia University College of Law, and that's it for this

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Speaker 2: edition of The Bloomberg Law Show. Remember you can always

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Speaker 2: get the latest legal news on our Bloomberg Law Podcast.

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