With the advent of #MeToo and other social-consciousness movements that increasingly are affecting businesses, not only through negative public relations, but also in the pocket book, more and more companies are looking to protect themselves if a scandal ever hits them.
Social media now provides an instant feedback loop for companies that used to be insulated by the working of a 24-hour news cycle and a bureaucratic traditional media. Nowadays, if an executive or another high-profile employee becomes embroiled in a scandal, odds are that the world will immediately learn about it via a tweet or post; hashtags and memes will be created within minutes; and consumers may start to turn against that company within hours.
Because of this, talent-driven businesses such as movie studios being the latest examples are now employing aggressive means to prevent fallout from scandals from hitting them in the pocketbook. As this article in Hollywood Reporter describes, more companies are now using morality clauses in not only talent agreements but also in other business agreements (such as distribution agreements). Morality clauses come in different shapes and forms, but typically they arise in the context of “termination for cause” provisions in employment or executive agreements. Most often, these termination clauses are limited to issues pertaining to failure to perform, commission of a crime that causes financial harm to the company etc. However, I am now seeing provisions that propose the termination of executives for any engaging in activities or conduct injurious to the reputation of the company as the result of engaging in ‘immoral’ acts or acts of ‘moral turpitude.’
A major issue with morality clauses are that, when a scandal hits, their enforcement often requires the use and/or acquisition of information that would otherwise protected by the executive’s right to privacy or in some cases, against their right against self-incrimination. For this reason, I recommend that if a scandal ever hits your company, also analyze whether the conduct at issue also resulted in violation of key company policies (such as those against discrimination or in a code of conduct). In my experience, executives that are up to no good, often are also guilty of misusing company-resources, mistreating their employees or engaging in conduct that creates conflicts of interest.
Naturally, companies may also decide that they do want to be involved with other companies or executives that either now devalues the value of the business relationship, or worse yet, taints that company’s brand or reputation. Imagining paying millions of dollars on a movie starring an actor that is now being accused of being a serial sex harasser. However, this problem is not just confined to Hollywood. Imagine if a key supplier or business partner gets in big trouble and their scandal tarnishes or embroils your company. Is there a clause in your agreement with that key supplier or partner that protects your company? It might now be worth it to check.
-Sergio H. Parra is the lead attorney for JRG Attorneys at Law, LLP’s labor and employment practice.