San Diego Employment Contracts: Do Businesses Need Morality Clauses?

Morality clauses are standard provisions in many types of contracts including endorsement, sports, and entertainment contracts. Such clauses generally give one party to the contract the right to terminate if the other party behaves in some manner that is immoral, objectionable, or disreputable.

For San Diego and California businesses, there is a new trend towards including morality clauses in employment contracts, particularly for senior management. Business reputation is now a highly valued company asset which should not be diminished by criminal, immoral, offensive, or objectionable conduct by staff and employees. Here are a few thoughts on morality clauses.

San Diego Corporate Law: Examples of Morality Clauses

Like all contract provisions, morality clauses can be long and complex or short and simple. In the early to mid-20th century, Universal Studios used this clause with their actors and actresses:

“The actor (actress) agrees to conduct himself (herself) with due regard to public conventions and morals and agrees that he (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. In the event that the actor (actress) violates any term or provision of this paragraph, then the Universal Film Manufacturing Company has the right to cancel and annul this contract by giving five (5) days’ notice to the actor (actress) of its intention to do so.”

For an extended scholarly discussion of morality clauses above, see here. California courts have long upheld the legality and enforcement of such clauses. See Loew’s, Inc. v. Cole, 185 F.2d 641 (US Court of Appeals, 9th Cir. 1950).

More recently, the National Football League player contracts contain two, more simple morality provisions. See here, p. 260-61. The first is for the franchise and the second is for the League. The provisions state in pertinent part:

“11. SKILL, PERFORMANCE AND CONDUCT. …. If, at any time, in the sole judgment of Club, …. Player has engaged in personal conduct reasonably judged by Club to adversely affect or reflect on Club, then Club may terminate this contract.”

“15. INTEGRITY OF GAME. Player recognizes the detriment to the League and professional football that would result from impairment of public confidence in the honest and orderly conduct of NFL games or the integrity and good character of NFL players. Player therefore acknowledges his awareness that if he … is guilty of any other form of conduct reasonably judged by the League Commissioner to be detrimental to the League or professional football, the Commissioner will have the right … to fine Player in a reasonable amount; to suspend Player for a period certain or indefinitely; and/or to terminate this contract. ”

As can be seen by the NFL example, morality clauses are unilateral — only one side of the contract has the discretion to terminate the contract — and the provisions are broad, expansive, and highly subjective. Despite being one-sided and subjective, as noted, morality clauses are enforceable in California.

San Diego Corporate Law: Are Morality Clauses Needed for Executive Employee Contracts?

Every contracting situation is unique. As such, whether to include a morality clause in an executive employee agreement depends on the circumstances. Factors that might militate in favor of a clause might include:

• Size and fame of business
• Degree to which business/company success depends on reputation
• Degree to which executive will be in the “public eye”
• Degree to which company wants the company to be “known” or branded with the face/name/personality of the executive
• Relevant past, existing, and foreseeable controversies that might impact company reputation

On the other hand, morality clauses may not be needed because other parts of an executive employee contract will allow termination of employment for many of the types of “bad behavior” that might trigger a morality clause. Thus, most contracts will allow termination for criminal conduct and for violation of company rules, procedures, and policies (such as sexual harassment). Again, whether your business needs to start including morality clauses depends on the circumstances.

Contact San Diego Corporate Law

For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to help draft and implement executive employment agreements and all other types of business contracts. Contact Mr. Leonard by via email or by calling (858) 483-9200.

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