Famous Last Words July 2011

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DISCLAIMER: This column is intended for general educational and entertainment purposes and is not legal advice. Every situation is unique. Anyone entering into a contract should have a lawyer who can provide counsel.

Jim Charne, Attorney at Law

July, 2011
Famous Last Words
By Jim Charne, Attorney at Law

"Key Employee" Considerations

Dear Jim:

We’re just received the contract from our publisher and saw they wanted a list of the top 25 or 30 people working on the project.  They call these people “Key Employees,” require them to work full time on the game, do not permit us to substitute without their written approval, and threaten us with material breach if we were to do so.

We’re a mid-size studio (50 – 60, depending on the work), and committing so many of our staff to only one project will seriously hurt our ability to find other projects.

What can we do?

-- #1 Key Employee

 Dear #1:

Key employee clauses have been part of game dev deals for years.  They emerged because of some less than above board developers who sold projects based on their top people, then put on the B-Team to do the work.

Publishers caught on and began to demand commitment as to who, exactly, would be on the project.

In your case, this seems to have gone overboard.

Here’s a couple of suggestions.

1.  Figure out who is *really* irreplaceable on the project.  Generally, that probably includes your studio head, producer or project manager, the designer, and the leads.  If there is a particular programmer, artist or animator with whom the publisher is particularly enamored, that person or persons may also make the list.

But there is no reason to include a laundry list of your studio staff.  All are not *really* “Key Employees.”

The most extreme example of the “Key Employee” obsession I’ve seen is the contract that was issued naming a few “Key Employees” – then having 20 or so job titles with the designation “tbd.”  If someone is truly a “Key Employee” – he or she must be known to the publisher at the time the project starts up, and not be someone to be picked up later along the way.  Tbds are not “Key.”

2.  We know that every team member is not on the project from day-1 all the time.  Development ebbs and flows.  It is not economical to have someone assigned on a full time basis regardless of whether the person has work to do or not. 

One way to handle this is to provide that “Key Employees” will work on the game as required on a “first priority basis.”  That means if there is something he or she needs to do, it will be done before any other work by that person on any other project.

“First Priority” may not be an adequate solution for certain “Key Employees.”  For example, if the studio head or head of technology were to be listed, some limitation should be included on his or her commitment.  For example, if there are business or business development responsibilities on the studio head’s plate, a 50% time commitment on a first priority basis so as to permit the studio head meeting his or her other responsibilities may be critical.

If the head of technology has general management and development responsibilities in the tech area, timely attention may be crucial and anything taking him or her away could have broad repercussions to the company.

All this can be negotiated.  Start with an honest appraisal of who is truly “Key” and go from there.

3.  The proposed agreement received from the publisher contains draconian remedies relating to removal or replacement of “Key Employees.”  These may be warranted in the case of the top top “Keys” – but should not under any circumstances extend down the list.  These extreme remedies should also not apply if someone resigns, otherwise leaves voluntarily, is fired, or becomes disruptive to the process.

As provided in your proposed agreement, any change in the list, without approval of your publisher, can lead to termination of your agreement for cause.  That’s a harsh and extreme remedy that should not be available to a publisher except under the most very narrow circumstances.

One way to deal with that, if the publisher will not relent, is to limit it to a small subset of “Key Employees,” and to provide for exceptions based on the circumstances of the person’s departure (such as those stated above).
 
“Key Employee clauses are a fact of life in game dev agreement.  But there is lots of room for negotiation, and by paying attention to the circumstances, and what has been asked, a reasonable compromise can frequently be reached – one that gives comfort to the publisher while preserving flexibility for the developer.

-----

Jim Charne practices law in Santa Monica, CA (www.charnelaw.com) where he represents developers, designers, composers and other clients in the games industry.  Jim has been a frequent speaker at GDC and Practicing Law Institute games industry programs, is active in IGDA from whom he received a coveted “MVP” Award at GDC 2006, and is a member of the Advisory Board of G.A.N.G.  On October 19, 2011, Jim will chair a one day program in San Francisco, offered by the Practicing Law Institute, titled: “Representing the Games Industry Client 2011.  Jim served as President of the Academy of Interactive Arts and Sciences from 1998 to 2001.

Is there language in your contract that has you scratching your head?  Found something confusing or worse?  Send it to “Famous Last Words” for developer-oriented analysis.

Famous Last Words is intended for general educational and entertainment purposes and is not legal advice.  Every situation and circumstance is unique.  Anyone entering into a software-related contract should have an experienced lawyer who can provide counsel throughout the process.

©2011 Jim Charne.  All rights reserved.