An Analysis of the SAG-AFTRA Merger

Bradley J. Previti

Professor Richard Allan

Entertainment Law Workshop

Brooklyn Law School, Spring 2012

Introduction: History, Formation, and Coverage of SAG & AFTRA:

        Officially established in 1933, the formation of the Screen Actors Guild (SAG) was widely considered to be a crucial milestone for the survival of the then-oppressed community of Hollywood actors.  Prior to its creation, Hollywood actors were being exploited by the major studios, regularly being forced into contracts which bound them to grueling hours, minimal compensation, and an unreasonable forfeit of their private leisure at the whim of the studios.^[1] Despite initial reluctance from actors to join SAG, the union quickly gained momentum and in 1937, following the passage of the National Labor Relations Act, the major studios finally agreed to negotiate with SAG.^[2] 

        The safeguards afforded by SAG to its members are rooted in the contracts it procures between those members and the producers. SAG contracts are constructed in such a way as to provide multiple levels of protection for performers. First, the contracts regulate both minimum rates of pay and proper working conditions. This includes (not an exclusive list) the number of hours a performer may work, the frequency of breaks required, overtime pay, and travel accommodations.^[3] The contracts also contain provisions governing the treatment of minors, the procedures for disputes and grievances, as well as affirmative action in the hiring process.^[4] Ultimately, SAG works to ensure that its actors are fairly treated and appropriately compensated for their performances.

With the help of a $10,000 loan from SAG, the American Federation of Television and Radio Artists (AFTRA) came to life in the year of 1937.^[5] To be clear, in 1937, the union was officially the American Federation of Radio Artists (AFRA), as American television had not yet come into fruition. It wasn’t until 1952, when the Television Authority merged with AFRA, that AFTRA was officially formed.^[6] The aim of AFTRA was to protect actors, announcers, and newspersons in radio and television, as well as singers and recording artists, from exploitation and unfair treatment from studios and producers.

Members of AFTRA enjoy a number of benefits and privileges. Primarily, and potentially most significant, members of AFTRA are provided with equal employment opportunities in all locations in which the union operates. Furthermore, the members are guaranteed fair compensation, reasonable working conditions, health benefits and retirement plans (as well as discounts on various medical and educational expenditures). ^[7]

Past Merger Attempts:

        SAG and AFTRA have been in talks with one another regarding merging the two unions for nearly 80 years. The primary incentive behind a merger has always been to strengthen the union and its bargaining power through the principal of unity. Simply put, if the two unions combine forces, they will have more leverage at the negotiation table against major producers and studios. More leverage will likely lead to better results. The primary obstacles have been, 1: the fear that a merger will result in one union’s power (usually the SAG) being greatly diminished; and 2: the fear that a merger will result in the diminution of SAG members’ benefits within health & pension plans.

The first attempt of a merger was made back in 1938 by the Associated Actors & Artistes of America (4A’s), just one year after the formation of AFRA.^[8] The proposal was denied, of course, as were all other proposals throughout the remainder of the unions’ existence (until the agreement in March, 2012). ^[9]

        The most recent merger attempt took place in 2003. The timing of this proposed merger was thought to be both appropriate and favorable, as the unions had just attempted to merge in 1999. Moreover, there was a commercials strike in 2000 in which the two unions had, at least initially, united for the cause. Nonetheless, despite an overwhelming 75% approval from AFTRA members, only 58% of SAG members voted for the merger, 2% short of the 60% requirement. Following this rejection, the 2003 Board Resolution was created, which will be discussed in greater detail later on as we continue through the analysis.

