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Nobody likes to think about lawyers until they need one. Agency owners are no different, but planning ahead can make a world of difference in the outcome when it comes to legal matters.
Sharon Toerek, founder of Toerek Law and host of The Innovative Agency podcast brings a wealth of knowledge and experience on agency legal issues to the latest episode of Chats with Chip. She shares her experience and insight with listeners to help avoid common mistakes.
Among the topics that Chip and Sharon discuss:
- Client contract structure and principles
- Freelancer agreements
- Brand protection
- California’s new law on independent contractors
- The intersection of business and legal decisions
Resources
Transcript
The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.
CHIP: Hello, and welcome to another episode of Chats with Chip. I’m your host Chip Griffin. And my guest today is Sharon Toerek. She is the host of the wonderful podcast, the innovative agency. She is also an expert in all things legal because she she is a lawyer and can help us with the legal challenges that we all face as PR and marketing agency owners. Welcome to the show, Sharon.
SHARON: Thanks for having me, Chip.
CHIP: It is great to have you and it really is great listening to your podcast. Anyone who’s listening to mine who doesn’t listen to yours should be listening to yours because you have a wealth of resources, agency owners, experts, etc on there that are sharing lots of great insight and so I highly recommend it.
SHARON: Well, thank you. I really appreciate that. It’s been a great adventure. You’ve probably been podcasting longer than I have. But it’s it’s always fascinating to me the different terms of the conversations take with the guests that we’ve had on the show and I’ve enjoyed it a great deal probably more than I should because I do have to get my work done.
CHIP: There is that but But fortunately, it’s it’s a learning experience as well. Anytime I’m doing an interview, I learned something I know I’ll learn a lot here in the next 20 minutes or so that we’re talking but before we dive into things, why don’t you share a little bit more about yourself?
SHARON: Sure, I’m happy to my firm is toric law, which is a national firm. We’re based in Cleveland, Ohio, but we work with independent marketing, communications and advertising agencies throughout the US, basically to help them protect their assets and to turn their intellectual capital into revenue. And we do that in a number of different ways. The primary manner in which we do it is by helping our agency clients form strong contractual relationships with their clients. We help in the areas of brand protection and copyright, protection, infringement due diligence and then on the business affairs side In the house, we help with things like putting together solid Freelancer networks for an agency with the right contracts and tools, and then a host of other areas such as influencer, marketing, compliance, social media compliance, privacy compliance as an increasing area of concern for agencies. So, basically day to day, whatever the agency needs on the business affairs side of the house, due to the nature of the industry, and then on the intellectual property side of the house, trademark and copyright work.
CHIP: That’s great. And I think this is an area where a lot of agencies do themselves a disservice because they they don’t reach out for legal advice until something goes wrong. And there’s really a lot to be said for being proactive about it isn’t there?
SHARON: I completely agree. And it’s, it’s, you know, candidly, it is when you’re working with agencies that are small to mid size independent closely held their balancing a lot every day and so I certainly understand The tension between wanting to use your resources and ways that feel additive to the firm like on things like business development, talent acquisition, infrastructure and technology. But we’ve also had great experiences with agencies that, that do believe in being proactive, by helping them save time and money down the stretch by putting some simple procedures, policies, templates, practices in place that help them manage their legal affairs without as much aggravation or loss of time or revenue as you might think. And so we’re very proactive in our approach. We work best with agencies who understand the value of a proactive approach, but they’re always going to be those last minute things. I mean, at their heart, small business, small agency owners are small business owners, and to some degree, there’s always a lot of last minute stuff this that an agency of that size has to deal with. So we do our best to accommodate those quick terms of Well,
CHIP: I think one of the challenges is that, you know, as a small business person, as an entrepreneur, you you like to think about the good things and you get excited about new business and you get excited about, you know, maybe you’re forming a partnership with another individual, you know, you get excited about all of the good things that can happen. And you don’t want to take time to pause and think about what might go wrong. And And really, that’s where legal documents come into play, isn’t it? It’s not nobody goes back to the contract or the partnership agreement when things are going well, they they go back to it when something is a mess.
SHARON: I think that’s true. There are a lot of times where the reason that the agency needs a lawyer is because it’s to correct a problem or two, to get the agency out of some sort of mess. But it’s equally the truth that a lot of times you need an agency to help you take best advantage of a new opportunity as well. And so, I think when you look at it through that lens, and I totally understand that no agency owner, what into The business of building an agency to deal with legal issues, there are about the least sexy part of the day of any agency owner, whether they’re creative, or whether they’re a business person, it’s just the stuff that feels like it can slow you down. And so our job is to remove as much of that friction as possible to be your partner, your teammate and helping you have good strong compliant processes to take the stress out of the equation for you. That’s that’s really what we’re there to do so that you can do what you do best.
