In the wake of the fallout over Kanye West’s various headline-making Yeezy deals after the musician-slash-design figure made a slew of antisemitic and racist remarks, one thing worth reflecting on from a legal perspective is the state of the morals clause. Hardly a novel legal maneuver, morals clauses – or contractual provisions that require a party to comply with certain standards of behavior – date back to the 1920s, when film studios began inserting “morality” clauses into their standard contracts following public demise of beloved comedian and silent film star Roscoe “Fatty” Arbuckle, who was arrested for rape and murder 1921. The scandal prompted Universal Studios to begin adding morality clauses into its actors’ contracts that year, and other studios – as well as sports teams, consumer goods brands, etc. – followed suit.
In theory, these clauses – which started as overly broad bans against talent and/or endorsers engaging in actions that give rise to “public disrepute, contempt, scandal or ridicule” – effectively enable contracting companies to walk away from deals at least somewhat quickly and without penalty if the clause is violated. But recent instances like the ones involving Kanye, and adidas and Gap, for example, which are occurring more than 100 years after the first morals clauses came into force, raise questions about what has changed over the past century from contracting dynamics and negotiations perspectives – and to what extent morals clauses actually allow companies to swiftly and straightforwardly get out of deals that are putting their reputations on the line.
An array of factors have changed since morals clauses first began appearing in contracts. For one thing, the determination and dissemination of “news” has changed enormously from 1920 to 2020. Incidents and issues that may not have garnered attention and/or made headlines in the past can now be easily uncovered and shared, and events of a serious nature, including hate speech from West, can spread globally – and virally – in a matter of hours, thereby, upping the ante all around. As a result (as the Yeezy situation and others have made clear), companies are forced to take on a significant amount of risk when contracting with famous figures to endorse and/or help create their products, including potentially grappling with bottom-line-impacting backlash from consumers in instances where they are tied to controversial figures.
Star Power & Contract Dynamics
While the level of star power at play has not necessarily changed over the years, the dynamic between contracting companies and talent (whether that be film stars, sports figures, musicians, or heavily-followed social media influencers) has shifted to some extent, with the latter having more leverage to negotiate the terms that go into the deals they sign – in some cases, at least. The shift in power is indicated in the terms of often-heavily-negotiated morals provisions, with highly-experienced counsel for celebs/endorsers pushing for clauses that are as narrow and specific as possible as a pre-cursor to a deal going through.
“For example, a morals clause might only kick in if an endorser is convicted of, or pleads guilty to, a felony,” Kelley Drye’s Gonzalo Mon wrote in a note. In-house licensing attorney Carol Brani echoes this, saying that while “a morals clause in a contract with a celebrity of Ye’s level of fame is rarely seen in the wild,” a morals clause allowing for the termination of a deal “if the celebrity is convicted of a crime of moral turpitude is as good as a brand generally gets.” Since “this type of clause will not necessarily help if a celebrity is only accused of sexual misconduct,” for instance (but that could, nonetheless, put an expensive wrench in the works for a brand’s plans with a collaborator or endorsing party), Mon asserts that companies will try to include language that allows for “more flexibility.” For example, a company “may push for a clause that allows termination if the endorser’s actions would subject the company to ridicule, contempt, controversy, embarrassment, or scandal,” which is, of course, broader than a conviction-centric clause.
The flip side is the almost-inevitable pushback from counsel for the contracting celebrity. Terms, such as “any controversy deemed harmful to the brand’ or similarly subjective phrasing, will garner opposition from established celebrities’ lawyers, Brani contends, distinguishing between well-known celebrities/talent, and newer names with less sophisticated management and legal teams. Language like “‘harmful to the brand’ has to have some objective details around it, [or else] it is generally a walkaway term for most celebrities,” she says, noting that “brands [tend to] cave quickly if they want the deal.”
The potential evening out of the playing field between parties like adidas and stars like Kanye is similarly reflected in the rise of the two-way – or reverse – morals clause, in which companies are not the only ones permitted to get out of a deal in the event that the talent/endorser does something wrong, but the latter can similarly walk away scot-free should the company or its executives violate the terms of the morals provision.
Let’s Talk Timing
An additional term that may be the result of this shift in power centers on timing, which is something that was a sticking point for many observers in connection with the Yeezy adidas deal, as there was a more-than-2-week window between when adidas announced that it had placed the Yeezy deal “under review” on October 5 and when the German sportswear titan confirmed the formal termination of the deal on October 26. If excerpts from a brand licensing contract that was reportedly entered into by Kanye (and shared on Twitter by Noah Waisberg, the CEO of AI-powered document processing platform Zuva.ai) are any indication, this may also weigh in favor of high-powered celebs. The agreement “has everything (exclusivity [and] most favored nation [clauses], [and] two inconsistent change of control provisions) except ways for the [contracting] company” – a fragrance company, according to Waisberg – “to terminate” the deal.
One of the key points of interest from the excerpts (one of which is pictured above)? Language that gave Kanye the right to written notice of a breach, and then 30 days from that notice to “cure such breach (in the event [that the] breach is curable.” (Waisberg suspects the this contract has since expired.) That not only gives individuals like Kanye potentially significant leeway to make good on any potential missteps before a deal can be terminated, but it also stands to push any timeline of action back by at least a month, thereby, making it difficult for a company to up-and-terminate the deal in a matter of days.
“Are other Kanye contracts as favorable to him on this?,” Waisberg pondered, referring to the lack of morals-esque termination provisions.
Among the overarching takeaways here is that despite the aim of morals clauses being a quick and relatively easy exit from a deal for the harmed party, the reality is almost certainly quite a bit more complex. At the same time, scenarios like this should serve as a reminder that brands would also be wise to acknowledge that the effectiveness of a morals clause depends not only on the immediate language and scope of the provision, “but also on how it works in conjunction with other provisions in an agreement,” according to Mon. “Consider, for example, how things work if payments are stacked towards the front of the term,” he asserts. A company “may be able to terminate for a breach later in the term,” but that might prevent it for being “able to recoup the money it has already invested,” or at least complicate the unwinding of the deal.
Mon further notes that “there is not a one-size-fits-all approach here, [and] a lot depends on the person with whom a company is negotiating, the amount of money involved, and the nature and length of the campaign.”
Ultimately, while there is no telling whether even some of the biggest-name companies will be able to meaningfully expand the scope of morals provisions in deals with similarly well-known stars, the fallout over Yeezy is prompting companies to revisit the bounds of the well-established practice of including morals clauses in contracts and to consider potential new inclusions for future deals. One thing companies’ counsels are undoubtedly keeping in mind as a result of companies’ recent struggles with Ye, as Northeastern University School of Law professor Alexandra Roberts put it this past week, “Do your morals clauses include hate speech against minority groups, as well as corporate disparagement?”
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