The Mercer Report:

It is publicly assumed that the primary reasoning behind SAG members’ denial of the proposal was their acknowledgment and perception of the Mercer Report^[10], a document prepared in conjunction with the 2003 merger referendum. The Mercer Report was based on an actuarial study and attempted to identify the issues, risks, and benefits of a potential merger between SAG Pension & Health plans and AFTRA Health & Retirement plans. The study was conducted in response to demands by those in opposition to the merger that the potential risk of diminished benefits be realized. Following its completion, the popular public perception was that the information set forth in the Mercer Report pointed to a bleak future for SAG members, which likely led to the failed merger attempt in 2003. ^[11]

This opinion was challenged, however, in February, 2012, when the Mercer Report leaked to the public for the first time since its creation. Upon reading the document, many realized that the Mercer Report was not as ominous as once perceived, and that the Mercer Report generally provided support, not criticism, for the merger.^[12] It denied the existence of any critical barriers to the merger and identified a number of saving opportunities for the unions.^[13] Moreover, according to the actual text within the Mercer Report, the circumstances surrounding SAG, AFTRA, and the entertainment industry as a whole, were of such a nature that pension plan costs were likely to increase, and benefits were likely to decrease, regardless of a merger.^[14] 

2012 SAG-AFTRA Merger:

        On March 30, 2012, following two years of discussions and a vote from over 50% of each SAG’s and AFTRA’s members, in which SAG members expressed 82% approval (AFTRA 86%), the two historic unions officially merged.^[15] What resulted was a tremendous celebration from the majority of each union. Not all members were pleased with the result, however. I will discuss the complaint as well as the lawsuit in the following sections, but first I would like to briefly lay out the fundamental issues surrounding the new SAG-AFTRA union.

        As mentioned earlier, the primary motive behind a merger between SAG and AFTRA has always been to strengthen the members’ bargaining stance against employers. In the current state of affairs, there are only a handful of major corporations that control the great majority of the entertainment and media industry. Most performers, however, earn their living by working on multiple jobs throughout the year - whether through movies, television, audio books, video games, or the theater industry. Aside from forcing the performer to pay multiple working dues, this dilemma has led to the existence of competitive negotiations between SAG and AFTRA. The competition between SAG and AFTRA has naturally resulted in the unions having a weaker position at the bargaining table with these major employers. In forming a single union, this bargaining power, at least in concept, is optimized.

        Another prospective benefit of the merger is the expansion of unionized work. The quantity of non-union work has been growing rapidly over the past couple of years, severely threatening the prosperity of both SAG and AFTRA. In forming one single union, SAG-AFTRA hopes to take advantage of the combination of SAG and AFTRA resources and minimize this threat by unionizing current non-union work.

        Finally, a highly significant issue, and one that remains the centerpiece of the argument against a SAG-AFTRA merger, is the potential effect a merger will have on both the SAG Health & Pension plan and the AFTRA Health & Retirement plan. Opponents fear that the merger of a guild with greater benefits (SAG) and a guild with lesser benefits (AFTRA) will inevitably result in SAG members paying higher pension costs while receiving fewer benefits. Supporters of the merge claim the contrary, believing that SAG-AFTRA’s increased bargaining strength will ultimately lead to the negotiation of more substantial employer contributions into their benefit plans, thus resulting in a stronger pension and health plan for all members.

The Complaint

        Soon after the announcement by SAG and AFTRA officials that the two unions would vote on a merger, Martin Sheen, Ed Harris, and 66 other plaintiffs (hereafter: Sheen) filed an official complaint and sought legal action against SAG, with the hope of preventing the merger from occurring. The complaint, written in a desperately subjective and negative tone, alleged four causes of action. I will discuss each of them in turn.^[16] 

        SAG is a labor organization within the meaning of 29 U.S.C. §402 and is thus governed by its laws and regulations.^[17] Sheen’s first allegation is that SAG, in denying SAG members their right to cast a “meaningful vote”, violated section 29 U.S.C. §411 of the Labor Management Reporting and Disclosure Act (LMRDA).^[18] The basis for this claim rests entirely on Sheen’s argument that SAG, in refusing to conduct an actuarial study prior to the merger vote, precluded members from possessing the appropriate knowledge necessary to put forward an intelligent vote.^[19] The idea is that the results of an actuarial study, i.e. the potential risks that come along with a SAG-AFTRA merger, must be known and understood before a meaningful vote can be cast.

        Sheen’s second cause of action essentially states that SAG, in failing to abide by the requirements of the 2003 Board Resolution^[20], violated its fiduciary duties under 29 U.S.C. §501.^[21] The claim depends on SAG’s “intentional and knowing” disregard of SAG’s constitution, bylaws, and board resolutions.^[22] Sheen is essentially alleging that SAG intentionally ignored the 2003 Board Resolution mandate and in actuality declined to perform an actuarial study strictly for the purposes of getting the merger done quickly, thus breaching its fiduciary duties to its members.

