Reintroduced FAIR Act Bill to Repeal Amendment to ‘Seven-Year Statute’ Up for Vote in California Senate

Reintroduced FAIR Act Bill to Repeal Amendment to ‘Seven-Year Statute’ Up for Vote in California Senate

After being pulled from the docket one day before a slated California Assembly committee hearing in April, the Free Artists from Industry Restrictions (FAIR) Act has been reintroduced into the California Senate and will receive its first hearing before that body next Wednesday (June 22).

The California Senate’s Labor, Public Employment and Retirement committee will hear the Fair Act, now also known as AB 983, which seeks to repeal a 1987 amendment to California’s “Seven-Year Statute” (a.k.a. California Labor Code Section 2855). That amendment allows record labels to sue artists for damages (including potential lost revenue) if they leave after seven years but before delivering the required number of albums in their contract.

The Seven-Year Statute, which limits personal services contracts for state residents to seven years, was enacted in 1944 following the judgment in actress Olivia de Havilland’s lawsuit against Warner Bros. Pictures.

AB 983 is supported by the CA Fair Act Coalition, a collective that includes The Music Artists Coalition, the Black Music Action Coalition, The Recording Academy, Future of Music Coalition, Songwriters of North America and SAG-AFTRA.

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Among the opponents of the bill are the Recording Industry Association of America (RIAA) and the California Music Coalition, which represent the music labels.

The reintroduction brings new life to the bill, which was introduced in its last iteration by Calif. Assemblymember Ash Kalra, D-San Jose, in February. The bill, then known as AB2926, had passed through the Assembly’s Labor & Employment Committee on March 30, but then was pulled the day before a slated April 19 hearing before the Arts committee. That bill built on AB 1385, which was introduced by former Assemblymember Lorena Gonzalez, D-San Diego, in March 2021, but she pulled the bill in December, when she left office to become head of the California Labor Federation,

Kalra, along with new co-sponsor, Assemblymember Eduardo Garcia, D-Coachella, reintroduced the bill in May via a process known as Gut & Amend: the language of a bill that has already passed through the Assembly and is now in the California Senate is taken out and the language of the new bill is inserted.

The new bill retains much of the language of AB2926, but portions that pertained to actors have been removed—though SAG-AFTRA still supports the bill– with the focus squarely on the music.

Additionally, AB 983 no longer includes a section added into AB 2926 that dealt with label renegotiations and various criteria that must be met if a new seven-year contract begins. Added to the new bill is a label-friendly clause that states in addition to an artist giving their label written notice about their intent to leave after seven years, they must pay back unrecouped advances by “Paying the [label] an amount equal to the contractual advances actually paid by the [label] to the music talent that are directly and solely related to phonorecords that have not been received by the [label], provided that the amount shall be credited to the music talent’s existing royalty account.”

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Prior to the hearing, the CA Fair Act Coalition released an economic analysis Thursday (June 16) that it funded outlining the benefits to passing the legislation and “allowing recording artists to receive equal treatment under the law as all other Californians.”

Prepared by Hal Singer, managing director of Econ One and an adjunct professor at Georgetown’s McDonough School of Business, and Ted Tatos, a qualitative economist at Econ One and association economics editor of the Antitrust Bulletin, the analysis serves as a primer on how record contracts work far beyond the parameters of the seven-year statute. It also seeks to refute an opposition economic study funded by the RIAA in May 2021 and updated this March by David Blackburn, Ph.D, director of NERA Economic Consulting’s Communications, Media and Internet, Intellectual Property and Antitrust Practices.

The CA Fair Act Coalition study lays out many ways in which traditional recording contracts have favored the record companies and points to a litany of lawsuits by artists, including Eagles, LeAnn Rimes and Kesha, over the years that allege power imbalances in contracts. The study highlights Megan Thee Stallion’s current suit against record label 1501 Certified, which questions how labels determine which releases count as “albums” toward an artist’s delivery obligations (and, therefore count toward the conditions that would allow the artist to leave after seven years without penalty), but still own and profit from that release even if the label does not allow it to count toward an artist’s obligation.

Streaming — obviously not in play when the 1987 carve-out was passed — has also radically changed the economics, and further creates inequity between the label and artist, according to the study.

The study compares the effect of the seven-year statute carve out to the reserve clause in professional sports that contractually bound an athlete to a single team and provided team owners a “perpetual one-year option to retain a player’s services over his entire career.” Through various means, the provision has been eliminated in sports, providing a greater balance of power between owners and athletes. “AB-983 would achieve precisely the same aim—lifting artists’ wages and shifting artists’ wage share back in the direction of competitive levels that have been eroded not only by the exception to the seven-year rule, but also by the consolidation of the industry,” the study argues.

Though the RIAA’s Blackburn study cites that record labels are on the hook for advances paid to an artist whose album earns no revenues and, therefore, the advance cannot be recouped by the label, the CA Fair Act Coalition study lays out ways in which labels may recoup their advance so they earn money before the artist. These include withholding artist royalties until the advance is recouped, limiting advances to singles instead of albums and the label retaining the rights to the recordings. The study suggests that “if the album performs poorly, the label can walk away,” but does not acknowledge that many acts don’t sell enough to ever pay back their advances.

The new study also takes exception to the record labels’ argument that AB-983 will lead to less incentive for labels to invest in new artists if labels are not allowed to collect damages, citing the RIAA’s own report touting a record $15 billion made by music companies in 2021.

The Blackburn report was written in opposition to AB 2926 and, therefore, does not address the changes made in AB 983, including the repayment of advances on unreleased albums and the elimination of the renegotiation criteria. However, it maintains that there is no reason to upend a bill that has been in effect since 1987, given how few artists it actually affects—most acts have either been dropped before reaching seven years or have renegotiated more favorable terms. Furthermore, the study notes that the initial financial risks are all borne by the label, and, therefore, “record labels must be afforded a meaningful and protected share of the upside in order to be willing to take on the initial investment… [including] the right to collect damages at the end of a seven-year contract for any contracted, but unproduced albums.”

If AB 983 passes the Labor committee, it moves to the Senate Judiciary committee for a June 28 hearing and vote.

Reintroduced FAIR Act Bill to Repeal Amendment to ‘Seven-Year Statute’ Up for Vote in California Senate After being pulled from the docket one day before a slated California Assembly committee hearing in April, the Free Artists from Industry Restrictions (FAIR) Act has been reintroduced into the California Senate and will receive its first hearing before that…