Written by attorney Charles E. Colman

An introduction to "morals"/"reverse morals" clauses (or "The downfall of John Galliano's career")

If you have the slightest interest in fashion, you probably saw this story in the New York Times earlier this year, about John Galliano's anti-Semitic outburst, and the subsequent fallout. What the article does not explain, however, is the legal mechanism by which companies get rid of employees (or business partners) under contract when they... misbehave.

Let's start with the traditional tool of so-called "Morals Clauses," which come up most frequently in the celebrity endorsement context. Endorsements, of course, are big business -- both for the celebrities and for the companies they endorse. Recall a lawsuit from several years ago, in which Beyoncé was sued by Wilhelmina Models for its share of the singer's endorsement deal with L'Oréal. Wilhelmina's contract entitled it to just 10% of Beyoncé's revenue, and still it ended up receiving an award of $1 million.

So what happens when a company like L'Oréal pays handsomely for a celebrity's endorsement, only to find that the celebrity turns out to be a fatally flawed marketing tool? Naturally, lawyers plan for this, using "Morals" or "Good Conduct" clauses in their endorsement contracts.

In Team Gordon, Inc. v. Fruit of the Loom, for example, Fruit of the Loom terminated its endorsement contract with Nascar driver Robby Gordon after Gordon failed to play well with others. When the dispute escalated to litigation, Fruit of the Loom relied on a contractual provision entitling it to end the endorsement in the event Gordon "commits or has committed any act, or is charged with a felony, or has been or becomes involved in any situation or occurrence involving fraud, moral turpitude or otherwise reasonably tending to bring him 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 company's] reputation or its products."

When a celebrity has broken the law, the applicability of a "Morals" clause is fairly clear-cut. However, when the conduct in question is merely bad, but legal, behavior, disputes about the precise meaning of these clauses can and (as Team Gordon illustrates) do arise.

Of course, it is not just individuals that behave badly; companies do, too. (Or, more precisely, high-profile individuals within a company misbehave, and the public quickly associates that conduct with the company itself.) Risk-averse companies, especially of the publicly held variety, are quick to distance themselves from image-tarnishing troublemakers -- perhaps surprisingly, even when said troublemaker is the driving creative force behind a famous and lucrative brand.

In many instances, however, the damage has (arguably) already been done, prompting this question: does a high-placed corporate employee's behavior, when repugnant to a celebrity or potentially damaging to her brand, entitle the celebrity to unilaterally terminate an endorsement deal?

Under the common law (i.e., judge-made law) of contracts, the "frustration" doctrine entitles a party to terminate a contract when the value of that contract has been completely destroyed by an unforeseeable and extraordinary event. A celebrity could theoretically invoke this doctrine, albeit in extreme circumstances, to dissolve a now-unwanted endorsement deal. With that said, reliance on a vaguely worded common-law doctrine is practically a formal, engraved invitation to a lawsuit.

A more prudent approach, which (like most prudent approaches, in both law and life) requires foresight, is for a celebrity to include a "Reverse Morals" clause in all endorsement contracts, permitting the celebrity to bow out of the deal if the company -- or, to be even more prudent, the company or high-ranking employees -- engage in certain types of conduct. As usual, the more detail the contract provides about these "trigger" circumstances, the lower the likelihood that a dispute will result in litigation. (That's why attorney-drafted contracts are so long, people!) If the "trigger" requirements are left vague (e.g., "reprehensible conduct," "moral turpitude"), lawyers can -- and surely will -- disagree about whether they have been satisfied in a particular situation.

Like, for example, when a famous designer makes anti-Semitic remarks, and an actress who serves as the face of the designer's label happens to be Jewish. Just hypothetically speaking.

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