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Ask a Lawyer // May 2016 // A Case Study in Design World Legal Issues

Written by
Matthew S. Johnston
Published
May 9, 2016
Categories

This month, a couple of designers approached me with their story and offered their experience up as a cautionary tale in the design world’s legal issues. To keep the story straight, here is the cast of characters.

  • Hermione (our design heroine);
  • Ron (our photography and website hero)
  • Gotham Designs, the company for whom Hermione worked as an employee and for whom Ron did some freelance photography work;
  • Harvey Twoface, Hermione’s boss at Darkside and the villain in this story.

This case study will take a look at a number of issues, ways to address and perhaps prevent the events that occurred here. While no one thinks these events could happened to them, the fact is that these are common events, even if they don’t always happen to one person at one time.

The Case

Hermione is a talented designer who took a job with Gotham Design. When Hermione started with Gotham, Twoface gave her a lengthy job description and employment contract. Because Twoface thinks he is smarter than the average bear, he drafted the employment contract, which contained enough chaos to make the Joker look like a rookie. To say the employment contract was a nightmare would be an understatement. The contract contained not one, but two different dispute resolution provisions, a poorly written non-compete provision, and lacked a provision for sharing Hermione’s work product in Hermione’s personal portfolio.

One of Hermione’s job duties was to arrange for third party photographers to document her work on behalf of Gotham and Twoface. The photographs were given to Gotham to promote their work on their website and other media. With Twoface’s knowledge and approval, Hermione hired Ron to photograph one of Gotham’s projects. Ron performed the photo-shoot and handed over the best photos to Gotham for use on Gotham’s website. Gotham paid Ron for his work at the agreed upon price. Gotham, however, did not have a written contract with Ron (or any of the other photographers for that matter).

But Gotham was not a pleasant place to work and eventually Hermione resigned from Gotham. While preparing for her next career move, Hermione asked Ron to build a personal portfolio site for her. Ron built a lovely website that showcased some of her most recent work for Gotham. Hermione got permission from Ron and the other photographers to use their photographs on her website.

Our tale takes a turn when Twoface discovers the website. Twoface went all Valdemort on Hermione, demanded she and Ron take down her website claiming it was a violation of the non-compete, a violation of non-solicit provisions, and that the website contained company property (the pictures of Herminone’s work) stolen from company computers. Hermione, in order to keep the peace, complied, took down the website, and turned over the photos and source files for the website. Twoface then went all Darth Vader, altered the deal further and demanded Hermione finish three projects for Gotham for $1,000. Hermione agreed to do so in exchange for Gotham and Twoface dropping all other claims and potential claims. Twoface refused and had his lawyer send Hermione a nasty-gram. Hermione consulted a lawyer (not me yet) and the lawyer sent a letter to Twoface. Twoface got really mad and refused to give up any claims and issued an ultimatum, “do the work or I will file lawsuit in court” (in violation of not one but both poorly written dispute resolution provisions).

So to say that Hermione and Ron face a hot mess is an understatement. Their situation is going to make a great seminar case study one day, but in this article I will address three major issues in play: Hermione’s employment contract, noncompete/non-solicitation contracts, and a copyright issue.

Hermione’s Un-Reviewed Employment Contract

As designers, if you are going to work for any design firm, you may be presented with one or more of the following: an employment contract, a non-compete/non-solicit agreement, or an assignment of copyright agreement. As the employee, you have a right to have independent counsel review the contracts. If the employer says “no you have to sign them now” you may want to re-consider your decision to work for that company.

First rule of thumb. Always have an independent counsel review the contracts. Yes, these contracts are common place and they are usually pretty formulaic. However, had Hermione engaged a lawyer to review her employment contract at the start of her employment with Gotham, Twoface’s pitiful attempts at drafting a contract would have been spotted and addressed. Hermione is not unlike any other people entering a new business relationship. Usually no one usually anticipates the ending of the relationship, but lawyers do and they can be a big help in addressing what is going to happen when the employment relationship ends. If poorly worded contracts are addressed at the start of a relationship, when everything is still rosy, then the chances of a contentious discussion are very small.

Second rule of thumb. If you are a creative professional, always be thinking about your reputation and future employment. Speak with employers and clients about having a personal portfolio (either print or electronic) and retain a right to display your work. Give attribution where appropriate and keep client information confidential where appropriate.

If you are in Gotham’s position, don’t be a villain—remember your company’s reputation derives from the quality and creativity of your staff—celebrate it and allow your employees to celebrate it. Design firms can reasonably request attribution and even links to the company website in return for allowing a designer to maintain a personal portfolio page.

Noncompete/Non-Solicitation Contracts

Noncompete and non-solicitation clauses are common in service industries to protect the source of a company’s revenue—the clients. However, courts disfavor noncompete and non-solicitation contracts as a restraint on trade or someone’s ability to practice their chosen profession. As a result to avoid legal entanglements, noncompete and non-solicit provisions should be narrowly written to protect the employer’s legitimate business interests in two ways, time and geography. Time means how long after the termination of employment the contracts apply and geography means how far from the employee’s primary work place the contracts apply. Both factors must be independently reasonable and calculated to protect the employer’s interest. So telling a designer that they cannot compete with the employer is okay so long as the restrictions are reasonable. Contracts that restrict a departing employee’s ability to contact current or prospective clients are also reasonable so long as the time frame is not excessive. Sadly though, there are few bright lines rules in these kinds of contracts.

