You’re fired! (But I still have to pay you?)

You’re fired! (But I still have to pay you?)

We often think that if we fire someone, they are no longer entitled to be paid. But that is not always so. This is especially true in Hollywood, as can be seen from the recent ruling in the litigation between Lisa Kudrow and Scott Howard, her former manager, reports the Hollywood Reporter. While Ms. Kudrow fired Mr. Howard, he claims he is still entited to a percentage of her income even though they had no written agreement giving him such a right. Is this is a stretch? Yes and no.

Generally speaking, agreements can be for a term or at will. If they are for a term, say five years, they cannot usually be terminated before the term unless it is for cause — which means one of the parties breached the contract. If the agreement is at will, it can be terminated at anytime. Most agreements are at will. Regardless of which agreement you enter into, you can always negotiate for residual rights that exist after termination. For example, if you manage Mick Jagger and give him a management agreement which gives you the right to 5% of this income for five years even after the term of the agreement is over, which is called a “sunset clause,” then you get paid even when he is touring and you are no longer his manager.

The crinkle in Ms. Kudrow’s case is that there is no written agreement. Instead, the parties only had a verbal understanding of their relationship. This makes for tough proof at trial concerning the contours of this agreement. That’s why Mr. Howard sought to introduce what is called “custom and usage” evidence in the trial court. This evidence basically shows that some rule is so widely known in an industry and accepted that a party consents to the rule in any contract even if it isn’t explicitly written — or said — in the contract. The lower court rejected this argument because, in its view, the proffered expert in the case only entered the industry in 1998, which is after the parties made their agreement in 1991. The appellate court reversed and allowed the testimony.

Whether Mr. Howard wins at trial remains to be seen. However, in allowing the testimony of a custom and usage expert such as this one, the appellate court signaled to the entertainment industry that it is better to specifically contract out of these type of sunset clauses or else they may be presumed to exist in your contract even if it is not so written.

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