Going Commercial – What You Need to Know Before You Sign That Studio Lease

*Warning!  Long post – you might want to just read the last paragraph and move on!  

After years of operating your photography business out of your dining room, you have decided to take the plunge and open a studio in a commercial building. You are excited to finally have a place where you can meet with clients, create sets that you don’t have to tear down before you serve your family dinner. To top it off, you have found a great space in a commercial building downtown where the rent is affordable. Yes, the building has been empty for quite a while and your space is around the back where visibility from the road is poor but the rent is lower than anything else in town. Also, you plan to cross market your senior portrait clients and bridal boudoir clients with the salon that is the same building and occupying space next to a salon is a must for you. Further, the high school kids walk right past this building on their way to the ice cream shop after school every day and there is no other photography studio in the area. The space needs some work – you want to put in wood floors, install some faux brickwork and your new motorized backdrop system and lighting equipment that you have purchased just for the space.  You plan to spend quite a bit of your own money on equipment and furniture but if you can stay in the space for at least 4 years you will have all of that paid off and be turning a nice profit.  The landlord has agreed to a two-year lease but says that he sees no reason why you wouldn’t be able to renew for longer if everything goes well. You cannot wait to get started and you just met with the landlord, signed the form lease and obtained your keys. You are very excited! What could go wrong?

A Look at the Lease:

1.         Rent.  So, the rent in your new space is lower than anywhere else in town and you are congratulating yourself on a bargain found. But, be careful that your lease doesn’t contain surprises. Sometimes in cases where a building is empty, landlords entice tenants with the promise of low rent. But lurking in the lease is a provision that states that as soon as the building becomes more occupied, your rent is subject to increase. If you negotiated a fixed rent deal for the term of your lease, make sure that the lease states that the rent shall not be increased and check for any language that states otherwise. Even if that is not an issue for you, make sure the lease states what you actually negotiated. Many leases provide a fixed rent for the first year but rent is subject to increases each year thereafter. Sometimes the increases are fixed by a certain percentage or a flat amount. Other times the increases are tied to a Consumer Price Index (CPI) – like inflation. Increases like that are not within your control and you could end up with a much higher rent than your budget allows.  If the landlord insists on such increases, you can try to negotiate a cap for some protection. While it may not always be possible to negotiate a flat rent, be sure you understand how any increases are calculated.

Another form of rent that you may see in a lease, especially if you are in a commercial shopping center, is “percentage rent.” This is rent that is based on a percentage of your gross sales. While this would not be typical for a photography studio, it’s best to be aware of it in case you do run across it.  Sometimes landlords will allow you to pay a lower fixed rent in exchange for an agreement by you to pay additional percentage rent. Basically, it’s their way of saying “hey, I think you will do well at my center so I’ll give you a lower rent to get started but if you do well, you pay me extra.”  These provisions can sometimes be based on a floor whereby it only kicks in if you gross more than a certain amount of sales in a year. Percentage rent provisions are cumbersome and require careful accounting and reporting to a landlord and the landlord has the right to audit your books and records.  You also want to be careful to strictly define what constitutes “gross sales” and what is exempted.

2.         Term. The term of your lease is how long your lease lasts.  It is the period of within which you will have to pay rent and fulfill all of your lease obligations even if you aren’t occupying the space. So, you need to decide how long you want to be there and how long you can afford to be committed to lease obligations. If you are already an established business in the area and you know you don’t plan to move, it may not be too risky for you to sign a lease with a term of 5 years or more. If, however, you are just starting out, you may want to stick to a shorter term. If you are going to be investing money in a space, you certainly want to be sure that you have the right to stay long enough to make the improvement costs worth the investment. You may want to consider negotiating the safer, shorter term but also negotiate options to renew so that you can elect to stay in the space if everything is going well but you don’t have to stay if things are not.  The lease should set forth the rent for your option periods so that you know what you will be paying if you exercise your option. Don’t rely on the landlord’s word that you’ll be able to stay. Without a valid lease with enforceable options to extend, the landlord has no obligation to allow you to stay and could demand much higher rent knowing that it would be difficult for you to make a move.

