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How Companies Address #MeToo Claims in Executive Employment Agreements Matter

In a recent working paper, researchers at UCLA and the University of Amsterdam determined that a single sexual harassment claim can cause more damage to a company’s reputation than financial misconduct or fraud. In this #MeToo era, it’s no surprise that companies are nervous about sexual harassment. On the more positive side, the academic paper also found that how a company responds to a claim can go a long way to combating the reputational damage. So what can your company do to help itself?

We’ve blogged before about the incorporation of #MeToo representations and the Weinstein clause into merger and acquisition agreements, and how to strengthen your company’s employment policies to curb sexual harassment. What are other ways to prevent sexual harassment allegations from damaging your company? Address it directly in your executives’ employment agreements.

Executive employment agreements typically address termination for “cause,”—a laundry list of things like fraud, conviction for a felony and crimes of “moral turpitude.” In a termination for cause, the executive is typically ineligible for severance, continuation of health benefits, acceleration of equity vesting and other termination benefits. By explicitly listing sexual harassment within the definition of “cause” in the employment agreement, your company can avoid paying out hefty benefits to potentially bad actors.

This can have a big impact. In addition to the direct economic effects and the ability to terminate someone to preserve and strengthen your corporate culture, your company can potentially avoid the public perception that the departing executive was somehow rewarded for bad behavior. Take the example of the fallout reported in the New York Times of the Google exec receiving $90 million following his departure after an allegation of sexual misconduct. While the veracity of that story is in dispute, the public reporting exemplifies the reputational harm that can result.

Hutchison attorneys are available to help draft or update your executive employment agreements to reflect recent developments and trends that can protect your company. Feel free to comment below, email me or connect with me on LinkedIn if you have any questions.