Legal Fallout From A Hollywood Strike

Just in case there is ever a strike in Hollywood, this article summarizes the legal fallout of who can sue whom for what. The Hollywood guilds are unions, so I will use the term union instead of guild throughout this article.

Let’s start with the members of the striking union. Under union rules, the members are required to stop performing services under all contracts for work that is within the jurisdiction of the striking union (“Covered Contracts”), with narrow exceptions for “financial core” members and foreign members that are also members of a foreign union.

When a strike occurs, the employer cannot sue the striking member for breach of contract, but the employer has several other options:

• The employer can elect to treat a Covered Contract as suspended, with the contracts coming back to life right where they left off (including the remaining term) when the strike ends, including the right to sue for breach if the member does not come back.

• During the strike, the employer can replace the striking member with someone who is willing to incur the wrath of the striking union. The replacement can be on a permanent or temporary basis, but if the replacement is only temporary, the employer must offer the striking member the job back when the employment of the temporary replacement ends. This alternative is impractical in Hollywood and is seldom, if ever, used. If the strike ends without a replacement, and the employer has not eliminated the job position pursuant to the next paragraph, the employer must offer the job back to the same member before they hire someone else.

• Most profoundly, the Supreme Court has held that the employer can just eliminate the job position of the striking member entirely, with no replacement, “for substantial and bona fide reasons other than considerations relating to labor relations, for example, the need to adapt to changes in business conditions or to improve efficiency.” The studios have done exactly this in the past.

In theory, these alternatives can be modified by the contract between the employer and the union (the “Union Agreement”), but most Union Agreements, including the above-the-line Union Agreements in Hollywood, don’t change these options.

Let’s next look at people that are not members of the striking union but who breach an existing contract by honoring a picket line or stopping work (“Sympathy Strikers”). The analysis here can be divided into four categories:

• If the Sympathy Strikers are members of another union with a Union Agreement that protects Sympathy Strikers, the conduct is protected, and the employer cannot sue for breach.

• If the Sympathy Strikers are members of another union with a Union Agreement that prohibits this activity, the Sympathy Strikers are in breach.

• For all other Sympathy Strikers (e.g., not members of any union or covered by a Union Agreement that does not protect or prohibit Sympathy Strikers), the courts have held that while the employer cannot treat the Sympathy Strikers as being in breach solely out of animus to unions, they can treat the Sympathy Strikers as in breach (with immediate termination) for valid business justification, such as the need to avoid business interruption.

• If the Sympathy Strikers are members of the striking union but also perform other services that are not covered by the strike, they are subject to one of the three categories above with respect to such other services.

How about people or companies that want to perform their contracts but breach them due to the strike (“Breaching Parties”), such as parties to a contract to deliver a show or film by a particular date, but delivery gets derailed by a strike? The answer depends on two alternatives:

If the contracts do not have a force majeure clause (discussed below), the Breaching Parties are in trouble, because the two defenses provided by case law (“impracticability” and “frustration of purpose”) both require the breach to be caused by an unforeseeable event. Most courts have held that strikes are foreseeable, particularly in industries that are prone to strikes like the entertainment industry, so these defenses do not apply. Even when a court holds that a strike was unforeseeable, most courts impose a very high hurdle of difficulty before they permit these defenses.

If a contract does have a force majeure clause, the consequences depend on the precise wording of the clause:

• Most force majeure clauses excuse or suspend performance if “performance is prevented by an event of force majeure.” Some courts have interpreted this wording as requiring a very high level of difficulty to excuse performance and require the Breaching Party to find some alternative at almost any cost. For example, in interpreting this clause in the context of a strike, the California Supreme Court stated, “Even in the case of a force majeure provision in a contract, mere increase in expense does not excuse the performance unless there exists extreme and unreasonable difficulty, expense, injury, or loss involved.” Some force majeure clauses specify a lesser degree of difficulty, so the precise wording matters. I refer to the required degree of difficulty to trigger the defense as the “Performance Hurdle” in the discussion below.

• Under most force majeure clauses, if there is an event of force majeure and the Performance Hurdle is met, performance is delayed up to a stated time, but performance is not excused entirely unless the force majeure event lasts past the stated time.

• If the clause lists a strike as an event of force majeure, then a strike will be included as a covered event, whether or not foreseeable, but the Breaching Party must still get past the Performance Hurdle to have a defense.

• If the clause lists a number of specific examples of force majeure, but does not mention a strike, the courts look to see if a strike is similar to the listed events. For example, a list that includes “labor strife” would be interpreted to include a strike, but the Breaching Party must still get past the Performance Hurdle.

• If the clause does not list any specific events and has a general reference to “force majeure events” or “acts of God,” then most courts have held that any claimed event of force majeure must be unforeseeable. As discussed above, most courts have held that a strike is foreseeable, so this type of clause may not provide a defense to the Breaching Party even if the Performance Hurdle is met.

Another issue raised by a strike is whether damages caused by the strike are covered by insurance, and most general business insurance policies don’t cover strikes unless there is a separate rider or policy that expressly covers it.

The one group of people that are sure to benefit from a strike are litigators, who will be sorting out the detritus for years.