3.         Pass Through Charges (Taxes/Insurance/CAM) – Many commercial leases are “triple net” leases which means that, in addition to rent, the Tenant is responsible for paying to the Landlord some amount for taxes, insurance and common area maintenance (CAM) costs attributable to the property. Negotiation of these items can get tricky and confusing. Many leases in shopping centers, for example, will require a tenant to pay its share of these expenses. Seems fair enough, right?  But, what if, as in the hypothetical above, the tenant is renting only a small space in a large building that is mostly empty?  A tenant would need to be sure the lease language regarding these charges is drafted in such a manner so that the tenant isn’t stuck paying all of these expenses for the entire building. If you are looking at a triple net lease, try to get the Landlord to fix these costs for you in the lease. At a minimum, state the estimated costs and be sure the formula for calculating your share of these expenses is based on a pro rata share using the square footage of your space as compared to the TOTAL square footage of space in the building. This way, you can be sure you are paying only the amount allocable to your space. Be sure you ask the Landlord to outline any and all pass through charges and exactly how they are calculated. If you can get them to a flat rate throughout the entire term, even better.

4.         Signage/Visibility/Parking – Of course you want your clients to be able to find you and visibility is key for marketing and making sure people know about you. But the space you have rented is in the back of an empty building. How are people going to know you are there?  Your sign of course!  Make sure before you sign the lease that you know what your rights are with respect to installing signage both on the front of your space and on any signage by the road or in the parking areas to direct people to your space. Many commercial buildings have restrictions on size, color and materials used so make sure that you have the right to install what you need and that you can afford to comply with the building’s standards. Signage can be very expensive so don’t set yourself up for surprises. I typically advise my clients to submit their sign plans to the landlord prior to the lease signing and get approval stated in the lease. Also, be sure that you have all permits and approval from local government as some areas can be quite strict and design committee approval may be required.

Related issues to think about when renting a space that is off the beaten path are lighting, parking and access to your space. If your space is in a dark corner of a building, make sure the landlord is required to maintain sufficient lighting in the parking and common areas so that your clients have a safe, well-lit path to your door. It is also advisable to negotiate a specific parking area for you and your clients that is close to your space. Many centers have strict parking requirements and the landlord can fine you if you do not comply. Make sure you check your lease for any restrictions on parking.

 5.         Maintenance/Repairs/Renovations. These provisions are very important, especially if you plan to install new equipment and make any changes to your space. First, with respect to renovations and improvements, you will want to be sure that your lease allows you to make improvements necessary for the operation of your business. If you know exactly what changes you want to make to the space, the best bet is to get the landlord’s approval up front and attach your plans and specifications as an exhibit to the lease. You may even be able to negotiate a tenant allowance where the landlord funds some of the improvements.  Of course, if you want the flexibility to make further changes during the term, you will need to make sure you have that right. With respect to repairs and maintenance of the space, be sure you understand exactly what you are responsible for. Many leases in commercial shopping centers make the tenant responsible for the HVAC equipment, utility lines exclusively serving the premises, plate glass and all interior walls, floor coverings, etc. In other buildings, the landlord may be responsible for those things. Be sure you understand exactly what you are responsible for and make sure that the landlord’s repair and maintenance obligations are also set forth and that you have remedies in the event the landlord fails to perform.  Imagine how surprised you would be if your air conditioner goes out in the middle of summer and you call the landlord only to learn that you will be responsible for installing new HVAC equipment in the space.

6.  Cotenancy. An interesting issue raised in the scenario above revolves around a co-tenancy situation. A co-tenancy clause is a clause that may be requested by a tenant who has an interest in making sure that another tenant or another type of tenant is located in the same center or building. While co-tenancies are usually reserved for big box tenants or national tenants, a small, local business might have some negotiating room to include such a provision. In the above-mentioned scenario, you have chosen this particular space based on the fact that a popular salon is located in the same building. But what happens if the salon leaves?  Would you still want to lease the space?  If not, you are going to want to try to negotiate a termination right or maybe a lower rent if the salon leaves or ceases operating. Co-tenancy provisions can get quite creative and need to be carefully drafted to be enforceable.

