If there is a turning point for the esports industry, if it has not already occurred, it occurred this week.  A lawsuit filed last Monday in Los Angeles Superior Court by Turner Tenney, a 21-year old gamer known as Tfue, against Faze Clan, his gaming organization.  The lawsuit is an attempt by Tfue to void his contract with Faze Clan, and the case is a clear indication that esports interest is no longer limited to teenage boys.  Tfue is one of the world’s top players of Fortnite.  Faze Clan is an esports and entertainment organization that signs players to their teams to compete in Fortnite, Call of Duty, RainbowSix, Counterstrike Global Operations, and other games.  A quick look at the money these esports teams and players are generating shows how mainstream this industry has become.  In the media fallout since the lawsuit was filed, it has been reported that Tfue generates roughly $1 million per month in revenue only from his creator code, which does not include other sources of revenue such as endorsement deals and pay for appearances.  Tfue joined Faze Clan in 2018, and he has now filed a lawsuit alleging his contract with Faze Clan is invalid and unenforceable.

Esports industry has not been regulated, but the allegations in the lawsuit filed by Tfue have major implications for the esports industry, and not just for gamers and the organizations sponsoring the gamers.  Here are five issues involved in the lawsuit by Tfue and employment law implications the lawsuit may have for the entire gaming industry:

1. Tfue alleges Faze Clan violated California’s Talent Agency Act claiming that gamers are “artists” protected under the Act.

Dating back to 1913, California has had legislation protecting artists from unscrupulous agents and talent managers.  California’s Talent Agency Act (“TAA”) can be found in Labor Code section 1700 to 1704 and provides that talent agents :

  • be licensed (Labor Code section 1700.5),
  • submit its contracts to the Labor Commissioner for approval (Labor Code section 1700.23),
  • file fee schedules with the Labor Commissioner and post a copy in its office (Labor Code section 1700.24),
  • maintain records of fees earned from clients (Labor Code section 1700.26),
  • and prohibits certain activities such as sending artist to unsafe places or the employing minors (Labor Code sections 1700.32 – 1700.37).

Until this lawsuit, most of the litigation involving who is covered by the TAA involved who qualified as a “talent agency.”  However, the lawsuit filed by Tfue alleges that he is an “artist” who is covered by the TAA.  The term “artists” is defined by the statute as:

[A]ctors and actresses rendering services on the legitimate stage and in the production of motion pictures, radio artists, musical artists, musical organizations, directors of legitimate stage, motion picture and radio productions, musical directors, writers, cinematographers, composers, lyricists, arrangers, models, and other artists and persons rendering professional services in motion picture, theatrical, radio, television and other entertainment enterprises.

See Labor Code section 1700.4(b).  Tfue argues that he is a performer who creates on-line videos which “are viewed by millions, sponsors are willing to pay for Tenney to perform in and create videos that will, at least in part, promote their goods, services and brands.”

Under the TAA, unlicensed talent agencies “do not have authority to make binding promises on behalf of a performer” and therefore artists’ contracts with unlicensed talent agencies are non-binding and the artists can recover all fees earned by an unlicensed talent agency.  See Waisbren v. Peppercorn Productions, Inc., 41 Cal. App. 4th 246 (1995).

Therefore, if Tfue is able to establish that the TAA applies to gamers in the esports industry, he would be able to void his contract with Faze Clan, which is presumably not licensed as a talent agency under the TAA.  Reportedly under the contract, Faze Clan would be entitled to up to 80% of certain revenue streams generated by Tfue.

2. If the TAA applies to Tfue and other gamers, this ruling would have much broader ramifications to the entire gaming industry.

If Tfue is able to establish that he is a performer covered under California’s TAA, this would obviously cover other gamers and require esports organizations like Faze Clan to register under the TAA, and basically apply the entertainment industry regulations to this industry.

However, if the TAA applies to gamers, this could mean that the TAA also applies to the computer programmers writing the code for the games.  The TAA’s definition of “artists” includes “writers,” “composers,” “arrangers,” “and other artists and person rendering professional services in … other entertainment enterprises.”  This could have huge ramifications for the gaming companies that developed this software throughout California.

3. Tfue also alleges his contract with Faze Clan violated California’s prohibitions on competitive restraints.

The lawsuit also alleges that the contract entered into with Faze clan “contains several provisions that constitute illegal and anti-competitive restraints on trade in violation of [Business and Professions Code] section 16600.”  Employment contracts, non-competition agreements, and/or non-solicitation agreements can be challenged under Business and Professions Code section 16600.  That Section provides a very broad rule voiding any contract that limits an employee’s ability to engage in their profession:

Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.

Faze Clan may counter that the restraints in the contract meet one of the exemptions to section 16600.  For example, one exception to Section 16600’s prohibition on restraining an employee’s ability to work is if the restraint is narrowly drafted.  Restraints on the pursuit of “only a small or limited part of the business, trade or profession” have been upheld by California courts.  However, as the court in General Commercial Packaging, Inc. v. TPS Package Engineering, Inc. explained, “[A] contract does not have to impair a party’s access to every potential customer to contravene section 16600…. [A] contract can effectively destroy a signatory’s ability to conduct a trade or business by placing a substantial segment of the market off limits.”  General Commercial Packaging, Inc. v. TPS Package Engineering, Inc., 126 F.3d 1131, 1132–33 (9th Cir.1997).

There is also a strong public policy against enforcing agreements that restrict an employee’s ability to work in the profession they chose.  California Courts have noted, “the interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interest of the employers ….”

4. Are gamers employees, independent contractors, artists, or equivalent to an athlete on a team?

With esports being so new, there are still a lot of open questions about how gamers should be classified.  However, given that the industry is so diverse, there could be an argument made that there cannot be one paradigm that covers all gamers.  This is not like the NFL or NBA, nor is it like the traditional entertainment industry either.  As set forth above, any determination on this issue could have huge impacts beyond gamers, and it could change how gaming companies who develop the software operate as well.

5. Another potential issue: Who owns the gamer’s name and social media accounts?

It does not appear to be an issue in the litigation filed by Tfue, but another potential issue surrounding gamers is who owns their on-line gamer names, social media accounts, and identities?  For example, in 2012, a case arose involving a dispute between an employer and an employee over who owned a Twitter handle.  In PhoneDog v. Kravitz, the employer filed a lawsuit against the former employee to recover the use of the Twitter handle and brought causes of action for (1) misappropriation of trade secrets, (2) intentional interference with prospective economic advantage, (3) negligent interference with prospective economic advantage, and (4) conversion.  While Tfue’s case does not apparently involve this issue, the value of these accounts will likely be an issue in future litigation.  Given the level of views and followers on these accounts, and potential for revenue streams from these types of accounts, the issue of who owns the account, should a dispute arise, is a critical issue that should be addressed between the gamer and the esports organizations.  More information about the PhoneDog v. Kravitz case can be read here.