January 2, 2014
By Oliver Herzfeld
A morals clause is a contract provision that prohibits, and provides a remedy for, a party’s illegal, immoral or otherwise undesirable conduct. Morals clauses commonly appear in contracts for the professional services of performers, athletes and other famous personalities. Companies insist on morals clauses to protect their reputation and interests from being adversely affected by the acts of their endorsers, service providers and other contractual counterparties. But what happens in the event of a corporate scandal or when company representatives behave badly? Shouldn’t performers, athletes and other famous personalities seek morals clause mutuality to protect their own reputations from being adversely affected by the companies that engage them?
History Of The Morals Clause
The origin of the morals clause can be traced to the public backlash against Paramount following the 1921 arrest of Roscoe “Fatty” Arbuckle on charges of rape and murder. As a result, Universal Studios, one of Paramount’s competitors, began inserting the following clause in all its agreements with talent:
[H]e (she) will not do or commit anything tending to degrade him (her) in society or bring him (her) into public hatred, contempt, scorn or ridicule, or tending to shock, insult or offend the community or outrage public morals or decency, or tending to the prejudice of the Universal Film Manufacturing Company or the motion picture industry.
Any breach of the provision would permit Universal to unilaterally terminate the agreement on five days’ notice. The next year, morals clauses entered the professional sports world when the Yankees amended their agreement with Babe Ruth stating:
[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.
Since then, the use of morals clauses has become customary in agreements involving entertainment and sports talent, and has expanded to all sorts of agreements outside the entertainment and sports industries including many ordinary employment agreements in the business world and, in a sense, trademark license and supply agreements where licensees/suppliers are often required to covenant never to engage in child labor; forced labor; worker discrimination, harassment or abuse; violation of wage, benefit and overtime laws; or generally to take any action which may threaten to injure the image or reputation of the licensor/purchaser or any of its trademarks or products.
Over the ensuing years, morals clauses have been enforced against many famous personalities including Michael Vick in connection with dog fighting, Kobe Bryant when charged with sexually assaulting a 19-year old, Kate Moss who was photographed using cocaine, Tiger Woods for marital infidelities, Lance Armstrong following his admission of illegal doping and Paula Deen after admitting the use of derogatory names and remarks regarding African Americans.
The Need For Morals Clause Mutuality
The origin of the “reverse morals clause” can be traced to Pat Boone’s 1968 oral agreement with Bill Cosby’s Tetragrammaton label where the parties agreed that Mr. Boone could unilaterally terminate the relationship if the record label did anything that could harm Mr. Boone’s religious image and upright reputation. After that, little attention was paid to the fact that both parties to a contract should be concerned about the other party’s conduct until the Houston Astros were, in the words of its president of business operations, “materially and adversely affected by the negative public perception and media scrutiny resulting from Enron’s alleged bad business practices and bankruptcy” and, as a result, felt forced to enter into an agreement to pay Enron’s creditors $2.1 million to buy back the naming rights for the former Enron Field. In the following years, a number of incidents have highlighted the serious need for mutuality in morals clause provisions including:
- In January 2009, former world number one PGA golfer Vijay Singh signed a five year, $8 million dollar endorsement agreement with the Stanford Financial Group a month before it was formally charged with the reckless misuse of at least $7 billion in investors’ money in a giant Ponzi scheme. Prior to its indictment, Stanford also entered into agreements with PGA golfers Camilo Villegas and David Toms, as well as LPGA golfer Morgan Pressel;
- In November 2010, the Kardashian sisters terminated their agreement with University National Bank for the prepaid debit “Kardashian Kard” after Connecticut Attorney General Richard Blumenthal wrote a letter to the bank questioning the legality of the card’s “pernicious and predatory fees. . .combined with its appeal to financially unsophisticated young adult Kardashian fans.” The Kardashian’s attorney sent a notice of termination to the bank stating the “negative spotlight…threatens everything for which they have worked”;
- In February 2011, John Galliano was terminated as creative director and designer for Dior after a video was released of him shouting anti-Semitic slurs in Paris. After Galliano’s comments were made public, Natalie Portman – who had recently signed an endorsement deal with the fashion house – said she would not be associated with Galliano;
- In March 2011, GoDaddy CEO, Bob Parsons, released a videotape of himself killing an elephant leading to a public call for Danica Patrick and Jillian Michaels to terminate their sponsorship of the company; and
- In late 2013, after allegations of racial profiling at Barneys came out in the press, Jay-Z chose to continue his partnership with the retailer, despite a large public outcry including a petition launched on Change.org with over 58,000 signatures calling for Jay-Z to end his collaboration with the Barneys organization.
What Should Talent Do?
In light of the foregoing real-life examples, performers, athletes and other famous personalities should seek to negotiate mutuality in the morals provisions of the agreements they enter into. Corporate scandals that come to light after contract execution and other events that threaten to injure the image or reputation of the talent should trigger a clear and unilateral right, but not an obligation, to terminate the relevant agreement, without fear of the talent being accused of breach. Ideally, agreements should explicitly state that such remedy is not exclusive of any other available remedies and should not be deemed to constitute an election of remedies by the talent. Doing so will help protect each party’s image and reputation in the event the other party misbehaves.