Risqué Business: Controlling Employee Conduct Through Morality Clauses

Risk avoidance provisions in employment contracts are a growing trend in the workplace, especially in executive employment agreements in the sports and entertainment world. Often referred to as a “morality clause,” this type of contractual provision affords employers the opportunity proactively to set moral standards, ethical expectations, and consequences for conduct that the employer determines to be disreputable. Some industries place a premium on public image and utilize this type of contractual clause to regulate the public perception of higher-level employees. For instance, the University of Arkansas terminated its football coach, Bobby Petrino, for violating his contract, which included a morality clause and allowed the university to terminate him for “engaging in conduct, as solely determined by the University, which is clearly contrary to the character and responsibilities of a person occupying the position of Head Football Coach or which negatively or adversely affects the reputation of the University’s or UAF’s Athletics Program in any way.”

What is a morality clause?

A morality clause permits an employer to discharge an employee for off-duty conduct that breaches the employer’s ethical expectations as outlined in the employment agreement. Employers find morality clauses attractive because they provide added grounds for the discharge of an employee subject to an employment agreement. With a morality clause, an employer can prohibit certain behavior at the outset, which eliminates the mystery surrounding catchall phrases like “just cause” and places the employee on notice of behavioral expectations. Employers should be mindful, however, that certain laws may prohibit an employee from contracting away a particular right.

A morality clause must be specific enough to put an employee on notice of the type of conduct that violates the clause. For instance, in Galaviz v. Post-Newsweek Stations, San Antonio, Inc., 380 F. App’x 457 (5th Cir. 2010), the court held that a company’s termination of a television news reporter for a domestic dispute that resulted in her arrest and significant publicity fell within the definition of a terminable offense under the morality clause in her employment agreement. Specifically, the morality clause allowed termination for: “becom[ing] involved in any situation . . . tending to degrade Employee in the community or which brings Employee into public disrepute, contempt, or scandal . . . whether or not information in regard thereto becomes public . . . .” The court found that this easily covered the reporter’s conduct.

Can an employer place moral expectations on the conduct of an “at-will” employee?

Employers should note that there is a distinction between regulation of off-duty conduct of an employee subject to an employment agreement versus an at-will employee. Specifically, while an employee’s off-duty conduct may be regulated by an employment agreement, an employer’s right to control the lawful off-duty conduct of an at-will employee may be limited by state or local law. While these statutes vary in scope, generally they restrict an employer’s ability to discipline an at-will employee for engaging in legal activities while not at work.

For example, New York law provides broad protection for the off-duty conduct of at-will employees by prohibiting discrimination against any individual for engaging in certain activities (i.e., political activities) during non-working hours, off-premises and not using the employer’s equipment or property. N.Y. Lab. Law § 201-d. However, New York law recognizes an employer’s right to limit an employee’s lawful off-duty conduct through a professional contract.

What are best practices for drafting and enforcing a morality clause in an employment agreement?

An employer who wishes to utilize a morality clause in an employment agreement should be mindful of the following guidelines:

  • Morality clauses should be specific when addressing the prohibited conduct because broad clauses are often subject to constitutional challenge.
  • Morality clauses do not waive federal protections against discrimination.
  • Morality clauses should specify the remedies available to an employer when and if the clause is violated (i.e., financial penalty, terminating the employment relationship, seeking damages for the breach).
  • Morality clauses should avoid using vague language to minimize the likelihood of divergent interpretations.

Further, if an employer decides to terminate an employee for a violation of a morality clause, the employer should act promptly. If an employer allows repeated violations of a morality clause and/or delays disciplinary action, an employer may effectively waive its right to enforce the clause. For example, in Bernsen v. Innovative Legal Marketing, LLC, 885 F. Supp. 2d 830 (E.D. Va. 2012), the court held that a company’s repeated declination to enforce a morality clause could evidence the company’s intent to waive the contractual provision. In Bernsen, the company knew of five separate incidents potentially violative of the contract’s morality clause but delayed taking any action for several months (potentially even years for some of the incidents). To the contrary, in Nader v. ABC TV, Inc., 150 F. App’x 54 (2d Cir. 2005), the court held that a 20-day delay between the incident that violated the morality clause and the employee’s termination was a reasonable amount of time to evaluate the employee’s conduct and make an employment decision.

In sum, employers considering morality clauses should be cognizant of the potential legal pitfalls in drafting and enforcing such clauses to avoid litigation regarding interpretation and application of the clause.

Topics:  Corporate Counsel, Employer Liability Issues, Employment Contract, Risk Management

Published In: Art, Entertainment & Sports Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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