CHIP: Now, if you’re an agency owner, and you’re listening to this, you know, what are the things that you should be most focused on from a legal perspective? What are the things that you can do to head off some of the biggest mistakes?
SHARON: So there are and I can, I guess, answer that question through the lens of the services that we get most frequently requested from our agency client base. And I would have to say that they are first help with negotiation of or review of master service agreements or other sorts of contracts with their clients. And I find that the biggest challenge in the new business process as an agency’s working through the contract process with our client is probably is moving through that process to quickly assuming that the clients version of the contract is by default, the one that’s got to be signed, not taking adequate measures during the new business conversation to protect your intellectual property until you got a signed deal. So that those are the the main issues that are dealt with by agencies when they’re negotiating new business opportunities. And I would say the other top ones are properly contracting with your freelance stable of talent and it’s a fact of life for every agency these days and particularly the smaller mid sized ones that You’re going to augment your team with freelancers, independent contractors. It’s just a regular part of the way you do business. But most agencies, many agencies, I should say don’t slow down enough to contract those relationships properly. The biggest reason that’s problem, quite frankly, is not what you might think. I think most agency owners think that, that their Jeopardy is related to some potential payment dispute or work not getting done in time or things like that. But the biggest area of Jeopardy is that the way the copyright laws work in the United States, you don’t have an agreement that’s properly drafted between you and your freelancer, you don’t know the rights to the work that they do for you, whether you paid for it or not. And the next case, neither to your clients and they’re going to expect that they’re going to own that work at some point or another. So the that is a high area of sort of compliance for some easy fixes can help. Then I would say third is Just a brand protection considerations a lot of our clients do branding for their client base. And it’s the due diligence that goes with selecting a brand and then taking the right measures to protect that brand as you go to implemented into the Mara into the marketplace for your clients.
CHIP: Let’s take a look at the the freelancer issue for a moment. Because I agree with you, I think that’s an area where a lot of agencies are not spending enough time particularly because with the whole gig economy, there are a lot more agencies taking advantage of it because there’s a lot more talent to be had on a freelance basis than there were 10 or 20 years ago. You know, in addition to some of the risks you’ve outlined, there’s also what I would call regulatory risk or risk of government intervention on some of those things, because states in particular have become much more aggressive at cracking down on who qualifies as an independent contractor and, and some of that comes down to properly vetting the individual to make sure that they qualify as an independent contractor both in the way that they operate is the way as well as the way that you’re working. with them, but you know, part of it comes down to making sure that it’s all documented appropriately.
SHARON: Right? Well, so true. I mean, we’ve always had those IRS considerations regarding what the factors are, that get taken into account from a tax perspective when somebody is a independent contractor or when they really need to be classified as an employee. But on top of that, you’re totally right that particularly in the states of California and New York, it’s getting harder and harder to actually work on a regular basis with freelancers without the danger of them being classified as employees. And those states are very assertive about enforcing the interests and rights of freelance workers because there are so many of them in those states. And a lot of them work in knowledge or creative industries. But it’s always and so having the right written agreement as it takes you miles towards compliance on all those fronts on the intellectual property ownership front The IRS compliance from because one of the things the IRS is going to look at as you have an arm’s length agreement between the parties. And yeah, they’re all going to also look like things at things like, is the contractor using their own equipment? Are they setting their own hours? Do they work in their own space. But having a written agreement is something that really sets the relationship apart in terms of the parties intent as an independent contractor, one. And then even in even in California and New York, where there’s so many other hoops you need to jump through. Having a written agreement that addresses some of those things is one of the easiest ways to get closer to compliance.
CHIP: Right. And you mentioned California and California is about to get even tougher with Eb five coming into effect in January, which will make it you know, much more burdensome, I would say.
SHARON: I agree and I’ve been at work. I had an agency client asked me recently conference we were both at says he’s you know, he’s getting advice from his accountant to and as a result of that advice, he actually and now employs all the people they were engaging as freelancers. We’re not necessarily going to give them any guaranteed a regular work schedule, but I can’t disagree with that. I mean, there’s there in some cases, it’s going to be an easier path for agency owners to simply put those people on their payroll.
CHIP: Yeah, I’m not a lawyer, but my agency clients I’ve generally been advising stay away from, from independent contractors in California. If you if you need us, someone there make them employee. It’s true. Well, acetic.
SHARON: I’ve got another agency. That’s an influencer agency, and they’re not in California, but they’re in one of the southwestern states, but they work with a lot of influencers who are based in California. And I said, Look, it’s it’s you’ve got this essential to your business test, which I don’t really think you can reach that element of it because it’s really not necessary to the running of a business, that that’s an influencer marketing business that you engage with any one particular influencer. So I think it’s going to be a hard call for some agencies about which way to handle it.
