By Dr. Gary L. Deel, Ph.D., J.D.
Associate Professor, Dr. Wallace E. Boston School of Business
Earlier this year, the biopic movie “Elvis” was released. It’s a beautifully made film that tells a sad story about the alleged abuse and exploitation of Elvis Presley by his manager Colonel Tom Parker, which occurred behind the scenes throughout the professional life of the “King of Rock and Roll.”
Incidentally, this movie was produced by Warner Brothers. This situation is ironic because Warner Brothers was actually a party to a very prominent lawsuit in the 20th century involving the exploitation of artists and performers.
California Enacted a Law to Prevent Worker Exploitation and Abuse
In the early 20th century, California enacted Labor Code §2855, which held that a contract for services between an employee and an employer could not span a term of longer than seven years. The purpose of this legislation was to prevent the exploitation and abuse of workers by employers in the state.
The rationale behind the law was that a finite timeframe ensured that employees could not be eternally bonded to any single employer. As a result, they would be free to move on and seek other employment if they wished after each contract ended. Naturally, employees and employers would be free to renew a contractual relationship after the seven-year period if they chose, but the law stipulated that such renewals could not be mandated in advance.
Prior to this labor code, employers and employees were free to contract for whatever time periods they agreed upon. But because employers generally tend to hold more leverage in these negotiations, this situation generally meant that employers could demand whatever they wanted from desperate employees who needed work.
For instance, employers could insist that employees commit to decades of service in advance, which essentially involved writing a “blank check” for future services and compensation. So the labor code limit of seven years helped to balance the scales of power and fairness in these relationships.
Olivia de Havilland: A Disagreement over Services Leads to a Lawsuit
Olivia de Havilland was a professional actress for nearly 80 years – working in TV and film from the 1930s to the 2000s. She starred in legendary works such as “Gone with the Wind,” “The Heiress” and “The Adventures of Robin Hood.”
From the time de Havilland was just a teenager, she immediately stood out as a rising star in Hollywood. And following her early success in the late 1930s, de Havilland signed a contract for acting services with Warner Brothers in California.
The contract honored the seven-year labor code limitation set by California. However, it also stipulated that Warner Brothers could “suspend” de Havilland’s services during the contract period for different reasons at their discretion.
De Havilland satisfactorily performed those services as required under the agreement for most of the seven-year period immediately following its execution. However, there were a few instances during which Warner Brothers elected to suspend de Havilland.
There was at least one instance when de Havilland fell ill. But other instances involved situations where de Havilland declined to take on roles that the studio asked her to fill. The total amount of suspension time throughout the seven-year term was roughly six months.
At the end of the seven-year term, de Havilland sought to move on with her career. But Warner Brothers protested and insisted that she still owed the studio six months of service time to compensate for the periods during which she was suspended. They argued that she had not fulfilled her obligations under the contract because she owed them seven years “of actual service.”
The dispute between de Havilland and Warner Brothers ultimately culminated in a lawsuit that made major headlines. De Havilland was a small woman, standing 5 foot 3 inches tall and weighing barely 100 pounds. At a time when women received far less respect and consideration in the workplace, no one expected her to stand up to the goliath studio of Warner Brothers. Her decision to take on the mighty Hollywood conglomerate turned many heads.
Key to the case was Warner Brothers’ assertion that de Havilland owed them seven years “of service.” But in reviewing the labor code and the history behind it, the court could find no language or evidence of legislative intent to this effect.
In fact, the court pointed out quite plainly that if California legislators had intended that the labor code limit of seven years was to be construed to mean seven years “of service” instead of seven calendar years from the date of execution of an agreement, they could have easily made this crystal clear by adding those words to the language of the code itself. The court said, “The difficulty with the argument, and which we think is insurmountable, is that the Legislature has not used the words “of service,” and the failure to use those or equivalent words is far more significant as indicating the purpose of the enactment than the entire amendment as written. We cannot believe that the phrase “for a term not beyond a period of seven years” carries a hidden meaning.”
Courts can only interpret laws, not make laws. And so inferring this intent without a rational basis would not be proper.
What Happens If an Employee Agrees to Provide a Service, But Fails to Perform the Work?
But what about the untenable implications of a strict time limit that gives no consideration to the actual services performed by an employee? For example, what if an employee contracts with an employer, receives compensation for that work and then declines to perform the work in question? Is the employer left without recourse if the seven-year term has expired?
This situation raises serious questions with respect to several contract law doctrines such as unjust enrichment and detrimental reliance. These principles hinge on issues related to fairness and justice in contractual relations, and they’re violated when one party unfairly benefits at the expense of another or when one party suffers harm due to unfair behavior by another.
But these principles would not necessarily apply in every situation. Such determinations would depend on the other terms established in an employment contract, such as what constitutes satisfactory performance, which parties have options to decline performance and when they should perform those services. If one party in the agreement fails to perform the stipulated duties under a contract, he or she could potentially be held liable for material breach.
However, in the de Havilland case, there are a few peripheral details that make these arguments somewhat moot. Both parties – ostensibly in a bilateral fashion – made the decision to include the “suspension” provision in the original contract. It was unclear by the terms of the contract whether de Havilland had the unilateral right to “decline” work offered or assigned to her by Warner Brothers. But what is clear is that Warner Brothers absolutely had the unilateral discretion to determine when and for how long de Havilland might be suspended at different times during the contract period.
More importantly, de Havilland received no compensation from Warner Brothers during the periods when she was suspended. So while de Havilland might not have performed any actual service for those six months, she received no pay for them either. Therefore, claims of unjust enrichment or detrimental reliance would have been much more difficult for Warner Brothers to substantiate.
The fact remains that Warner Brothers themselves made the decision to suspend de Havilland for the periods that they did, in accordance with their own contract. If they felt that de Havilland was in breach of the contract during any of those periods, they could have sued her for enforcement or damages at those times.
But they didn’t. Instead, Warner Brothers simply discontinued her pay under the agreement and moved on until her work resumed.
Only at the end of the seven-year term did they protest that more was owed to them from de Havilland. But they raised no such objections at any of the times during which de Havilland was suspended within the seven-year term itself.
The notion that an employer could unilaterally stop the clock on the seven-year labor code time limitation at any moment also undermines the basic intent of the labor code provision in the first place. For example, imagine that an employer in California contracts with an employee for seven years of service and then requires that employee to only work three or four months out of every year. The employee is suspended (and the clock is stopped) for the remaining months of each year.
Now, all of a sudden, a contract for seven years “of service” would take the employee 20 or 30 years to fulfill. This line of thinking, the court reasoned, would run contrary to the law and the intent of California’s labor code. For these reasons, the court ruled in favor of de Havilland, and she was freed from any continuing commitments to Warner Brothers under the original labor contract.
De Havilland’s Lawsuit Was a Landmark Case
The landmark case of De Havilland v. Warner Brothers blazed a new trail for worker rights and the balance of power between employees and employers in labor contracts. Beyond merely clarifying California labor code prescriptions, the case lit a torch for worker rights and justice in America, one that would illuminate a path to greater worker protections that would be passed at the state and federal levels in the future.