        The third cause of action, that SAG violated 29 U.S.C. §185, follows the same reasoning as the second cause of action, however the claim here is a breach of contract rather than a breach of fiduciary duties.^[23] Briefly, Sheen is alleging that SAG breached its union contract by failing to first recommend or conduct an actuarial study before submitting the merger plan to the Board and Membership.

        Sheen’s fourth claim is that SAG, in engaging in business adverse to SAG members (the merger), violated its fiduciary duties to members under California state common law.^[24] 

        In asserting these claims, Sheen sought drastic relief. Sheen requested a preliminary injunction that would enjoin SAG members from casting a vote in regards to the merger proposal until:  a) an independent actuarial study is conducted, b) there is full disclosure to the members regarding all aspects of the proposed merger plan, c) there is full disclosure to each Board member regarding equal access to and use of membership lists, and d) a new and legally valid election procedure is created and implemented.^[25] As is customary, Sheen also requested any such further relief as the Court may deem just and proper.^[26] 

The Feasibility Review

One of the foundations of the complaint against SAG was SAG’s refusal to conduct an actuarial study (like the Mercer Report) before submitting the merger proposal for a vote. The opposition fears that their benefits will be destroyed by a merger, and wanted (for both themselves and others) to see the statistics that show the likelihood of this happening before a vote. In response to this public dismay, SAG procured the creation of a document titled the Feasibility Review^[27], with the hope that the information contained within would quell, or even completely silence, the opposition and their concerns. This document was released well before Sheen filed the complaint.^[28] 

As can be inferred from its title, the Feasibility Review is a report consisting of a thorough legal analysis as to the feasibility of merging SAG and AFTRA benefit plans. The review was led by Deborah Lerner, one of the most prominent Employment Retirement Income Security Act (ERISA) attorneys in the country.^[29] Lerner was assisted by a group of highly experienced ERISA attorneys, together having been involved in thousands of plan mergers.^[30] Lerner herself had been involved in over two dozen mergers of health & pension plans prior to this instance.^[31] SAG asserted that this Feasibility Review (FR), through its wisdom and prescient quality, was sufficient (in the absence of an actuarial study) to educate SAG and its members about the potential effects of a merger.^[32] Both the Board and the Court agreed.^[33]

One of the first issues the FR focuses on is the fact that legally, the merger of SAG and AFTRA would not necessitate the merger of the benefit plans.^[34] The plans can be retained as stand-alone plans, as if no merger had occurred at all. Assuming the plans are combined, both health plans and both pension plans are jointly trusteed with representatives of the contributing employers. Thus, a merger of the SAG and AFTRA benefit plans would require approval from both the union representatives (the defendants) as well as the employer representatives (officials for major producers &studios) before it was effected. Moreover, in order to legally complete this merger, each side would have to complete an actuarial study to determine the financial impact of such a merger.

In response to the concerns that SAG members will lose their benefits as a result of the merger, the FR stated a number of points. First, the FR explains the basic concept that one united union is stronger than two separate unions, and a stronger union will inevitably lead to better and more proper funding of the pension plan (via improved negotiation power on employer contributions, which will ultimately lead to investment gain). Better funding of the pension fund will result in stronger benefits protections as well as a greater chance for improvement on those benefits. In the context of accrued benefits, the Board of Trustees for each set of benefit plans has a legal obligation to ensure that no member’s accrued benefits will be less immediately after the merger than it was immediately before the merger.^[35] Finally, while it is very rare that a member’s accrued benefits at normal retirement age would be reduced, it is possible. The FR brushes this concern aside, however, as both the SAG and AFTRA pension plans are in the “green” zone, meaning that the trustees are not required to reduce or eliminate any benefits.^[36] 

Another concern of those opposing SAG-AFTRA revolves around the so-called split-earnings problem.^[37] Both SAG and AFTRA require that their members earn a certain minimum annual income under union contracts in order to be eligible for pension benefits.^[38] The problem lies in the very realistic scenario where a multi-talented performer completes work with both SAG and AFTRA in a given year. When his annual income is taken in the aggregate, that performer meets eligibility for either union –but if taken separately, he meets neither. The current rules do not allow this performer to combine his income, and thus he is left ineligible for either pension plan. To quote the Feasibility Review, “even though the merger of the unions would not automatically result in the immediate combination of these plans, the union merger would provide a realistic opportunity for the trustees of the current plans to quickly provide that earnings under both plans could be combined for purposes of establishing eligibility in a plan.”^[39] This problem, then, should ideally be handled and ultimately resolved by the trustees (potentially at the First Convention although I think that is unlikely).

