How #MeToo is reshaping employment contracts for executives
Businesses have made all manner of changes to their practices since the Harvey Weinstein allegations of sexual misconduct exploded into public view a year ago, propelling the #MeToo movement and forcing many to deal more seriously with workplace sexual harassment. Companies have added more training. Investment banks and mergers-and-acquisitions advisors have added “Weinstein clauses” or required a “#MeToo rep” during deal negotiations to help protect them from claims.
Employment lawyers and executive compensation experts say some companies have begun tweaking employment agreements with top executives, being more explicit about sexual harassment in the wording of severance arrangements or in their language about what constitutes “cause” for termination — which can allow them to avoid paying severance or accelerating the vesting of stock when someone is shown the door.
“Employers want to make sure that ‘for cause’ language is buttoned up when it comes to sexual harassment or sexual misconduct,” said Melissa Osipoff, an employment lawyer with Fisher Phillips in New York. “Not only does the company not want to pay those things to an executive going out the door who may have engaged in sexual harassment; it’s also there to create an incentive” for executives to avoid such behavior.
The issue may get more attention from employers after a New York Times story revealed that Google paid one of its executives, Android mobile operating system creator Andy Rubin, $90 million after he left in 2014 following an allegation of sexual misconduct.
To be clear, Rubin may very well not have had an employment agreement; the Times’ story does not say he had one. Indeed, Google or its parent company Alphabet has said in its proxy statements that it either does not have employment agreements or does not “provide for additional or accelerated compensation upon termination” for its named executive officers, circumstances that probably also applied to other executives.
(A spokesperson for Google did not immediately respond to requests for comment. Rubin said in tweets that the allegations were false and included “numerous inaccuracies about my employment at Google and wild exaggerations about my compensation.” A spokesman for him said in an emailed statement that Rubin left Google of his own accord and “did not engage, nor has he ever been told of any misconduct at Google or anywhere else.”)
Yet the attention the story received could at least make other companies think about the reputational risks associated with payouts made to people who were accused of harassment or misconduct.
“As a result of the #MeToo movement, companies are becoming much more focused on broadening the cause provisions” in employment agreements, said Amy Bess, an employment lawyer with Vedder Price in Washington. In recent years, cause for termination “usually required a pretty significant set of circumstances” to trigger the denial of benefits, she said, such as being convicted of a crime.
Employment agreements spell out the terms under which an employee will receive a severance payment and often apply only to certain highly valued or high-profile employees, such as a chief executive or a top media personality. Some lawyers said many agreements have long had language in them about violating company policies that would give companies cause to terminate an executive for sexual harassment if such misconduct was outlined in the code of conduct.
Yet being more explicit about harassment in the agreement, and not just in the company policy, could send a signal to executives and investors, said John Utz, a lawyer in Overland Park, Kan., who focuses on executive compensation and employee benefits law.
“Having the words there may stiffen the spine,” he said, noting “you can’t overstate the effect of the #MeToo movement.”
Osipoff said she’s seen companies begin asking new executives during negotiations to “affirmatively represent” that they have not been the subject of a sexual harassment claim, guilty of prior claims or even that they’d never engaged in harassment or misconduct.
Others say it’s still early days, and that it can be hard for employers to translate their goal of avoiding reputation risk into words in a legal document.
“We’re at the front end of it,” said Joseph Yaffe, an employment lawyer at Skadden in Palo Alto who represents companies and executives on compensation issues. “It’s going to take some time to see a sea change.”
The push is complicated by the nature of sexual harassment allegations, which can be extremely difficult to prosecute, and executives can be uncomfortable signing something if the terms seem fuzzy.
“#MeToo doesn’t have any legal meaning,” Yaffe said. Something like “reputational harm” in an agreement could “get executives uncomfortable because it can mean a million different things. It can be inherently subjective.”
He is talking with his corporate clients about revisiting their codes of conduct to make sure the language is clear and sees companies preparing to amend contracts in the coming year.
Yaffe said he was even seeing companies explore the idea of whether “claw backs” might be used to get executives to pay back bonuses if misconduct that causes reputation harm is discovered later. But that, he said, “presents even more challenges” than drafting the issue into severance agreements.
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