CHIP: Yeah. And and it’s it’s not impacting just agencies. It’s impacting some of the folks that we as agency types work with freelance writers, for example, for publications. In fact, as we’re recording this just earlier today, I saw an announcement that SB Nation has basically eliminated the entire independent contractor, freelance writer workforce in California, or anyone even writing about California sports teams, even if they’re somewhere else because of the potential for an excess. So it’s, it really has the potential for significant impact throughout the communications industry.
SHARON: Yeah, and it’s just another aspect of talent acquisition and talent management that adds another layer of challenge on to the already challenging day of the average agency owner you’re already dealing with, you know, shrinking margins. You’ve got a manage other legal and financial risks. And then a key component of the manner in which you serve your clients is the ability to access that sort of an elastic basis, the right talent. And when you can’t do that in this state as large as California. Yeah, it’s a challenge. There’s no, there’s no two ways about it.
CHIP: Now, the other area that you had talked about, or one of them was contracts. And so, you know, this is an area where, as you said, a lot of agencies simply rely upon the whatever contract the client provides them and, you know, says to us, particularly which a larger enterprise, but you know, what are some of the things that folks should be focused on when it comes to contracts? Should they have their own contract? Should they have a lawyer event, every single contract? Are there certain provisions or structures that they should be worried about? You know, what, what general advice would you give for folks thinking about
SHARON: Oh, yeah, so that’s a deep question. I guess my high level tips there will be first of all, to answer you specifically, yes, every agency should have its own version. A master service agreement, and it probably ought to also have a shorter form version of simple legal terms and conditions for those situations where a project is not large enough, or the relationships not, you know, long standing enough to warrant a full MSA. But there’s a couple of reasons why you need to have your own paper, if you will. First of all, it helps you get to the table a lot quicker when you’ve got a contract ready to go. Second of all, even if you’re going to end up signing the contract that your client presents to you because they tell you that that’s that’s their deal or sign a relationship. Having your own MSA is sort of your checklist, your inherent checklist of what to look for your baseline, if you will, for how to review the contract that a brand presents to you. And so it also I think sets the table but differently for the negotiation when you present as a agency that’s thought through these issues in advance and memorialize them and a proposed contract. So yeah, every agency, in my view should have its own version of these documents. And for some agencies, a more formal version is going to be appropriate than for others, just depending upon your size, that the the volume and size of projects you work on are the types of clients that you work with. And then next, I would say that for those agencies who don’t have an alternative to signing the clients version of the contract, I can give you some, you know, some top tips on things to look for and the brands version of the agreement that are not favorable to agencies and that you ought to think about pushing back on. The first is the timing of transfer of intellectual property. The brands contract is almost always going to say that the client owns the rights to all the work that you do from the time that you create it. It’s okay for them to own the work if that’s the parties intend, but you want to make sure that the transfer of those rights doesn’t occur until after you’ve been paid. And their agreement by default, not going to say that. I would say additionally to that, you want to look out for exclusivity clauses and determine whether those are in your financial best interest as an agency. And if you are willing to agree to category or industry exclusivity, make sure your pricing accordingly so that you’re you can afford to be exclusive to one client in a category. I would say next, one thing to look for is the ability to retain portfolio display rights to the work that you do. It’s reasonable for them to want to withhold things that don’t ever see the light of public day, you know, things that are just worked on a concept or not ever actually released, but the agency is its lifeblood, depends upon its ability to show its capabilities. And so you want to do that you have to show examples of client work. And so that’s something you want to look for because many brand contracts will either flat out prohibited, or they’ll require you to go back to them later for permission, which is a hassle, particularly if a relationship ends on anything less than a glowing note. So those are some of my top tips. There’s lots of other considerations to think about. But I’ll add one more. One more bonus tip, look at the billing and payment terms. A lot of especially enterprise size, clients are not going to kick in the timing for payment due dates until approval of invoices versus presentation. And that’s a really easy and kind of tricky way for them to buy up to an additional 30 or 60 more days beyond the payment due date to pay you which as a small agency or even a mid sized one, you really can’t afford that that show up in your cash flow.
CHIP: Right. And I think you’ve made a good point here, which is that folks need to look beyond the basics that I think most agencies are looking at in the contract, which is how much am I going to get paid? And what am I going to do for it? There are a lot in all those other pages of legalese, there’s actually some important stuff in there that they need to pay attention to, in order to make sure that the overall deal with their cutting is a good one for their business.
SHARON: Yeah. And you had asked Yeah, I agree with you entirely. And you had asked about the review process. I would say that it’s always in your best interest to have legal counsel available to review and negotiate contracts for you, particularly if you’re going to be signing the one that the that the brand presents to you, but the extent to which you are okay, I guess for lack of a more elegant term. conducting the review internally, I would think would depend upon how many negotiations you conducted and whether or not you actually have your own lawyer vetted contract forms within the agency. Because if you do have that, then you’ve got at least a benchmark or a reference point to evaluate the clients version of agreement, and it helps you be more effective in your reviewing your negotiation.