The FR next discusses the potentials for administrative savings if a merger were to take place. What the FR essentially says here is that a merger of the two unions would eliminate a number of duplicative costs and fees. Prior to SAG-AFTRA, each union had to pay for an annual actuary plan as well as an annual auditor plan.^[40] A merger would result in the necessity of only one audit, one valuation, and one filing of each required form.^[41] A consolidation of technology and/or office space could further enhance these savings.^[42] The FR also discusses the possibility of a decrease in investment management fees.^[43] The concept is, that with an increase in the volume of the union (effected by the merger) comes an increase in assets, and with an increase in assets comes a decrease in investment management fees (based off of a percentage of the assets, which is on a sliding scale indirectly related to the growth assets).^[44] 

As to the merger of the health plans, the FR quickly notes that the basis for a fiduciary analysis used to determine whether or not the two plans should be merged is nearly identical to that used for pension plans.^[45] The FR states that a merger of health plans would likely prevent future benefit cuts by strengthening the contribution base of the plan, and would thus be highly beneficial to members of SAG-AFTRA.^[46] 

The Opinion

The opinion for Martin Sheen, et al. v. Screen Actors Guild, et al. was delivered by Judge S. James Otero of the Ninth Circuit Central District of California Court on March 28, 2012.^[47] After hearing arguments from both sides, Judge Otero granted SAG’s motion to dismiss as to Sheen’s first cause of action, but denied their motions to dismiss for the remaining three claims.^[48] Nonetheless, Judge Otero was quite convinced that the remedy of a preliminary injunction would be highly inappropriate in this instance, and thus the merger vote was allowed to proceed as scheduled. On March 30, 2012, the members of each SAG and AFTRA voted to go forth with the formation of the new SAG-AFTRA union.^[49] 

The first cause of action brought by Sheen was a claim that SAG, by refusing to perform an actuarial study, denied its members their right to cast a meaningful vote.^[50] Judge Otero first cites Ackley^[51] to hold that it is ultimately SAG’s rules which dictate how the vote is conducted.  Judge Otero then goes on to state that Section 101(a)(1) of the LMRDA Bill of Rights, where this claim holds its basis, is an anti-discrimination provision.^[52] To state a claim under that section, “a union member must allege a denial of rights accorded to other members”.^[53] As Sheen claims that SAG denied every single SAG member of their right to cast a meaningful vote, there is no violation of equal voting rights and thus the court has no jurisdiction over the issue. As Sheen failed to state a claim for violation of equal voting rights, Judge Otero rightfully dismissed this cause of action under Federal Rule of Civil Procedure 12(b)(6).^[54] 

