Oz Magazine

When It's Time to Say Goodbye: Terminating the Agency/Client Relationship
by Jon Lee Andersen, Esq.

They say that nothing lasts forever, and they're right, especially in the world of advertising, where this inescapable tendency toward change often affects the relationship between an agency and its clients.

Sometimes it's the agency that wants out (usually because of money, or to accept a larger client who's in the same business as an existing one). And sometimes it's the client who wants to go, (often because a new VP of Sales or Marketing arrives, toting along a past relationship with another agency. Or possibly the other shoe drops due to a general dissatisfaction with a current or previous advertising campaign.) But whatever the reason, things can get sticky. To help, here are some things to consider for a (relatively) problem-free termination.

The beginning point in a separation is the notice of termination, given by either the agency or the client. In those situations where a written contract between the parties is in place, the time requirements for termination notices are almost always spelled out. If not, or if the relationship is operating without a written contract, the industry norm for a termination notice is usually 60 to 90 days. If it's the agency who is terminating the relationship, the period between the date of the notice and the termination of the relationship should be on the longer end, since the client will then be faced with the necessity of locating and retaining another agency, which frequently takes some time.

Once the proper notice has been given, the agency and client enter into what I call a "Twilight Time." This is the period between the delivery of the termination notice and the date the termination becomes final. It is in this period that there is frequently some confusion as to what each party should do, what its obligations are, and how to proceed with certain matters. If the client initiated the termination, it is not unusual for them to already be working with a new agency, and they will want to get the turnover completed as soon as possible. If the agency initiated the termination, it usually has a new client in the wings and wants to get started on this new work right away.

Here are some guidelines for an agency to follow during Twilight Time:

Ask the client for instructions! Identify any areas where action is necessary during Twilight Time, and then point them out to the client and ask what their preferences are. Getting answers and ascertaining the client's wishes can go a long way to achieving a smooth transition.

Be prepared to cooperate fully with the client and its new agency. Ensure that the appropriate personnel attend "turnover" meetings, that necessary information is available, and that critical data can be transferred easily. Schedules of those media placements already contracted should be delivered, and any other ongoing contracts should be made available for discussion and/or assignment.

Be prepared to continue with media placement during this period, and keep good records. If the contract being terminated is commission structured, the agency will still be entitled to commissions on all media placed prior to actual termination.

It probably goes without saying, but unless there is a very good reason, do not do any new creative work for the client during this time period. As discussed later in more detail, one of the big issues that frequently arise during a termination is ownership of rights and materials. New creative during Twilight Time can merely serve to exacerbate the situation.

Do not accept competing accounts until final termination of the relationship. I realize that this comment is probably ignored most of the time, but the reason for including it is sound. If the relationship is set out in a contract, it probably precludes accepting competing business, and the contract does not end with the notice of termination it ends only upon actual termination.

For the client, there are some guidelines as well:

Give the agency instructions! Tell them how things should be handled: which media placements to continue, which to cancel, who the new agency is, what information is needed, when meetings are planned, what creative work with be continued, and so on. This communication is the key to a smooth switch of agencies.

Be prepared to pay for all of the agency's third-party commitments and creative work done on your behalf, as well as for any creative work you may want to continue.

Understand that a client does not automatically have rights to all of an agency's creative material and work, even thought it may have initially been done with the client in mind.

Once the final termination date is reached and the relationship is ended, there are a few parts of the alliance that continue. For example, agencies should never disclose to other clients (or to anyone else for that matter) any of a departed client's trade secrets or confidential information they may have picked up during the relationship. General industry knowledge or expertise acquired because of a relationship is okay to use, so long as it is not client specific.

Also, as mentioned above, the other big nagging issue is usually who owns what. Can an agency use a material that was developed for the departed client for another campaign? Can the client use a terminated agency's creative material and ideas with a new agency? Answers to these questions are case specific, but here are some general rules: If the material was used and paid for by the client, it belongs to the client. If it was not used, but was nevertheless paid for by the client, it still belongs to the client. If it was used by the client, but not paid for, it's a tougher question, but generally, it still belongs to the client, with the agency having a claim for payment. If it was neither used by the client nor paid for by the client, then it generally belongs to the agency and can be used for another client.

Here's a typical scenario in verse:

The relationship seemed strong as oak,
Till the new Sales VP spoke
He lit his cigar,
Told the agency au revoir
And $10 million in billings went up in smoke.