Morality Clauses & Employment Agreements: What Employers Need to Know

 Employers take risks every day with the people that the company hires – including top level managers and CEOs.  So, do brands and sports teams when they hire spokespeople or athletes on multi-year, multi-million-dollar contracts.  Anytime there are significant dollars committed to a single person over a long period of time, real risk exists. One […]

 Employers take risks every day with the people that the company hires – including top level managers and CEOs.  So, do brands and sports teams when they hire spokespeople or athletes on multi-year, multi-million-dollar contracts.  Anytime there are significant dollars committed to a single person over a long period of time, real risk exists.

One of the most impactful traits of the people you hire is their moral character.  This is especially true when the person you hire is your spokesperson, or your chief executive, or otherwise is the face of your organization.  One of the most impactful tools you have to control your contractual relationships is called morality clauses.

Long-term, multi-million-dollar employment contracts are a double-edged sword.  They can be a sign of your company’s financial health and purchasing power for star talent.  If, however, the company finds itself embroiled in a star employee’s misconduct, that same contract can become a massive liability if it is not structured properly.

Before we delve into the details of the application of a morality clause, consider this hypothetical example:

The Star Employee in a Regional and Growing Business:  Imagine that you are on the board of directors of a high-profile company.  You have hired a star performer to be your Chief Executive Officer.  He is personally responsible for generating 30-40% of the company’s annual revenue.  This continues for years. Suddenly, one day the city newspaper published a thorough, well sourced and researched story alleging the CEO was involved in multiple incidents of sexually inappropriate conduct both inside and outside the workplace with other employees.  The Board of Directors now needs an exit from the CEO’s multi-year employment contract.

Here is the question: When entering into a large or high-profile contract with an employee that has high visibility on your company or brand, how do you leave room to exit the deal if your star employee engages in conduct that the company finds socially or morally unacceptable?

This is where a well-drafted morality clause comes in useful.  A morality clause will enable an employer to unilaterally terminate an employment agreement if the employee engages in certain defined types of behavior.  The actual language of morality clauses can vary greatly from industry to industry.

Here is a sample morality clause:

If Employee commits any act, which is an offense involving moral turpitude under federal, state or local laws, or which might tend to bring Employee to public disrepute, contempt, scandal or ridicule, or which may embarrass, offend, insult or denigrate individuals or groups, or that may shock, insult or offend the community or the Company’s workforce or public morals or decency or prejudice Company, or which results in actual or threatened claims against Company, Company shall have the right to unilaterally terminate this Agreement without liability for the unpaid portion of any compensation due hereunder upon written notice to Employee.

 As you can see, there is quite a bit of subjectivity involved in the above language.  This is necessary because it gives the Employer more latitude to act when necessary because, at the time the contract is signed, future events and future employee behavior are completely unpredictable.

The balancing act involved is that Employers must be cautious to not throw due process out the window.  However, in today’s social media, a full-fledged existential scandal can erupt and spread within hours.  An employer that is slow to react (or is perceived to be slow to react) can find itself in the crosshairs of an angry online mob because of the misdeeds of one of its employees.  Engagement, timing, and speed are crucial.

If your employment contracts have due process provisions which require a degree of investigation before taking disciplinary action, you must ensure that the due process clauses work coherently with the morality clauses.  An independent investigation by an outside firm can take weeks or months to complete.

It is extremely important to note that morality clauses are also routinely used in family law matters.  Typically, morality clauses are part of custody agreements or a divorce settlement agreement also.  We’ll dive into that in the next article.

By: Bryan Tuk, Esq., Tuk Law Offices

Bryan Tuk is an attorney, author, and musician. His recent book: risk, create, change: a survival guide for startups and creators, is available on Amazon. You can find out more about Bryans writings at http://riskcreatechange.com

 Tuk Law Offices represents clients throughout Pennsylvania and New Jersey, focused on startups, entrepreneurs, arts & entertainment law matters, copyrights, trademarks and nonprofit organizations. You can learn about Bryans law practice at http://tuklaw.com.

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