The second cause of action against SAG alleges that SAG violated its fiduciary duties as officers of labor organizations, as provided in 29 U.S.C. §501 of the LMRDA.^[55] Under §501(a), to paraphrase, the fiduciary duty is defined as an officer’s duty to hold the organization’s money and property solely for the benefit of the organization and its members, and to invest or expend that money and property in accordance with its constitution and bylaws. While the very reason  §501 is in place is to serve as a means for the judicial branch to intervene in union affairs when a fiduciary breach is found, Judge Otero was careful to note that there is a strong and well-established federal policy of avoiding unnecessary interference in the internal affairs of unions.^[56] According to this public policy, absent a demonstration of bad faith on the part of SAG, the court should not disturb its affairs.^[57] Sheen claims here that SAG intentionally and knowingly disregarded the SAG constitution, bylaws, and the 2003 Board Resolution.^[58] Specifically, Sheen attacks SAG for violating Appendix I^[59] in the SAG constitution.^[60] Appendix I contains within it the “Phase I Agreement” which was accepted by both SAG and AFTRA in 1981 and requires that the SAG Board of Trustees “recommend” an actuarial study prior to a merger vote, yet does not mandate that a study actually be conducted.^[61] SAG asserts that the Feasibility Review fully satisfies the terms of Appendix I, and Judge Otero agrees.^[62] As mentioned above, Sheen also challenged SAG on their “intentional and knowing” disregard of the 2003 Board Resolution mandate, which requires that the Board of Trustees “take all reasonable steps to explore whether a merger would enhance the security of pension benefits; be cost efficient, practical and maximize health benefits; and explore the basis upon which the SAG and AFTRA plans could be consolidated”.^[63] While Judge Otero does not speak to whether or not these allegations are truthful, he holds that in taking the facts in the light most favorable to the Plaintiffs, the allegations assert sufficient facts to survive SAG’s 12(b)(6) motion to dismiss.^[64] Therefore, the second cause of action remains.

The third cause of action, while similar to the second, focuses instead on breach of contract. Sheen again attacks SAG for violating the SAG constitution, 2003 Board Resolution, and Appendix I.^[65] SAG responds by claiming that the Feasibility Review suffices to fulfill their fiduciary duties. Judge Otero again holds that absent bad faith, an interpretation of a union constitution by union officials should not be disturbed by the court. Judge Otero cites Ackley to define bad faith as “evidence that union officials acted contrary to the union’s best interest, out of self-interest, or in an unconscionable or outrageous way”.^[66] Sheen argues that SAG recklessly rushed into the merger without taking any steps whatsoever to ensure that benefits would be protected, thus violating its fiduciary duties under the union contract.^[67] Judge Otero states that this issue of interpretation should be addressed in a motion for summary judgment or a trial on the merits.^[68] Judge Otero ultimately holds that Sheen has sufficiently stated a claim for breach of contract and that SAG’s factual arguments against bad faith are insufficient to support dismissal.^[69] The third cause of action, along with the second, survives dismissal.

The fourth cause of action brought by Sheen claims that SAG violated their California common law duties by failing to abide by “the strictures of their own governing documents”.^[70] As was the case in the previous two causes of action, Sheen here attacks SAG for failing to “recommend studies and take all reasonable steps to explore the impact of a merger to protect eligible members against loss of benefits, presently or in the future”.^[71] SAG responds with four separate attempts at dismissal. First, SAG claims that Sheen is outrageous to claim that SAG, in their discussions and negotiations for a merger with AFTRA, constituted a per se violation of any fiduciary duty.^[72] Judge Otero quickly squashes this claim, stating that it is clear that Sheen is not claiming a per se violation, but merely a breach of their fiduciary duties – and thus a dismissal on SAG’s proposed basis would be inappropriate.^[73] SAG then attempts two dismissals revolving around the concept that since the previous causes of actions were dismissed by the court, so should the fourth. Again, Judge Otero swiftly disposes of these attempts, as SAG’s motions to dismiss the second and third causes of action were both denied.^[74] The fourth attempt by SAG relies on a special motion to strike, California’s Anti-Strategic Lawsuit Against Public Participation (anti-SLAPP) statute, which was enacted to deter the filing of lawsuits brought primarily to “chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances”.^[75] Judge Otero holds that SAG did not meet the first prong of the two-prong anti-SLAPP analysis, and thus this attempt at dismissal is denied as well.^[76] Therefore, the fourth cause of action, along with the second and third, remains.