 7.     Use Clause/Tradename –  The lease you have signed says that the space may used as a photographic studio under the name “Jane Doe Photography” and for no other purpose. Well, you are a photo studio and that is your name so no problem, right?  But what happens if you need to get out of your lease and need to sublet or assign your lease?  Will you really be able to find another photo studio to take the place?  Even if so, they certainly won’t be operating under your name. Or, what if you decide you want to open a boutique in part of the space that does retail sale of baby clothes, hats and blankets? It is best to negotiate some flexibility into the use clause. I typically ask for “any lawful use” to make sure all options are open. And I always ask for the trade name requirement to be deleted. Unless you are a chain whose name draws lots of customers (such as “McDonalds”) the Landlord should not have a problem with such a request.

Another issue that can cause quite a problem in many leases involves continuous operations clauses. Landlords of shopping centers usually are concerned that the spaces are not “dark” and the tenants adhere to specific operating hours and do not shut down for long periods of time. Be sure to negotiate operating hours that fit your business, including the right to stay open in the evenings and on weekends if necessary. I always advise tenant clients to negotiate the right to close their doors if they need to. If your business isn’t doing well and you need to cut your losses, it may be necessary for you to close the business even if you can’t terminate the lease. But if you have a continuous operations clause, you could be in default if you close, even if you continue paying rent. Many landlords will agree to a recapture clause whereby they have the right to take the space back if you close your doors.  Sometimes a landlord will even allow an early termination clause that is based on how well your business does in the space. Allowances like these may come with a penalty fee.

8.         Assignment/Subletting – In connection with the paragraph above, make sure that the lease allows you to sublease or assign your lease in case you run into a problem and need to get out before the term ends. Most landlords will want some control here and will require that they provide consent first. In that case, negotiating language that requires that the consent not be unreasonably withheld will give you a little more leeway.  And you should always get some language allowing an assignment to a subsidiary or owner of your corporation or LLC in case you restructure your business.

 9.         Use Restrictions – Connected with your use clause, many commercial leases contain a long list of use restrictions. These are uses that are prohibited in the center. Most them are pretty straightforward such as “no tattoo parlors.”  Others may be more vague. Most commercial leases I have seen include restrictions on “any use that would injure the reputation of the property.”  Huh?  Well, let’s see. You have told the landlord that you are a photographer but did you disclose that about 50% of your business is boudoir photography?  “Not his business and anyway, it’s very respectable.”  Well, people in the community may not agree and the landlord may get complaints – especially since the space is so close to the high school. I typically ask for a representation from the landlord that the tenant’s specific use is approved.  For example: “the tenant’s current use as a portrait photography studio which includes but may not be limited to children’s portraits, family portraits, senior portraits, boudoir portraits, fashion and glamour portraits, and any other form of portrait photography shall not be prohibited so long as tenant complies with all laws and local ordinances.”

10.         Utilities. Most commercial leases provide that a tenant is responsible for hooking up and paying its own utilities. No problem, right?  But many leases also state that the tenant may not overload the building’s capacity for electric service. What about all those lights you plan to install?  Can the building handle constant use of strobes, hair lights, etc.?  If not, and you cause an outage, not only would you be in default of the lease but you could be responsible to other tenants for the disruption in their service. It is best to inform the Landlord up front of what you plan to install, what the required capacity is and then have the Landlord state in the lease that the premises has sufficient electric capacity to support such equipment.

11.      Insurance and Indemnification.  Most commercial landlords have strict insurance requirements and will mandate several types of insurance a tenant must have, including personal property insurance and liability insurance. Most also require that your insurance name the landlord as an additional insured. Make sure you review the requirements in your lease carefully and discuss them with your insurer so that you know whether you are going to need to spend money increasing your coverage limits, adding coverage etc. Also, be sure the lease requires the landlord to carry and All-Risk policy on the building and liability coverage. The lease should always contain a mutual waiver of subrogation so that the landlord’s insurer can’t come after you for claims covered under its policy and vice versa. Also, watch those indemnification clauses. Many landlord forms include an indemnification from the tenant only. Indemnifications should be somewhat mutual. Typically in commercial leases, a landlord will agree to indemnify you for anything that occurs outside of your leased premises so long you indemnify them for any damages occurring inside the leased premises. There are sometimes exceptions for negligence, gross negligence and willful acts and how much each side is willing to give depends on the size of the space, the financial strength of the deal and what the insurers will tolerate.  I have negotiated many variations of indemnity language and it can get quite complicated. Always have your lawyer look over these provisions to make sure you aren’t putting yourself at more risk than is necessary.

