Sunset clauses and post-contractual revenue sharing in influencer management

Introduction

Sunset clauses are a common instrument in influencer management contracts to regulate the duration and conditions of the collaboration. They offer a structured way of adapting contractual relationships to the constantly changing dynamics of the digital world. A particularly sensitive aspect is the management’s post-contractual participation in the influencer’s income. These clauses are of central importance as they protect the financial interests of the management after the end of the contract term. However, incorrect wording here can lead to inadmissibility or lack of enforceability, which weakens the legal position of both parties. This article expands the consideration of sunset clauses to include the special topic of post-contractual revenue sharing and highlights the legal nuances that are decisive for a balanced and effective contract design.

What are sunset clauses?

Sunset clauses, also known as expiry clauses, are contractual agreements that provide for the end or modification of certain contractual components after the expiry of a specified period. They serve as a contractual safety net that automatically takes effect if no new agreement is reached and allow the contractual relationship to be dynamically adapted to changing circumstances and interests. These clauses are not only used in influencer management contracts, but also in a variety of other types of contracts and industries.

In the software and media industry, for example, sunset clauses are used to limit the term of license rights so that the terms can be renegotiated or the license automatically terminated after the term has expired. In fixed-term employment relationships, they can stipulate that certain contractual conditions, such as salary or position, are adjusted after a certain period of time. Partnership agreements use sunset clauses to restructure the shares or voting rights of shareholders after certain events, such as the departure of a shareholder. In the area of real estate, they can stipulate in rental and lease agreements that certain conditions, such as rental prices or renewal options, must be renegotiated after a fixed period. Sunset clauses can be used in international trade agreements to adjust tariff preferences or trade conditions after a certain period of time or if economic conditions change. Finally, sunset clauses in joint venture agreements between companies can stipulate that the cooperation ends automatically after a certain period of time or that certain conditions must be renegotiated.

These diverse applications show that sunset clauses are a flexible and widely used instrument for adapting contractual relationships to the changing circumstances and needs of the contracting parties. They offer legal certainty and flexibility, but require careful and precise wording to ensure their effectiveness and enforceability.

Post-contractual revenue sharing

A central area of application of sunset clauses in influencer management contracts is the regulation of the management’s post-contractual participation in the influencer’s income. Such clauses are of crucial importance, as they are intended to ensure that the management continues to participate in the fruits of its work even after the end of the contractual relationship, especially when it comes to long-term advertising deals or collaborations initiated during the term of the contract.

This blog article focuses on this aspect because it is frequently observed in practice that many agencies or management companies try to insert such clauses into contracts, sometimes with a post-contractual term of up to two years. This is often done in the hope of being able to benefit from the influencer’s income even after the direct collaboration has ended. However, this can be a considerable burden for the influencer and restrict their own economic freedom.

On the other hand, there are cases in which agencies are annoyed because they have not formulated such clauses correctly and lose a lot of money as a result when an influencer switches to a different management. Insufficient or incorrect wording can result in the clause being legally unenforceable, which in the worst case means that the management has no claim to post-contractual income, even if it has contributed significantly to the influencer’s success.

It is therefore of the utmost importance that sunset clauses regulating post-contractual participation are formulated clearly, fairly and with legal certainty. They should take appropriate account of the interests of both parties and be in line with the legal framework. This is the only way to ensure that the clauses fulfill their purpose and offer a fair and sustainable solution for both the management and the influencer.

Challenges and legal framework conditions

However, the drafting of such clauses is not without its pitfalls. On the one hand, they must protect the interests of the management, but on the other hand they must not unreasonably restrict the freedom and earning opportunities of the influencer after the end of the contract. A duration that is too long or a participation rate that is too high can be considered an unreasonable disadvantage for the influencer and render the clause ineffective.

In addition, sunset clauses that regulate post-contractual revenue sharing must be formulated clearly and transparently. You must define precisely for which income the management will still receive a share after the end of the contract and how long this arrangement applies. Ambiguities and generalities often lead to the clause being ineffective. In addition, these clauses must not only be clearly defined, but also appropriate in terms of turnover and significance. You need to consider numerous other aspects, such as the duration of the collaboration, the management’s contribution to the influencer’s success and the market situation.

A ruling by the Potsdam Regional Court (judgment of June 2, 2021, Ref.: 2 O 101/20) illustrates the problem of excessive post-contractual remuneration arrangements. In this case, a post-contractual remuneration provision was classified as immoral as it excessively restricted the economic freedom of decision and activity of the party concerned. The clause stipulated that the management was to receive a revenue share of 100% of the rate applicable in the last year of participation in the first post-contractual year and 60% of this rate in two further years. Such excessive and far-reaching provisions may not only contribute to the immoral overall character of the contract, but may also indicate a reprehensible attitude on the part of the beneficiary party.

This ruling underlines the need for a balanced and fair design of sunset clauses. They must take appropriate account of the interests of both parties and must not disproportionately restrict the economic freedom of the influencer. Only in this way can they fulfill their purpose and offer a fair and sustainable solution for both sides.

Legal enforceability

The legal enforceability of sunset clauses that regulate post-contractual revenue sharing depends largely on their precise and balanced wording. They must be clearly defined and must not violate fundamental principles of contract law. A fair and appropriate structure is essential in order to protect the interests of both parties and avoid one-sided disadvantages.

The clauses must provide a clear and comprehensible basis for calculating the post-contractual participation and specify in detail which of the influencer’s earnings are included in the calculation. The duration of the post-contractual participation must be reasonable in order not to be considered an inadmissible restriction of the influencer’s professional freedom.

Flexibility is also an important aspect. The clauses should be adaptable in order to be able to react to unforeseen changes in the influencer’s career or in the market. Rigid clauses that do not allow for adaptation to changing circumstances can quickly become unfair and lose their enforceability.

Sunset clauses should also contain provisions that define the procedure in the event of a dispute, such as the appointment of an arbitration board or the determination of a specific place of jurisdiction. Such regulations can help to avoid lengthy and costly legal disputes and enable conflicts to be resolved quickly and effectively.

Overall, the drafting of sunset clauses that regulate post-contractual revenue sharing requires careful consideration of the interests of both contracting parties and precise knowledge of the legal framework. Only in this way can they fulfill their function as an instrument for the fair and balanced regulation of post-contractual relationships between influencers and management.

Conclusion:

Sunset clauses in the context of post-contractual revenue sharing within influencer management contracts represent a complex legal construct. Their effective and legally compliant drafting requires legal sensitivity and precise wording. Legal expertise is essential in order to adequately protect the interests of both contracting parties and avoid legal pitfalls.

The design of influencer management contracts, particularly with regard to sunset clauses and the associated post-contractual revenue sharing, must always take into account the legal framework. Professional advice is not only helpful, but often indispensable in order to protect the legal and economic interests of all parties involved in accordance with the specific requirements of influencer marketing and to ensure the legal enforceability of the contractual provisions.