Welcome
Daily Labor Report ®

Workplace Morals Clauses Take Hold Beyond Show Biz in #MeToo Era

March 11, 2020, 9:38 AM

A recent jury verdict against former PBS personality Tavis Smiley shows the power morality clauses can wield, at a time when the contract provisions once only common in Hollywood gain broader relevance in the workplace thanks to the #MeToo movement.

Morality clauses, which allow companies to terminate contracts based on behavior that could damage corporate reputation, largely appear in contracts for Hollywood actors and endorsement deals with stars or athletes. But their use has expanded into C-suites as employers on Wall Street and beyond seek to avoid backlash from executive misconduct that can hit their bottom lines.

“With the #MeToo movement, companies are really trying to use them more often,” said Steven Adler, co-chair of Mandelbaum Salsburg’s labor and employment group. “This is particularly true with executives in industries that get a lot of press. Employers are smart to consider them.”

The clauses have become common in merger and acquisition agreements, publishing deals, investor contracts, and as a term of employment for top executives, according to a report from Yale Law School, as well as media reports in the wake of #MeToo.

Yet they also can be overreaching in an era where ubiquitous internet activity and political sensitivity has put everyone’s off-duty speech, conduct, and reputation under the microscope, said Patricia Abril, business law professor at the University of Miami, who penned an article on morality clauses. While they can suppress misconduct, the agreements also can serve as a powerful tool for companies to insulate themselves from bias claims and terminate contracts if there’s public backlash.

“Morals clauses become more problematic when there is a great differential of power between the parties,” Abril said. “It’s not hard to imagine a situation in today’s world of social media where some kind of behavior could embarrass the company. People today are more likely to judge that person and that could lead to reputational spillover on the company. People come to quick judgments. We don’t wait for the jury to decide.”

She said they’re increasingly common as companies put a lot of stake in their values, which can ripple throughout the company from the C-suite to rank-and-file employees. They can control lecherous, disreputable activity, but also political persuasions that don’t jibe with management’s beliefs or marijuana use—largely at the company’s discretion. She said the heightened sensitivity in the #MeToo movement increased the stakes for companies, but employees typically have less power in contract negotiations.

Uncommon for Rank-and-File

Unlike other more regulated contracts, such as noncompete agreements, morality clauses likely will be enforced in court and reach deep into the workplace.

But case law is scant, as disputes over the provisions take place in private arbitration, employment attorneys say. A Bloomberg Law review of court opinions found few cases enforcing morals clauses against rank-and-file workers. Instead, they were raised in disputes involving professionals in sports and broadcasting.

For many employees, particularly those lower in the ranks, it’s possible an employer already has broad discretion to terminate them for off-duty conduct or ethical concerns. Most workers can be fired “at will” unless the reason for the termination clashes with labor and employment laws. A few states have broader protections against these at-will employment relationships.

There were some cases, however, where morals clauses were used to justify the termination of Catholic school teachers, including one Ohio woman who was fired for getting pregnant by artificial insemination. That case ultimately settled after the school appealed a jury verdict for the teacher.

While disputes over morals clauses typically are arbitrated, the Smiley case may indicate that more of these disputes play out publicly, said Stuart Brotman, a visiting professor of law at Harvard Law School, where he teaches entertainment and media law. Brotman said the morals clauses are being used more frequently.

“There is no plain vanilla morality clause. Depending on how it’s negotiated, it could be broad or narrow,” he said. “It’s in the company’s interest to have it more broadly tailored. Employees will want a more narrow clause.”

Misconduct Controlled

Hundreds of complaints surfaced in the wake of allegations against Hollywood producer Harvey Weinstein, who recently was convicted of sexual assault in a New York court. Bloomberg News reported that the year following the Weinstein revelations in 2017 saw 425 public allegations of sex-related misbehavior among prominent people working across industries, including politics, media, technology, and finance.

Crisis consultancy firm Temin & Co. also identified 1,400 powerful people accused of misconduct in the last two years. Almost half of those surfaced in the last year alone, as the movement went global to places like India.

Smiley’s verdict was the first in the #MeToo milieu to put a monetary figure on reputational damage and the case was the first in which a jury was asked to reckon with what constitutes good behavior. Smiley was accused of persistent misconduct during his time at PBS. He was fired in December 2017.

Smiley accused PBS in D.C. Superior Court of racial bias and wrongful termination after he was ousted. The network then countersued for the year on air that he didn’t deliver. Central to the case was the network’s morals clause which barred a producer or “program personnel” from acting in a way that reflects unfavorably on PBS. Violations of the clause would allow PBS to terminate the production contract and recover money paid to the producer.

A jury entered a $1.5 million verdict for PBS, but these types of damages aren’t typically the outcome of morals clause violations in employment contracts.

History in Hollywood

Adler of Mandelbaum Salsburg said it’s in a company’s best interest to craft a broad agreement, but historically they’ve been seen as too broad. He cited the 1950s, when they were used against actors thought to be communists, and he said the Directors and Writers Guilds of America banned their use. The Screen Actors Guild–American Federation of Radio and Television Artists doesn’t use such a ban, he said.

Harvard visiting professor Brotman, who also teaches at the University of Tennessee, also cited morals clause use to protect companies against certain activities during that era, adding that they were litigated before the U.S. Court of Appeals for the Ninth Circuit between 1947 and 1957.

The clauses continued to be used in sports and entertainment contracts over the years, and now are being used more frequently for executives, he said.

Morals clauses are a product of a growing zero tolerance attitude in entertainment and business and they’ve become more broad in scope and the terminations under them more swift and publicized, wrote Leah Norod, an entertainment attorney with Romano Law Group.

A violation of a morals clause is often grounds for termination “for cause,” which may come with severe ramifications depending on an employment agreement, Norod said. A narrowly tailored agreement could protect the worker, including asking for specific language to make it clear what constitutes bad behavior, requiring proof of the misconduct, and pushing for a third-party review, Norod said in a client advisory.

“Morals clauses are here to stay, and will likely become more and more robust in favor of the employer as more incidents come to the forefront of the public eye,” Norod wrote. “It’s important to become knowledgeable about when they come into play and to level the playing field, but understand that if you trigger one, you may already be in deep.”

To contact the reporter on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com

To contact the editor responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com

To read more articles log in. To learn more about a subscription click here.