Morals Clauses Can Protect Companies AND Influencers

Morals Clauses Can Protect Companies AND Influencers

Social media holds risks and rewards for celebrity endorsers and the companies that hire them. While endorsers want to reserve their right to speak freely on issues of importance, companies run the risk that their views, particularly those that may be controversial, might offend their customers or run counter to their own beliefs.

More recently, celebrities and other influencers have similarly raised concerns about the “questionable” conduct of the companies that they endorse. The solution for both sides is the same — including a morals clause in the endorsement contract.

A morals clause, or morality clause, grants employers the exclusive right to terminate a contract in the event that an employee engages in conduct that may harm the employer. Morals clauses are usually drafted broadly to encompass not only illegal conduct but also other acts “reasonably tending to bring [the employer] into public disrepute, contempt, scandal or ridicule, or reasonably tending to shock, insult or offend any class or group of people, or reflecting unfavorably upon [the employer’s] reputation or its products.”

Not all employment contracts will contain a morals clause. They are particularly common in the sports and entertainment industries and may also be included in contracts for high-level executives across a wide range of industries.

Morals clauses often serve two key purposes. First, they deter employees from engaging in questionable behavior. Second, when employees do behave badly, morals clauses allow employers to take swift action to cut ties. High-profile examples of morals clauses in action include: the cancellation of TLC’s “19 Kids and Counting” after sexual abuse allegations were made against Josh Duggar; the Livestrong Foundation cutting ties with founder Lance Armstrong after his performance-enhancing drug use came to light; and, Subway terminating its relationship with spokesman Jared Fogel after he was arrested on child pornography charges.  

Morals clauses are often drafted broadly to allow employers to not only exercise their termination rights when an employee breaks the law, but also when an employee acts in a way that the company doesn’t like. A recent example is Adidas and Balenciaga severing ties with rapper Kanye West after he made a series of controversial comments.

Employees, including actors, musicians, athletes, influencers and other talent, also often have their own brand to protect. As a result, it is increasingly common for morals clauses to impose obligations on both parties.

In 2009, Golfer Vijay Singh learned what happens when you don’t have a reverse morals clause in place. Shortly after entering an endorsement deal with Stanford Financial Group, the company was implicated in a $7 billion fraud. Not wanting to breach his enforcement contract, Singh continued to wear the Stanford logo on his shirt, hat, and golf bag.

Given that Stanford is not the only corporation to behave badly, endorsers have an interest in protecting their own interests when signing endorsement deals. A reverse (or two-way) morals clause allows celebrities and other endorsers to terminate their contracts should a brand owner end up in hot water. As with traditional morals clauses, they can be written broadly to include both illegal and immoral conduct.

For influencers who are not celebrities outside of the context of brand promotion and/or social media, a morals clause can be even more important given that any harm to their reputation caused by corporate sponsor can be more difficult to absorb. Because influencers can’t rely on a hit song, championship season, or new movie to rehabilitate their image or sway public opinion back in their favor, it is extremely advantageous to have an endorsement contract that allows the endorser to quickly cut ties with a brand in the face of controversy.

Given the high stakes, morals clauses are heavily negotiated. Important issues for all parties to consider include: what conduct is prohibited (illegal conduct, immoral conduct or both), what rights each party has once the clause is triggered (right to terminate, damages or both), the term of the agreement (is prior conduct covered), and how disputes will be resolved (mandatory mediation or arbitration). 

At Scarinci Hollenbeck, our attorneys are leaders in the field of entertainment, media, and sports law. We are well-versed in all aspects of name and likeness (NIL) and endorsement agreements and welcome the opportunity to provide personalized legal guidance.