While three out of the four causes of action survived dismissal by Judge Otero, the first cause of action (dismissed) was the claim which Sheen needed to survive in order to preclude the vote from taking place. That is because the relief Sheen sought on that cause of action was a preliminary injunction, enjoining SAG members from voting on the merger until certain conditions (listed above) were met. In explaining his denial of the preliminary injunction, Judge Otero first made clear that a preliminary injunction in this context is an extreme and drastic remedy.^[77] In order for a preliminary injunction to be issued, there must be a clear showing that the plaintiff (Sheen) is entitled to it.^[78] Furthermore, Judge Otero cites Winter^[79] to enumerate further requirements for the issuance of a preliminary injunction. The plaintiff must be likely to succeed on the merits, must be likely to suffer from irreparable harm absent relief, the balance of equities must tip in the plaintiff’s favor, and finally, the injunction must be in the public interest.^[80] As to Sheen’s likelihood to succeed on the merits, Judge Otero centers on the meaningful vote claim.^[81] Judge Otero mentions the Voter Information Packet (VIP), issued by Sheen in response to SAG’s Feasibility Review, which clearly and explicitly attacked the credibility and accuracy of the Feasibility Review.^[82] The VIP stresses throughout its pages that an actuarial study was not conducted, and that SAG refused to do so (or even let Sheen pay for an actuarial study).^[83] The VIP was distributed to SAG members in the same form as the Feasibility Review and each member had a chance to read through both documents prior to voting.^[84] Judge Otero thus accurately concludes, based off of this analysis, that the VIP and its contained information completely negates any prejudicial effect the Feasibility Review may have had on voters.^[85] Judge Otero goes on to hold that a meaningful vote, for the purposes of a violation, is achieved here, as proper notice was given by Sheen that SAG’s Feasibility Review may have been incomplete. ^[86]Through their receipt of the VIP, and given its contents, members of SAG had enough notice and knowledge to cast an intelligent, meaningful vote. Remaining within the context of Sheen’s likelihood for success on the merits (for the purposes of awarding a preliminary injunction), Judge Otero states that Sheen’s claim that SAG is not acting in the best interests of SAG members is unfounded and without merit.^[87] Judge Otero holds that there is nothing in the record that proves SAG is not acting in the best interests of its members.^[88] Moreover, Judge Otero communicates his agreement that the Feasibility Review does indeed satisfy the very vague requirements of Appendix I.^[89] Finally, Judge Otero states that even if Sheen were to succeed on bad faith, it is unlikely that Sheen will be able to prove causation on the part of SAG.^[90] Judge Otero furthers his analysis by demonstrating that there is no irreparable harm here, as the harm must be likely – not just possible – and there is nothing in the record which proves that irreparable harm is likely should relief not be granted.^[91] Judge Otero also holds that the balance of equities do not tip in the favor of Sheen, due to the fact that if a preliminary injunction were to be issued, Sheen would benefit to SAG’s detriment.^[92] Finally, Judge Otero states that in regards to whether the injunction is in the public interest, the decision is a matter for SAG members, not the courts.^[93] 

Result of Lawsuit and Future of SAG-AFTRA

        Following Judge Otero’s March 28, 2012 ruling, three of the plaintiffs’ four causes of action against SAG survived dismissal. It is possible that the plaintiffs’ will eventually win on all three of these claims. Furthermore, if the pension and health plans do fail in the near future, and benefits do decline, there is plenty on the record of this lawsuit to justify a class-action lawsuit a year or so down the road. Most significantly, however, the plaintiffs’ motion for a preliminary injunction enjoining SAG members from voting on the merger was appropriately denied. Consequently, two days following the decision by Judge Otero, a vote was held and SAG-AFTRA was officially created.

It goes without saying that the vote on March 30, 2012 marks a monumental achievement for all of those involved in merger talks since the birth of SAG and AFTRA. The effect, also, will be monumental. As one union, SAG-AFTRA should undoubtedly increase their bargaining strength by a great margin, which is said to be the foundation of all union protections. This enhanced strength will result in SAG-AFTRA negotiators securing better wages, residuals, working conditions, as well as better and more reliable pension and health benefits (via employer contributions). SAG-AFTRA will also be better equipped to alleviate the growing problem of non-union work in the industry. With resources from both unions and no more competition from one another, SAG-AFTRA should be able to unionize a majority of the current and future non-union work that takes place.

In my opinion, however, the greatest benefit of the SAG-AFTRA merger is the very fact that there is officially one union going forward. Technology is undergoing a massive transformation in our society and the entertainment industry is coming along for the ride. It is inevitable that there will be speed bumps and obstacles along the way. But with the passing of time, I believe that SAG-AFTRA officials will successfully organize, consolidate, and create a stronger union – one that is both well-equipped and prepared to face the upcoming novel challenges in the modern entertainment industry.