Non-solicit agreements have to be specific and cover specific categories of a company’s clientele. All current clients at the time of termination is specific enough. All prospective clients is not specific enough because in theory, a prospective client could be anyone. But a clause that says a designer shall not solicit any current clients, any client for whom the designer worked in the past six months, and any prospective client who has received a proposal in the past six months would be specific enough.

Twoface did not write a true non-compete provision, although he did try to have a non-solicitation agreement. But Twoface improperly claimed that Hermione’s personal portfolio website was an improper solicitation. That claim could not be further from the truth. A website, even a Linked In or Facebook status that says “Here is where I am working now,” is not considered a solicitation since there is no offer for services or expectation that any specific client leave Gotham for Hermione’s new studio.

Twoface’s error was not in having a lawyer draft a noncompete/non-solicit agreement. These provisions are tricky and one size does not fit all (despite what some websites will tell you). Contracts that restrain trade or limit someone from practicing their chosen profession are unique to a given industry and even the company. Twoface would probably lose in a court if he tried to enforce the non-solicit agreement he drafted.

Copyright Issue

Twoface and Gotham insist that they own Ron’s photographs and that Hermione was forbidden to use them on her website. Leaving aside the issue of Hermione turning over the photos and website, Gotham is completely wrong. There was no written agreement between Ron and Gotham or between Gotham and the other photographers to transfer ownership or any of the copyrights of the photographs. As a result, Ron still owns the copyrights to the photographs.

The minute Ron snapped the photograph and the RAW file was created on his camera (assuming it was a digital camera), all the copyrights to the photographs belonged to Ron. Under copyright law, ownership and control rights can only be transferred by a written agreement, either work made for hire agreement or a stand-alone rights assignment agreement.

When Ron delivered the photos and got paid, at best Twoface and Gotham received an implied non-exclusive license to use Ron’s photographs in any way Gotham chose, but Ron still had the right to license others to use the photos. Gotham and Twoface probably think they had a work made for hire contract with Ron—but in fact did not. Just because a person hires a designer or creative person to produce something does not make it a work made for hire. The contract must explicitly state, in writing, that the work product is a work make for hire. Without a written transfer agreement, there is no transfer of copyrights to a work.

So Ron (and the other photographers) were within their rights to grant Hermione permission (a license) to use their pictures on her personal portfolio site.

Key Takeaways from the Study

  1. Always have independent counsel review employment contracts. If for no other reason than to make sure they make sense. But creatives should always have a right to display their work and should seek to have a portfolio display right.
  1. Pay very close attention to noncompete and non-solicitation contracts. They should be specific, reasonable in time and geography, and should reflect the actual interests of the employer. This means they need to be custom to the company and not a generic contract.
  1. Use written contracts for independent contractors, particularly when issues of creativity and copyrights are at issue. Make clear who is going to own the rights to independent contractor created material when it is delivered and put it in writing.

A lot of bad events happened to Hermione and Ron in short period of time. Their story is one of an avalanche of negativity, but while it is rare for all it to happen at once, each individual part of their story could happen to anyone. If you have seen these events, either from Hermione and Ron’s point of view or you are in the position of Gotham (without being a villain) give me a call to see what I can do to help. Avoiding problems is much easier than solving them after they occur.


MATT JOHNSTON IS A SOLO ATTORNEY WITH A FOCUS ON SMALL BUSINESS REPRESENTATION, COPYRIGHT AND TRADEMARK LAW, AND DISPUTE RESOLUTION. MANY OF MATT’S CLIENTS ARE DESIGNERS AND CREATIVE PROFESSIONALS WHOSE CONCERNS OVERLAPPING MATT’S PRACTICE AREAS. MATT CONCENTRATES ON DRAFTING CLEAR CONTRACTS OF ALL TYPES AND HELPING DESIGNERS WITH THE LEGAL SIDE OF THE DESIGN BUSINESS. AS A BENEFIT TO AIGA MEMBERS, MATT OFFERS A 10% DISCOUNT ON ALL CONSULTATION APPOINTMENTS, FLAT FEE PROJECTS, AND HOURLY FEES.

THE CONTENT OF THIS COLUMN IS FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS LEGAL ADVICE APPLICABLE IN ANY SPECIFIC SITUATION. NO ATTORNEY-CLIENT RELATIONSHIP IS CREATED THROUGH THIS COLUMN. IF YOU NEED CONFIDENTIAL LEGAL ADVICE, MATT IS AVAILABLE FOR PRIVATE AND PRIVILEGED CONSULTATIONS. CONTACT MATT IF YOU HAVE SPECIFIC CONCERNS

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