Q: Is it legally permissible for a California LLC to use unpaid labor to produce a short film? If not, is it possible to use a deferred salary approach to defer cast and crew compensation until after the short earns a financial profit, if it ever does?
I’m sympathetic to the needs of indie filmmakers. Your budget is stretched past its breaking point, and keeping expenses down is crucial to getting the film done. You might rely on crew to donate their time and skills to make the budget work, a common practice in the independent film world. Common as it may be, however, state and federal laws prohibit the use of unpaid labor for for-profit entities like LLCs and other corporations. Which means, in short: No, you can’t use volunteer labor to make your film.
There are only two scenarios in which hiring unpaid laborers is legal. First, you can hire volunteers if you’re a nonprofit entity (like Greenpeace), a public agency (like your local police department), a religious institute (like the Catholic Church), or a humanitarian organization (like Americorps). The work should be part-time and cannot displace any of the organization’s paid employees. This automatically rules out 99 percent of production companies.
Or you can hire unpaid interns. But don’t treat this as a panacea. Hiring unpaid interns can be treacherous if you don’t know what you’re doing, and large corporations are starting to shut down their internship programs because of lawsuits stemming from intern abuse. Unpaid internships are only acceptable if all of the following six Department of Labor criteria are met:
- The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.
- The training is for the benefit of the trainees or students.
- The trainees or students do not displace regular employees, but work under their close observation.
- The employer that provides the training derives no immediate advantage from the activities of the trainees or students, and on occasion its operations may actually be impeded.
- The trainees or students are not necessarily entitled to a job at the conclusion of the training period.
- The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.
A failure to meet these could result in you having to pay your intern as an employee, not to mention any civil fines if you’re caught.
In addition to the laws that heavily regulate working conditions and pay, using unpaid labor also violates generally accepted contract law principles. To have a legally valid contract, you need to give something in order to get something—lawyers call this “consideration.” Now, consideration doesn’t have to be money; it can be a promise, a service, goods, pretty much anything with economic value attached (though “work experience” doesn’t count). Regardless of what it is, there has to be a reasonable exchange or the contract isn’t binding. You can’t get something for nothing.
As you can see, there are few options for companies that want to save on worker costs. This is by design because of the slippery slope involved. Sure, you might be a tiny production company, so how many people are you really hurting if you hire a crewmember here or there for free? But what if every large and medium sized corporation applied the same logic?
So what do you do? Well, there are several options available to you, none of which really solve the problem.
- You can defer payment until a future date—although you can’t defer payment indefinitely and you can’t make that payment contingent on the film making a profit (besides, few films do). That would violate the contract principles I mentioned above.
- You can offer your crew something besides financial compensation. I once saw a small production company provide free production services to a crewmember who wanted to make his own film. In exchange, that crewmember had to forgo financial payment. That kind of thing is typically OK.
- You can produce the film as partners. This means that instead of an employer-employee relationship, you’re equals. You would have no obligation to pay each other outside of whatever you’re contractually obliged to make.
- You can just pay them.
At the end of the day, you really can’t get around the prohibition on unpaid labor. If your costs run too high, I suggest finding other places in the budget to cut. The last thing you need is a fine from the Department of Labor large enough to put your film out of commission for good. MM
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Gregory R. Kanaan, Esq. is a Boston-based attorney representing artists, filmmakers and designers in Massachusetts and New York. His practice focuses on entertainment and art law, as well as intellectual property issues. He has resolved disputes involving copyrights, publicity rights, trademarks, and contractual disputes for a wide range of independent filmmakers and design professionals. Prior to becoming an attorney, Mr. Kanaan was a television producer, creating documentaries and series for The Discovery Channel, Court TV, TLC, and A&E, among others. When not practicing law, Mr. Kanaan writes for his blog, The [Legal] Artist, which aims to educate creative professionals on the legal issues that affect them most.
The answers to legal questions provided here are for general education and information purposes only, and are not legal advice or legal opinions. The information provided in this article is not intended to create a lawyer-client relationship between Mr. Kanaan and a reader.