#MeToo: Use a “Morals Clause” in Contracts to Deter and Quash Perpetrators of Misconduct

Conde Nast TagID: null/Photo via Conde Nast

Morals clauses (or morality clauses) have long been part of celebrity, musician, athlete and other talent contracts.  With widespread revelations of sexual harassment and other misconduct in the wake of the #MeToo movement, the use of morals causes is expanding beyond traditional talent contracts to executive employment, consulting, distribution, and other contractual arrangements.

A morals clause gives one party the right to terminate the contract if the other party does not meet a certain behavioral standard. The standard is typically illegal, offensive or immoral conduct, resulting in a negative impact on the other party.

Morals clauses originated in Hollywood in 1921 in an effort by movie studios to curb the private misconduct of actors.  One year later, a morals clause appeared in Babe Ruth’s contract with the Yankees:

[Ruth] shall at all times. . .refrain and abstain entirely from the use of intoxicating liquors and. . .shall not during the training and playing season in each year stay up later than 1 o’clock A.M. on any day without the permission and consent of the Club’s manager. . .[I]f at any time. . .the player shall indulge in intoxicating liquors or be guilty of any action or misbehavior which may render him unfit to perform the services to be performed by him hereunder, the Club may cancel and terminate this contract.

More recently, morals clauses have been used to suspend or terminate deals with Tiger Woods (extramarital affairs), Michael Vick (dog fighting), Kobe Bryant (sexual assault), and Kate Moss (cocaine).

The allegations and acts of sexual and other misconduct that gave rise to the #MeToo movement have caused Hollywood studios and distributors to review and revise their contracts to include morals clauses, like this one:

Company may, at its option, terminate or suspend this Agreement immediately upon written notice to [Party B], if during the Term: (a) [Party B] commits any criminal act or other act involving moral turpitude, drugs, or felonious activities; (b) [Party B] commits any act or becomes involved in any situation or occurrence which brings [him/her] into public disrepute, contempt, scandal, or ridicule, or which shocks or offends the community or any group or class thereof, or which reflects unfavorably upon Company or reduces the commercial value of Company’s association with [Party B]; (c) information becomes public about how [Party B] has so conducted [himself/herself] as in (a) or (b) in the past; (d) [Party B] becomes involved or associated with an event or circumstance caused by [Party B]’s immediate family members or others closely associated with [Party B] (other than Company) which reflects unfavorably upon Company or reduces the commercial value of Company’s association with [Party B]; or (e) [Party B] takes any action or makes or authorizes statements deemed by Company to be in derogation of Company or its products.

Note that in the above example, the hiring company has the option to “terminate or suspend” instead of simply terminate.  This allows the company to take a wait-and-see approach if allegations of misconduct prove to be false or other favorable facts come to light.  (In the employment context, the employer’s right to “terminate or suspend” under the morals clause is in addition to the employer’s right to terminate for violation of the company’s code of conduct or anti-harassment policy.)

Some companies are going a step further, and implementing morals clauses not only in traditional talent agreements, but also in executive employment, consulting, and other agreements.

Given the substantial negative implications of misconduct on its victims, as well as on company morale, culture, and reputation, it makes good sense to think creatively about expanding the use of morals clauses to a range of business contracts.  Moreover, the immense power of the media to magnify the impact of a single event of misconduct requires companies to take (and to obtain the contractual right to take) swift remedial action upon any occurrence of misconduct in accordance with their policies.

A well-drafted morals clause can serve as a deterrent to potential misconduct and provide a heavy penalty for actual misconduct (e.g., contract termination).  It should also send a clear message to potential perpetrators of misconduct that such behavior will not be tolerated under any circumstances.

(Note: for talent, executives and others, there are often good arguments for seeking “reverse morals clauses“, but that is a post for another day.)


Leave a Reply

%d bloggers like this: