Why MCN agencies lose influencer contract

By Fang Zhifu, W&H Law Firm

In disputes over contract terminations between streamers and influencers, and the multi-channel network (MCN) agencies that intermediate between such content providers and their live platforms, it’s not common for MCN agencies to lose. In 2022, the author conducted a statistical analysis of more than 2,000 publicly available judgments nationwide. Surprisingly, less than 60 of these judgments favoured the influencers, allowing them to terminate contracts without paying penalties.

While MCN agencies typically have the upper hand in these disputes, losing such cases can have dire consequences. If influencers see one succeed in terminating his or her contracts without liabilities, a domino effect could occur, leading to significant operational challenges for the company. To prevent this scenario, the author briefly summarises the common reasons for losing cases and offers guidance to MCN agencies and live-streaming platforms.

Common reasons for losing

Fang Zhifu
Deputy Director of Hangzhou
Network and Digital Department
W&H Law Firm
Tel: +86 571 8997 0808
E-mail: fangzhifu@weihenglaw.com

Prolonged delays in paying influencers’ earnings. Rarely do contracts explicitly state that influencers have the right to terminate their contracts without liabilities if their earnings remain unpaid for up to a specific period. However, the absence of such clauses doesn’t preclude influencers from this right. If the delay period or arrears sum fulfils conditions for contract termination set out in article 563 of the Civil Code, influencers can potentially terminate their contracts on these grounds without incurring any penalties for breaching the contract.

Article 563 of the Civil Code doesn’t specify the exact timeframe for delayed performance, nor does it specify a reasonable period for non-performance after a reminder. In the author’s analysis of similar cases nationwide, it’s evident that, in judicial practice, when the delay stretches beyond three months without a valid defence from the agency, courts tend to recognise a fundamental breach by the agency, thus empowering influencers to terminate the contract.

Notably, in the past two years, with an intensified crackdown on tax evasion in the realms of influencers and live streaming by national tax authorities, several agencies have withheld earnings due to reasons such as influencers not establishing official studios or not issuing invoices.

It’s essential to emphasise that in contracts between agencies and individual influencers, where direct payments to the latter are stipulated, it is the legal obligation of the agency to handle withholding and remitting tax. Tax-related issues cannot serve as a legitimate excuse for payment delays.

Numerous cases handled by the author have reaffirmed this judicial stance. In practice, some influencers have even taken a passive approach to account settlements in order to achieve a termination without liability. Consequently, in similar situations, the author strongly advises agencies to guard against the associated risks and take timely measures.

Influencers and agencies constitute a de facto labour relationship. In recent years, regulations concerning “new form” labourers have emerged, and judicial practices are increasingly converging. The determination of whether influencers and MCN agencies have a labour relationship no longer relies solely on the presence of contracts like artist management agreements or co-operation agreements.

Instead, it hinges on the actual working dynamics between the parties and whether the relationship is in line with the guidelines set out in circular No. 12 of the Ministry of Labour and Social Security.

An illustrative case involves a company deemed to have a labour relationship with its streamers. Subsequently, when a collective resignation of around 20 to 30 streamers occurred, the company was immediately closed. In 2022, the author represented a streamer in contract termination proceedings against her company and successfully argued the existence of a de facto labour relationship. Consequently, the company dissolved, established a new entity, entered into fresh contracts with the streamer, and underwent comprehensive rectification.

A key factor contributing to MCN agencies’ failure in such cases often lies in the unilateral formulation of rules and regulations, the enforcement of which is mandatory for influencers and streamers. These regulations often come with reward and penalty systems directly tied to wages.

Additionally, influencers and streamers may have minimal say in job content, working hours and location, rendering them subservient to the agency’s heavy-handed management. Furthermore, discrepancies between the actual execution of agreements and the content stipulated in contracts frequently play a pivotal role in these failures.

Once a labour relationship is established, streamers can resign without compensation for breach of contract. Companies may also face potential risks such as making up social security contributions. In cases resembling these, the author recommends that live-streaming companies and MCN agencies undertake timely rectifications, particularly those employing the brand’s store or group live-streaming models.

Mismanagement and informal contract termination procedures that occurred in MCN agencies. In situations where agencies’ staff clash with streamers, company operations, managers and even shareholders might verbally, or via messaging apps like WeChat, agree to the termination of influencers and streamers, sometimes even urging them to leave.

The author has encountered cases where companies, due to unsuccessful live-streaming collaborations resulting in financial losses, verbally agreed to terminate contracts and later changed their stance, proceeding to sue the influencers and streamers.

For instance, in a case the author handled, company shareholders messaged the streamer on WeChat, saying: “Please find time to sign the termination contract.” The streamer agreed.

Even though they hadn’t formalised a written termination contract, the court ruled that from the day they communicated the intent to terminate, both parties had effectively agreed to the contract’s termination. Therefore, on that day, the contract was considered terminated. Consequently, the streamer’s decision to halt live-streaming and join a third-party live-streaming platform didn’t constitute a breach and they weren’t obligated to pay any penalties.

To prevent such scenarios, companies are advised to standardise their management and establish formal procedures for signing and terminating contracts with dedicated personnel.

Other examples. Apart from the above-mentioned situations, other common circumstances include: contracts becoming invalid due to streamers being underage; companies unilaterally altering revenue-sharing ratios to withhold streamers’ earnings; and company personnel requesting streamers to create explicit content, or even asking them to drink or sleep with clients. These circumstances can lead to streamers terminating contracts without the obligation to pay breach penalties.

Fang Zhifu is an associate and deputy director of Hangzhou Network and Digital Department at W&H Law Firm. He can be contacted at 0571-8997 0808 or by e-mail at fangzhifu@weihenglaw.com