12.      Exclusives. An exclusive clause is something you may want to consider if you have any negotiating power in this deal. This is a clause that gives you the right to be the only tenant who conducts your use in the landlord’s center or building. Sometimes, these clauses can extend to other properties landlord may own within a specified radius outside of the center. So, for example, you discover that your landlord also owns three other buildings in the area and that other photographers have been looking at these spaces. You want to be sure that you are the only portrait studio in this little area so you negotiate a provision in the lease whereby the landlord agrees that, during the term of your lease, the landlord agrees that it will not lease space in the building or in any of landlord’s properties within a three-mile radius to another portrait photography studio. These clauses can get quite creative and sometimes complicated. They have also been attacked as creating a restraint on trade. If you are successful at negotiating an exclusive with the landlord, be sure an attorney reviews the language to ensure enforceability.

 13.      OEA/REA Issues. If the space you are renting is a part of a bigger overall development such as a strip mall or other commercial development, your lease will likely have language requiring that you comply with all provisions of an Operation Easement Agreement (“OEA”) or “Reciprocal Easement Agreement” (REA) or a Development Agreement or some similar document or a combination of several. Most landlords will throw in a statement in the lease that says something like “Notwithstanding any provision in this lease, the tenant agrees to comply with the REA that is recorded in land records for the county……”  Well, even if you have very carefully negotiated all of your lease provisions this could pose a problem if a provision in the REA contradicts the lease. Always ask for the landlord to give you a copy of every recorded document that you will be obligated to comply with, list them in the lease and ask the landlord to be the one to ensure you are in compliance by changing the language above to something like this:  “Landlord hereby represents and warrants that the terms of this Lease do not conflict with any REA, OEA or other agreement or document affecting the property and Tenant shall at all times be permitted to operate the Permitted Use as provided herein.”

Commercial leases contain many other provisions, including but not limited to, provisions dealing with common areas, holdover, damage and casualty, condemnation, mandatory arbitration, choice of law provisions and others. I have touched on the ones that in my experience can cause the most operational issues for photographers. Every provision in a commercial lease has a legal meaning and legal and financial consequences. Otherwise it would not be in the document. The old saying “it’s not a problem until it’s a problem” is so true when it comes to commercial leases. For example, you may completely ignore the condemnation provisions thinking “oh that’s never going to happen,” and then 13 months into your lease when your business is booming, the county decides to condemn your building to widen a road. I know, I know, I’m all doom and gloom. But I spent three years in law school and 17 years in the practice of law learning how to prepare for the worst so that I can best protect my clients.

* And here is the best advice this long article contains:  ignore everything above and hire a lawyer to handle your lease negotiations for you. Spending a little money now will save you a huge headache a lot of money later!

 

Kirsten Kowalski has practiced commercial leasing law for over 17 years.

 

 

 

Insuring Your Photography Business – What You Need to Know

I read a post by a photographer recently that asked if her homeowner’s insurance would cover her photography equipment or if she needed additional insurance.  This got me thinking about how little people understand the insurance industry and I got nervous.  As a lawyer who deals with insurance companies all of the time, I know how hard it is sometimes to make a claim even when you do have the correct coverage.  But if you don’t even have the right coverage, you won’t have anyone on your side, you won’t be in good hands, you won’t have a sophisticated gecko or friendly duck to turn to when that mayhem guy comes a-calling.  And, I can tell you that if you are relying on your homeowner’s insurance to cover your business you don’t have the right coverage.

When looking at insurance options for your photography business, it is important to first analyze your business in terms of what you shoot and what your risks are so that you can choose what types of coverage you need and how much coverage you need. Only then can you shop around for the best quotes. Things you need to consider are:

1. What type of photography do I do?  Are you a portrait photographer working with individual clients?  Do you shoot weddings that cannot be re-created?  Are you a commercial photographer shooting for corporate clients?  Or are you a landscape photographer working for yourself selling fine art prints?

