Morals Clause in Spotlight in Smiley/PBS Litigation

"Producer [TS Media] shall not commit any act or do anything which might tend to bring Producer into public disrepute, contempt, scandal or ridicule, or which might tend to reflect unfavorably on PBS, any station broadcasting or scheduled to broadcast a program, any licensee of PBS, any sponsor of the program, or to injure the success or any use of the Program. Producer agrees that these same 'morals' standards shall apply to all talent hired, retained or utilized by Producer to work on, or in connection with, the Program ('Program Personnel'), including but not limited to the talent to be featured in the Program."

PBS's position did not sit well with Smiley and TS Media, which moved for partial summary judgment in October 2019, arguing some of the finer points of the morals clause. Superior Court Judge Yvonne Williams ruled on the motion in early 2020. Her decision included a detailed interpretation of the provision's language that should be of interest to practitioners, whether they represent management or employees.

Judge Williams began by addressing the timing of the events leading to Smiley's dismissal and the termination of TS Media's contracts. By way of the morals clause, Smiley agreed that he "shall not commit" embarrassing or corrupt acts, which begs the question: For PBS to successfully leverage this language in support of its own breach of contract claim, must the offending act have occurred after the agreement was executed, or could the morals clause have been breached when the transgression happened before the contract was entered, but uncovered, during the term of the agreement? According to Judge Williams, the word "shall" unambiguously applied to future conduct on Smiley's part, which would have been music to Smiley's ears had PBS failed to allege misconduct during the terms of the 2015, 2016 or 2017 contracts. But such was not the case and Judge Williams denied TS Media's motion.

For lawyers negotiating or drafting morals clauses, there is a key takeaway from the court's determination; specifically, those representing management may want to include language that is awareness-based, as opposed to occurrence-based. For instance, a management-friendly morality provision could read:

"In the event that, during the term of the Agreement, [Employer] becomes aware of an action or omission by [Employee] (whether occurring prior to or during the term of the Agreement) which might tend to bring [Employer or Employee] into public disrepute, contempt, scandal or ridicule, or which might tend to reflect unfavorably on [Employer], its affiliates, licensees, advertisers, supporters or sponsors, or to injure the success or any use of [Employer's products or services], then [Employer] will have the right to immediately terminate the Agreement."

Of course, this wording might be a non-starter for attorneys representing employees to the extent it changes the function of the morals clause from a covenant regarding behavior during the term of the contract to a representation that nothing untoward ever occurred in the past, or will occur during the agreement's term, that could trigger the employer's termination rights.

In her ruling, Judge Williams also considered whether the sexual misconduct allegations raised against Smiley were serious enough that they "might tend" to bring him into public disrepute or reflect unfavorably on PBS. She found this to be an issue of material fact for the jury; however, the plain language of the morals clause before the court clearly leaned toward management as it pertains to this standard.

To be sure, attorneys negotiating on behalf of employees could argue that this "might tend" verbiage creates, in effect, a virtually de minimis standard, and that some level of significance or materiality regarding triggering conduct would be more equitable for their clients. For its part, counsel for management would want to reason that trying to quantify the extent of reputational damage is extremely challenging, and that management must be given room to react to scandalous situations in a way that protects their company's reputation, goodwill, employees, brand and shareholder value.

Surprisingly, the Tavis Smiley case — salacious allegations and all — has played out in open court, rather than behind closed doors in a confidential arbitration proceeding. Understandably, seasoned attorneys have varying opinions about the pros and cons of alternative dispute resolution, especially when they are representing employees. That being said, in the Smiley litigation, arbitration would have been a win-win, saving Smiley some embarrassment related to the public airing of the sensational accusations against him and keeping PBS out of the limelight. The upshot: every lawyer who negotiates and drafts a contract that includes a morals clause should seriously consider arbitration, especially when a public figure is involved.

No doubt about it, cases like the one between TS Media and PBS can result in public relations nightmares, which not only shine a negative light on the parties but can also radically shift the leverage between them. For this reason, attorneys negotiating and drafting morals clauses must do so with eyes wide open, which will help avoid Downton Abbey-level dramas.

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Michael S. Poster is a partner at Michelman & Robinson, a national law firm with offices in Los Angeles, Orange County, CA, San Francisco, Chicago and New York City. He leads the firm's corporate & securities practice group, and maintains a practice focused on corporate and financing matters, particularly those in the music business. He can be contacted at [email protected] or 212-659-2565. This article also appeared in Corporate Counsel, an ALM sibling of Entertainment Law & Strategy.