The use of morality clauses in contracts has expanded far beyond the days when they were largely used to keep stars from costing studios millions of dollars by engaging in scandalous and/or illegal behavior that kept fans away from their movies. Businesses now regularly include some form of morality clause in their executive contracts.
They’re increasingly common for CEOs, partners, directors and high-level employees whose actions or words outside of work could damage the company’s reputation – and bottom line. That’s critical now that it’s easy for someone to find themselves captured on a cellphone behaving badly and for a video to “go viral” and be seen worldwide within hours.
Creating a morality clause that will hold up
The purpose of a morality clause is typically two-fold. First, it’s intended to let employees or others affiliated with a business know that behavior that could prove harmful to a company won’t be tolerated. Second, it gives the business the right to take legal action to recoup its losses if someone violates the clause and causes losses as a result.
A morality clause is generally intended to prevent behavior that’s immoral, unethical, illegal or otherwise violates societal norms and sense of right and wrong. For example, if a business executive is caught on cellphone video going on a racist rant at their local grocery store, that could definitely have serious negative consequences for their employer. There’s often language about not publicly disparaging the business as well.
Businesses can’t dictate what people do privately. However, they have a right to hold people accountable if that private behavior becomes public knowledge and causes financial harm to the business.
Not being too vague – or specific – is key
It’s crucial that a morality clause not be too vague – or too specific. For example, terms like “immoral conduct” are too vague for a person to reasonably know what is included. However, getting into specific behaviors can leave others uncovered by the clause. It’s a careful balancing act. When the person being asked to agree to the terms is valuable enough, they may be able to negotiate what goes into their morality clause.
Typically, for a business to prevail in court against someone who violated a morality clause, it must show that the violation caused it financial harm – not just that it created some negative “buzz” for a time. Having steady, experienced legal guidance can help businesses craft and enforce morality clauses and protect their reputation and bottom line.