It is important to break down what you do and how you do it so that you can better evaluate your risks and potential liability. For example, if you are a general portrait photographer working with one client at a time at portrait sessions, your risk of loss and liability is probably a lot less than the wedding photographer who is shooting a unique event with large amounts of people. And that wedding photographer’s liability may be a lot less than the commercial photographer who was hired to do a commercial shoot with a $50,000 budget, models, makeup artists, expensive props, etc. How big your risk of loss is will help you determine how much coverage you need. Also, how “big” your business is will help you determine what you can afford. It is very important that you weigh your risks with your financial situation so that you can best determine how much coverage is right for your business.

2. What equipment do I use in my photography business and what is the cost to replace it?  Do you own one mid-priced DSLR with three lenses?  Do you own lighting equipment, computers, tablets?  What about a $20,000 Hasselblad? The value of your equipment is very important in determining how much insurance coverage you need.

3. Do I shoot on location or do I have a studio? Do I rent a studio? Do I own a studio?  Do I have furniture and fittings that need to be insured?  If you shoot on location, keep in mind that several venues (including churches and reception halls) will require that you provide a certificate of liability insurance before they allow you to step foot on the premises.  If you own a studio or have furniture or other property you use in your business, you will want to consider property damage insurance.  If you rent, you will want to look into renter’s insurance.

4.  If something were to happen, how much can I afford to cover myself before I look to insurance?   This is important because it will help you determine what kind of deductible is right for you.  The higher your deductible (i.e, the more you will be responsible for paying before insurance kicks in), the lower your premiums will be and vice versa.

 5. Do I have employees?

6. Do I need to still have an income if I am sick or injured and cannot work?

Once you have answered the above questions about your business, you can determine what types of coverage is right for you and in what amounts.  The insurance coverages I recommend that professional photographers consider are:

1. Errors and Omissions (also known as Professional Liability)

2. Fire and Casualty and other property insurance

3. Equipment Insurance

4. Commercial General Liability

5. Automobile Liability

6. Worker’s Compensation

YIKES! That is A LOT of insurance, right? It is. And it may be that some of it is not appropriate for your business. You may be able to get by with only a couple of these.

So, why so many and what do they cover?  

ERRORS and OMISSIONS:

Errors and Omissions insurance is what will protect you if — no, WHEN — you make a mistake or a client perceives you as having made an error. It WILL happen, eventually. How many times have you shown up for a session and realized you forgot to charge your battery? Or you forgot your memory cards? Or you simply forgot the session altogether? Okay, maybe I’m the only one who can be so scatterbrained that all those things have happened to me. But, what about a situation where your memory card is corrupt and you don’t know until after the session? What if your computer crashes and you lose all of your files before you have a chance to make a backup? All of these nightmarish situations are very common and very real. And, if you have a client who is not the understanding type, or if you photographed a wedding that cannot be re-created, you may be facing some legal troubles. Errors & Omissions Insurance will cover you in such situations.

This insurance will also typically cover you for losses arising from copyright infringement, claims of false advertising, invasion of privacy claims, etc. But be sure to read the policy carefully as many will exclude intentional acts and fraud.

 EQUIPMENT INSURANCE:

Obviously, this insurance covers your equipment — your camera, your lenses, your computers, your iPads, your strobes, your beauty dishes and all that other equipment you purchased at the last WPPI Trade Show when you were convinced that you needed everything on the showroom floor to run your senior portrait studio (or maybe that was just me again?).  We all know how expensive our gear is.  Can you afford to replace your $5,000 DSLR if you drop it in the lake during an engagement session in a canoe?  Can you afford to replace your $20,000 worth of lighting equipment when it is stolen out of your commercial studio or your $30,000 Hassleblad?  Chances are, you cannot.

Make a list of what you have, how much it would cost to replace and then INSURE IT!  Pay attention to those deductibles though.  You don’t want to be surprised when your new DSLR is stolen to learn that your deductible is $5,000.

