In Wake of Scandals, Marketers Should Pay Extra Attention to Morals Clauses

Now, more than ever, brands need to ensure that the morals clause in their endorsement agreements has evolved to meet the risks of a changing media world.

Recent scandals involving high-profile endorsers have shined a light on the morals clause. For example, Nike, Trek, Oakley and others dropped pro cyclist Lance Armstrong after he was stripped of his Tour de France titles and banned for life from competitive cycling due to a "massive" doping scheme, and HanesBrands terminated NFL runningback Rashard Mendenhall from endorsing its Champion brand following his controversial tweets about the death of Osama Bin Laden and the terrorist attacks of September 11.

Such scandals should convince brands and their agencies to push for broader "out" clauses in any endorsement agreement.

Morals clauses often give the brand the ability to suspend or terminate the agreement, or obtain a reduction in fees, in the event that the endorser commits an act that falls within the scope of such clause. But morals clauses, which are frequently found to be enforceable by the courts, are one of the most heavily negotiated and controversial provisions in endorsement agreements.

Neither the brand nor the endorser will likely argue that a conviction or an indictment -- such as Michael Vick's conviction for dog-fighting activities -- does not cause the endorser to be subject to public disrepute. But headline-generating activities that are less than criminal -- such as Tiger Woods' marital infidelities -- may still cause harm to the endorser, and by association, the brand.

The key is the tension between the brand and the endorser as to the type of publicity or activity covered by the morals clause. The brand favors broad, subjective language ("if endorser becomes, in the opinion of Company, the subject of public disrepute, contempt or scandal") that will enable it to terminate or suspend an endorser. On the other hand, the endorser favors specific, objective language ("if endorser is convicted of, or pleads guilty to, a felony") because what is a disreputable, contemptable or scandalous act in one context may be quite acceptable in another. The final negotiated language will depend on the context of the endorsement given the type of brand and the type of endorser, and, of course, the bargaining positions of the parties.

The very public outing of Armstrong's ongoing doping scheme by the United States Anti-Doping Agency last year provided neither an arrest, an indictment, nor a conviction. But the drama certainly subjected Armstrong to public disrepute. If the morals clauses in Armstrong's various endorsement agreements incorporated only limited specific, objective language, it's possible that the endorsed brand would have to continue to pay Armstrong despite being practically unable to use him.

Similarly, Mendenhall, whose tweets prompted HanesBrands to terminate his endorsement agreement with the Champion brand, did not commit a crime, yet HanesBrands believed that Mendenhall was no longer an appropriate representative of the Champion brand. Mendenhall subsequently sued HanesBrands, seeking to enforce his endorsement agreement and arguing that HanesBrands improperly terminated him. Although the morals clause in Mendenhall's endorsement agreement included broad, subjective language, the federal district court hearing his case has initially sided with Mendenhall, but the case continues.

Given the different types of activities that can threaten a brand's reputation, brands and their agencies are now pushing to either include broad language in a morals clause that would cover a number of "disreputable" activities or incorporate specific language for actions that the brand deems problematic.

For example, due to the long-held view that professional cycling involved a number of doping athletes, a brand using such an endorser may want to include failed drug tests or allegations of possession, use, or sale of banned substances as triggers for termination or suspension.

Additionally, brands concerned with the social-media presence of an endorser may seek to include language concerning the social-media activities of its endorser -- ranging from the good-faith determination of the brand to what a reasonable person would deem to render the endorsement of lesser value in order to give a judge a basis for permitting the brand to cease paying or perhaps recoup a pro rata portion of the fees paid.

Of course, in the world of social media the brand should be careful to not insist on something that would be viewed negatively by the brand's own fans, such as requiring an endorser to refrain from posting about politics, religion or sex during the term of the endorsement agreement.

Because of the never-ending types of hot water an endorser may find himself or herself in, the language used by brands in endorsement agreements must evolve to cover such activities.