Preventing the “Face” of Your Company from Doing an About-Face for a Competitor

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We previously wrote about whether Peloton instructors are (or should be) subject to non-compete agreements owing to their prominent role as the “face” of the company. Today, we take a look at another “face” of Peloton (and other companies), as we consider the use of restrictive covenants for paid corporate spokespeople, such as actors who appear in company ads and “influencers” who use their social media popularity to promote products.

Last year, Peloton released a widely-panned commercial entitled “Grace from Boston,” in which a husband bought his wife, Grace, a Peloton bike as a holiday gift. The ad quickly made the rounds on Twitter and other social media, with some expressing outrage over the “sexist and dystopian” message behind a husband surprising his wife with fitness equipment. Traditional media then took note, and Peloton’s share price actually declined for a short period of time (though it has since rebounded and then some, as people have taken their fitness regimens on-line during the COVID-19 crisis). Shortly thereafter, actor Ryan Reynolds shrewdly capitalized on the ad’s notoriety by hiring Monica Ruiz, the actress who played Grace, to star in a commercial for his gin company, Aviation American Gin. In that commercial, which aired just weeks after the Peloton commercial, Ms. Ruiz reprised her role as Grace, only this time, she was shown having drinks with friends and bemoaning the fact that she received exercise equipment as a holiday gift from her husband. It was an effective ad, and its effectiveness was directly attributable to the creative way in which it played off the notoriety of the Peloton commercial.  Similarly, you may also have seen the reemergence of the “Can you hear me now?” guy, Paul Marcarelli, who now appears in commercials for a major telecommunications company after becoming famous (and rich) earlier this century by starring in a series of popular commercials for a well-known competitor.

With these ads in mind, we look at how advertisers might use restrictive covenants to prevent a paid spokesperson or influencer from exploiting a prominent role on behalf of one company for a direct competitor. In particular we consider the use of non-competes, non-disparagement agreements, and non-disclosure agreements (or “NDAs”) for these spokespeople, and offer some creative alternatives.

Non-compete agreements

In almost all cases, commercial actors and paid influencers are independent contractors or gig workers rather than corporate employees. Nevertheless, in many states, the rules governing non-competes are the same for conventional employees, independent contractors, and gig workers. That is to say, a non-compete for a commercial actor should be enforceable to the same extent as a non-compete for any other employee in a given state.

In the case of Grace from Boston, a traditional non-compete agreement would not have done much good for Peloton for the simple reason that Aviation American Gin does not compete with Peloton (some might even say it does the complete opposite of compete). On the other hand, in the case of the “Can you hear me now?” guy, Mr. Marcarelli went to work for a direct competitor and appeared in advertising that specifically referred to his prior ads. But, he did not do so for five years. Therefore, it has been speculated that Mr. Marcarelli was, in fact, subject to a non-compete agreement that explained the five-year gap between the last “Can you hear me now?” commercial and his reemergence on behalf of a competitor. While the later ads were undoubtedly attention-getting when they hit the airwaves in 2016, their competitive effectiveness was likely blunted by the passage of time. This is therefore a good illustration of how a non-compete that is limited in duration serves its salutary purpose without unfairly limiting competition in the long-run.

One final thing to consider is that companies will need to be more creative in jurisdictions where non-competes are limited or not unenforceable. For example, in some states, non-competes are unenforceable against employees and independent contractors who earn less than a certain threshold amount each year. While a celebrity might earn millions of dollars serving as a spokesperson or influencer, some actors and models may earn a fraction of that to star in a single commercial or print ad, often cobbling together multiple jobs just to pay their rent, and many run-of-the mill “influencers” are paid in kind (i.e., with free clothing or other products). These individuals likely will not get over the compensation threshold with any single company, so a non-compete may not be enforceable against them in a state where a minimum wage threshold is required. Companies that anticipate longer advertising campaigns featuring the same spokesperson as the face of the brand should consider hiring the spokesperson as an employee and should consider including a non-compete in the employment agreement where allowed by law. Additionally, companies will want to consider including forum selection and choice of law provisions for jurisdictions that allow non-competes.

Non-disparagement clauses

The harm to an advertiser is obvious if its prominent spokesperson suddenly does an about face and trashes the products he or she previously promoted. Therefore, a non-disparagement agreement can also be an important tools for advertisers. While non-competes are subject to special scrutiny in almost all jurisdictions, non-disparagement clauses are more widely enforceable. In particular, unlike non-competes, they are not subject to geographic limitations and can go on in perpetuity, and extend wherever the spokesperson may travel. Nor are they limited only to untruthful statements (except in certain limited circumstances), so they give protection beyond what a common law defamation claim might offer  .

While a non-compete would not have benefited Peloton in the case of Grace from Boston, a carefully worded non-disparagement agreement might have been effective in preventing Ms. Ruiz from reprising the role of Grace on behalf of Aviation American Gin. While the gin commercial did not directly disparage Peloton as a product, it clearly made light of Peloton’s advertising and, in turn, at least arguably threatened Peloton’s goodwill. While Ms. Ruiz and Aviation American Gin might counter that semi-gentle mockery of a company’s advertising, rather than its products, does not give rise to a claim for commercial disparagement, there is at least a cognizable dispute. Sometimes, that is enough to prevent the alleged disparagement in the first place.

As for Mr. Marcarelli, his later ads arguably disparaged the prior products he hawked. Indeed, a defining characteristic of advertising in the telecommunications industry is competitive comparisons which, in some instances, could be described as “disparaging.” Disparagement is generally legal so long as the person doing the comparing is not contractually prohibited from doing so (and so long it does not rise to the level of false advertising or unfair competition). Accordingly, a non-disparagement agreement might well have prevented Mr. Marcarelli from promoting competitive products and services by reference to his prior ads. Of course, if we speculate that he was subject to a five-year non-compete based on the passage of time between his two roles, we can also speculate that he was not subject to a non-disparagement clause, given the nature of his later ads. The key point here is that a good non-disparagement clause can take the place of a non-compete in some cases, and provide reasonable protection for an advertiser in dealing with an actor or other spokesperson against whom a non-compete may not be enforceable.

Non-disclosure agreements

In some instances, a corporate spokesperson might be made privy to confidential information, particularly as it relates to new products or marketing campaigns. Advertisers should take the simple and prudent step of including non-disclosure provisions in their contracts with paid spokespeople.  Remember, confidential information only merits legal protection when its owner takes reasonable steps to maintain confidentiality. An NDA is one such reasonable step. In fact, the SAG-AFTRA (unions representing actors) standard contracts for commercial principals and extras include NDAs as part of their customary terms.

Getting creative

Finally, companies who utilize spokespeople and influencers should feel free to get creative in their contracts. Unless they violate public policy or other laws (such as antitrust and wage laws), parties can generally agree upon whatever terms they would like to, and courts will enforce them as written. Companies may want to consider clauses that prohibit spokespeople and influencers from playing off of or reprising their roles for another company, mocking or otherwise undermining the company (even if not rising to the level of commercial disparagement), or the like. Such clauses likely will be reviewed with far less skepticism than a non-compete agreement, and will be treated  more like a non-disparagement clause or an NDA, because they do not restrict the spokesperson or influencer from earning a living. Rather, these types of restrictions are  narrowly tailored to protect the company’s goodwill.

The central theme for companies in all of this is that when you spend your advertising dollars to establish a “face” of your company, brand, or product, take all the legal precautions you can to prevent your face from doing an about-face.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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