As the year draws to a close, most of us will think back on the people and events that shaped 2017. Considered by many to have been one of the biggest stories of the year, it would be difficult to ignore the social (and legal) discourse surrounding the more than forty high-profile men caught in sexual misconduct scandals.

Last month, Netflix removed Kevin Spacey from its hit show House of Cards after Spacey was accused of sexual misconduct. However, Spacey claims Netflix cannot legally fire him because his contract did not contain a morality clause. Similarly, Hollywood producer Harvey Weinstein’s employment agreement may have only a very “loose” morals clause that does not allow for his termination, so long as he pays contractual fines and any costs incurred by his company due to his behavior.

A morality clause is a contractual provision that gives a party (usually a company) the unilateral right to terminate the agreement, or take punitive action against the other party (the “talent,” which is usually an individual whose endorsement or image is sought) in the event that such other party engages in reprehensible behavior or conduct that may negatively impact his or her public image and, by association, the public image of the contracting company (source).

The history of “Morality Clauses.”  In 1920, silent film star Roscoe Arbuckle signed a multi-million dollar contract with Paramount Pictures. The following year, he was charged with the rape and manslaughter of actress Virginia Rappe. Although ultimately acquitted, Arbuckle’s reputation was destroyed and the studio lost millions. This case is considered to have been the impetus for including morality clauses in contracts for actors, athletes and other talent.

The purpose of Morality Clauses.  A morality clause (also known as a “morals” or “bad boy/girl” clause) permits an employer to end its contractual relationship with an individual if their conduct breaches the ethical expectations laid out in the employment agreement.

Clause examples.  The following clause is found in a celebrity endorsement contract under English law. While “morality” is not mentioned explicitly, the clause gives the employer the right to fire the celebrity in cases of drug usage, scandal, or bad press – even if those behaviours are not illegal.

The Company shall be entitled to terminate this agreement if the Celebrity has committed a crime or has become involved in any situation or activity (including use with illegal or illicit drugs) which tends in the reasonable opinion of the Company to expose the Company to disrepute, contempt, scandal or ridicule, or would tend to shock, insult or offend the public, or reflects unfavourably on the Company’s reputation or products or if any act or conduct of the Celebrity shall prejudice the production or successful sales of the Endorsed Product.

The following clause is from a precedent film actor’s contract (California law):

The Actor shall conduct himself with due regard to the public conventions and morals. The Actor shall not, either while rendering such services to the producer or in his private life, commit any act that will tend to degrade him in society or bring him into public hatred, public disrepute, contempt, scorn, or ridicule, or that will tend to shock, insult or offend the community or public morals or decency, or prejudice the producer of the motion picture or theatrical industry in general.

Celebrity responses through “Reverse Morality Clauses.” In 1999, Houston-headquartered Enron signed a $100 million 30-year deal with the Houston Astros to name their new baseball stadium Enron Field. Two years later, Enron filed one of the largest bankruptcies in American history, and the name “Enron” became practically synonymous with corporate greed. The Astros spent months trying to buy the balance of the contract to remove Enron’s name from the stadium.

With a “reverse-morals clause,” the talent may end the contract if the company hiring them acts in a scandalous manner. Such a clause may save a talent’s reputation in instances of corporate crimes or bad publicity (e.g. data breaches, oil spills, bribery), and would prevent the company from making further use of the celebrity’s name and image. Of course, not all celebrities have sufficient bargaining power for inclusion of a reverse morals clause, and companies may resist the imposition of moral reciprocity.

Consequences.  If the morality clause is triggered, the aggrieved party will seek  remedies which may include terminating or suspending the agreement, financial penalties, or other damages. If Spacey’s contract with Netflix does not have a morality clause, the streaming giant will not have the right to terminate Spacey for his personal actions. In such a case, Netflix will likely owe Spacey the entirety of his pay package, plus any other damages for “termination without cause.” It may be a hefty payout, but one worth making considering the allegations.

As businesses spend considerable sums of money to cultivate the “ideal image” associated with their product, any negative press can seriously harm their brand. Despite their fame and talent, each actor, athlete and studio executive is a human being capable of making mistakes. With social media and internet news continually enhancing the public’s interaction with and knowledge of celebrity behaviour – even in their private life – companies and individuals alike must be alive to the importace of morality clauses.