 COMMERCIAL GENERAL LIABILITY:

This is a biggie and is so important that if you do not have a CGL policy, you need to put your camera away and not take one more photograph until you have secured one.   A CGL policy is going to give you protection in the event you cause damage or injury to persons or property, including medical costs.  It will cover your attorney’s fees and court costs if you are sued.   This is the insurance that will not only save your business but could also save your home, your savings and your livelihood.

“Wow, what a drama queen!” you may be saying.  Well, let’s see about that:   so, there you are photographing your first wedding.  It’s just you and your assistant.  You are Jane Doe Photography, sole proprietor.  You set up your light stand in the reception hall in a location where it is sure to light up the dance floor.  It’s sort of in the way but it has a huge soft box attached to it and you are confident that “nobody can miss it.”  That confidence is shattered when Uncle Bob, who has had one too many glasses of champagne, line dances right into your light stand, knocking himself to the floor and your lights land on your head, knocking him out cold.  When he comes to, he seems pretty jovial and insists that he is fine and you leave the wedding feeling pretty sure that disaster was averted.  What you don’t know is that the 1-800-SHEISTER, the local TV lawyer was a guest at the wedding and cornered Uncle Bob after the reception and convinced him that he not only has permanent head injuries, he is has unbearable pain and suffering and severe emotional distress.  And, he let Uncle Bob know that you just inherited some money from your parents which allowed you to quit that dull accounting career and start your own photography business that has been your dream for years.  CHA CHING.  

Stop reading and buy a general liability insurance policy.  Now.  I suggest a minimum limit of $1 Million to $2 Million with a deductible that you can handle. On a side note, being incorporated will help save your family inheritance in this situation but you still need the insurance to save your business. (For more information on why you should incorporate, see my article at (http://www.legalphotopro.com/2013/03/08/protection-from-swinging-violinists-and-other-dangers-incorporating-your-photography-business/)

FIRE AND CASUALTY INSURANCE/OTHER PROPERTY INSURANCE

 If you own or rent a studio or if you rent equipment or have furniture, fittings and other property that needs to be insured against loss or damage, insurance covering losses caused by fire or other casualty may be appropriate.  If you lease your studio space, check your lease to see who is required to keep the building insured.  While that is normally a Landlord’s obligation, your responsibility in this regard will be governed by the terms of your lease.  Also, if you rent equipment regularly, it is essential that you have insurance covering loss or damage to the equipment.

 AUTOMOBILE INSURANCE

If you use a car for your business be sure that your personal car insurance will cover business use of your vehicle.  If you use multiple cars, a commercial automobile policy might be appropriate.  Also, if you have an employee who drives his or her own car for business purposes or if you rent cars when traveling for business, you should look into a Hired/Non-Owned Automobile Liability policy.

WORKER’S COMPENSATION

If you have employees, you will need to comply with your state law regarding worker’s compensation insurance.   Each state has its own rules and requirements on this so be sure you check your state’s laws.  Most states have a Board of Worker’s Compensation website where you can get the information you need.

DISABILITY/HEALTH INSURANCE

 If you work for yourself, it is tempting to forgo health and disability insurance and the costs associated with the same.  However, your health is vitally important to the successful operation of your business.   If you cannot work, you cannot earn an income.  If you suffer a serious injury and must be off of work for a long period of time, who will pay your bills?  (no, that duck won’t actually pay – but the company he works for, or another insurance company of your choice, will IF you buy one of their policies).

So, where do you find the insurance you need and how much is it going to cost you?  First, if you are a member of the Professional Photographers of America, you have some equipment coverage there.  However, understand that there is a deductible that comes with that and also some limits with which you should be familiar.  You can also opt in to the PPA’s indemnity insurance (which is similar to the Errors and Omissions policy described above).  I personally had to look to that coverage this year when an external hard drive failed.  They paid to have my drive shipped to Drive Savers.   Beyond that initial layer of coverage for PPA members, you will need to shop around.  I called my local insurance agent friend who did the shopping for me and found me a policy of equipment coverage, CGL coverage with high limits and property insurance covering my studio for a decent amount (I pay a little less than $500 per year for my protection).  What I have may not be right for all of you.  Most companies will give you a quote online.  Google “best insurance for photographers”, ask other pros who they use and start shopping!

The thing about insurance is that you won’t be glad you have it until you are thanking your lucky stars that you have it!