CHIP: And I think, you know, having that baseline contract either this is something you’ve said in other presentations as well, by having that you can then decide what you want to give away, but do it knowingly as opposed to blindly. And so often I see agencies get into trouble because they just, they didn’t even think about a decision, they just sort of went with it, you know, whereas you may want to give up some concession in your negotiations. As long as you understand what risk or what trade off there might be for that.
SHARON: I totally agree. And I agree with that point even more strongly in a new business situation, pre contract when you are either responding to a proposal or doing a pitch or otherwise sort of showing your talent to a prospective client. I think agencies are not Always intentional enough or thoughtful enough about the ideation and the IP that they’re giving away at that stage in the process when they haven’t even been engaged yet by the client. It’s okay to give that stuff away if it is your business decision to do. So I’ve got no problem with that. And that’s maybe table stakes for you to get an opportunity or a meeting with a potential client. But do it because you’ve made a decision for some business reason to do it. Don’t do it because you feel like you don’t have any leverage to avoid it or because you feel it’s bad form to sort of hold that stuff back. So that’s where things like non disclosure agreements, and careful proposal writing come in handy with the right sorts of language to withhold the IP back with the agency until the parties agree to something else.
CHIP: And at the end of the day, it’s up to you whether you want to sign that agreement and I think that that’s something that folks need to remember to there’s there’s a certain feeling like okay, we’ve you know, we’ve cut the business deal we We know what we want to do, we know we’re going to get paid. So you know, we’re going to sign this contract no matter what, but you need to actually have a willingness to walk away. If the terms are so bad that they are, they’re not going to work for you, you can’t tell you’re always gonna sign.
SHARON: That’s true. And in many cases, I think that, you know, particularly when agencies were, you know, climbing out of the recession, they didn’t feel like there was really any circumstance under which they were going to not want to accept the clients financial term. So at whatever else was totally agree with that too much time worrying about. So yeah, I totally agree with you. And it is a function of what you’re willing, you know, to walk away with a point at which you’re willing to walk away and why you know, what you value as an agency. And it’s, you know, and not every agency looks at the, the term contract is really just a word. I mean, I I’ll never forget I was speaking at One of the industry conferences and after the session, I was talking with an agency owner, and he said, We don’t believe in contracts at our agency. We think that if a client is not happy, and they want to walk away that they should be able to do that. And you know, I said, Okay, this that is a fair statement. I said, so how do you decide between the client and your agency? What your work scopes going to be what you’re going to charge? When stuff is due? all that? Is it all we have, we have statement of work that you know, has all that stuff written in there. I don’t care what you call it. That’s a contract, right? Writing and you both agreed to it, and you both signed it is the contracts, go to the trouble to memorialize some of that stuff, then put the things that matter into the agreement and be consistent about those things that matter.
CHIP: Right. If it walks like a duck, it’s probably a duck. Yeah. So and you know, I think that the you know, the point that that raises that that owner raised as far as allowing clients to move on if they’re not happy. I think that’s a great one. It’s my philosophy as well. At the same time, you need to make sure that your agreement understands how to handle those situations where maybe the client leaves before you had expected them to, you know, how does, how does that break up happen? What are they on the hook for to pay? You know, how much notice do they have to give? There’s a lot of things like that, that even if you want to take that mindset, you still want to make sure you you’ve documented how the breakup will take place.
SHARON: Absolutely everything and every single one of those provisions can be agreed to in advance and reflected in the agreement that you signed.
CHIP: And that’s the best time to do it, because everybody’s feeling good. So we all love each other then.
Right. Right. So so it’s it’s a lot easier to have that conversation as opposed to trying to, to work it out when everybody’s angry and frustrated and at their wit’s end.
SHARON: Absolutely. I totally agree.
CHIP: Well, I’m not at my wit’s end but I am at the end of this recording, unfortunately, it so if someone is interested And learning more about you, Sharon are like to find you online. Where can they do that?
SHARON: No, I appreciate that. So our site for the law firm, which is Toerek Law is legalandcreative.com. It’s legal and creative dot com. You can also check out our legal toolkit for agencies. And there’s also some other tools there that are free and downloadable at agencylegalprotection.com. Check me out on the innovative agency podcast. And I’m always excited to link with people on LinkedIn who want to connect and talk further. And I want to thank you for having me on the show today. It’s been a great conversation.
CHIP: Great. Well, thank you for joining me. You shared a lot of good legal advice for agency owners. Hopefully they’ll take at least some of it and improve their legal situation going forward.
SHARON: My pleasure, Chip, thanks so much.
CHIP: My guest again today has been Sharon Toerek.