 

My Ex Employee May Not Compete With Me. Wait, Right? – The Law on Noncompete Agreements

 

 

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So you want to hire an assistant for your photography business. You have perfected your art so that you are busy enough to need some help.

You have decided that it is time to hire an assistant. And, you don’t want someone to just carry your gear and hold a reflector. You need a photographer you can rely on to actually shoot for you if you get sick, or photograph the more simple sessions for you so can book more clients.

But you know how competitive this industry is and you are worried about creating your own competition.  After all, you are going to need to teach this person how you shoot, how to light the session and how to edit like you do so that you can remain true to your successful style. You want to ensure that this person won’t take this education (that you are paying HER for, by the way) and go work for the other big studio in town or open her own shop down the street.

So, you find a form employment contract on the internet that has some firm non-compete language  – something that says in two paragraphs of legal jargon,  “You will never ever compete with me. Like, ever.”

But are you really protected?

NON-COMPETES MAY BE UNENFORCEABLE

A typical non-compete agreement is designed to prevent employees from working for a direct competitor (including themselves) and/or to prevent the employee from disclosing confidential information and trade secrets. However, because public policy and the legal system places heavy emphasis on a person’s right to make a living, courts require these agreements to be limited in scope and duration so that they may be deemed “reasonable.” Courts do not want the person subject to the non-compete agreement to be subject to any undue hardship while seeking employment. As such, courts that have upheld non-compete agreements look at several factors, including:

1.            Legitimate Business Purpose. The restriction must address a real concern. Simply not wanting someone to compete with you is likely not, by itself, going to be a legitimate business purpose. However, needing to protect customer information, pricing or secrets as to your process may be.

2.            Consideration to the Employee. Did you give your employee a benefit in exchange for her agreement not to compete? If the employee is a new hire, simply giving her the job in exchange for signing the agreement may be enough.  However, if she is an existing employee, you may need to provide a new benefit such as a bonus or a raise.

3.            Length of Restriction on Competition.  How long is the restriction to apply? A non-compete that states that the employee may never compete will likely be thrown out whereas one that limits competition for a year or two might be upheld.

4.            Geographical Area Restricted.  If you are a photographer located in Phoenix, is it reasonable to restrict the employee from working for a competitor anywhere in Arizona? What about in a suburb 20 miles away? This factor is highly dependent on the type of business and what your actual business needs require.

5.            The Type of Business to which the Restriction Applies.  If your studio is a portrait studio specializing in general portrait work (families, kids, high school seniors, etc), it is likely unreasonable to restrict the employee from other types of photography.

6.            Public Policy. Is the restriction going to offend public policy?  Will the public, in general, be worse off if the agreement is upheld? If you are a photojournalist, public policy may demand voiding a restriction on other photojournalism work as the public has an interest in the news. Does the restriction offend a basic right, such as a person’s ability to choose her own profession?  Researching your state’s caselaw can help you determine what your jurisdiction looks for in terms of protecting public policy.

And this is where I tell you the same thing I tell you in almost every article I write about the law:  There is no black and white answer as to whether you noncompete agreement will be upheld. Courts will weigh the above factors in light of the specific facts and circumstances surrounding your situation and will make a determination based on such analysis.

However, it is probably safe to say that the more narrowly drafted your noncompete is and the more tightly tailored it is to your specific situation, the more likely it will be upheld.

NONCOMPETE AGREEMENTS MAY EVEN BE ILLEGAL

Yes, as with all laws that are governed by the states, laws differ. And on this particular issue, some states flat out say “no-go.”  For example, California law specifically states that noncompete agreements are void, with two small exceptions.   California even goes so far as to impose liability and hefty fines on the employer if the employer makes the employee sign a noncompete, citing such actions as unfair business practice. Yikes!  Good thing you didn’t use that form you got off the internet, huh?

Bottom line with noncompetes is that you need to think through them carefully.  And consult an attorney with knowledge of the law in your area!  Oh, and maybe don’t teach that new assistant EVERYTHING you know!

For specific questions on noncompete agreements or other contracts, please email Legal Photo Pro at info@legalphotopro.com or contact Kirsten Kowalski directly at 678.386.4751