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Weinstein and the end of wilful ignorance

Boards need to take immediate action to deal with cases of harassment

Harvey Weinstein is currently at the centre of a storm of accusations. Over fifty women have come forward to accuse him of offences, including sexual harassment, sexual assault and rape, with police in the US and UK now investigating specific allegations.

Through his spokesperson, Weinstein has ‘unequivocally denied’ any allegations of non-consensual sex.

The Weinstein Company, which Weinstein founded with his brother in 2005, wasted little time and fired Weinstein from his position of chief executive three days after the initial New York Times exposé.

Alongside this came reports that Weinstein’s name would be removed from future production credits and the company was considering an overall name change in an effort to distance itself from the damaging allegations.

But a surprising twist in the story has recently emerged. Entertainment news website TMZ claims to have had access to Weinstein’s employment contract, which allegedly states if Weinstein ‘treated someone improperly in violation of the company’s Code of Conduct’ then he must reimburse the company for settlements or judgments, and in such instances, he cannot be terminated.

Additionally, the company would require Weinstein to pay a fine to the company in such situations, the contract stating: ‘You [Weinstein] will pay the company liquidated damages of $250,000 for the first such instance, $500,000 for the second such instance, $750,000 for the third such instance, and $1,000,000 for each additional instance,’ TMZ claims.

The contract allegedly states this constitutes a ‘cure’ for the misconduct charges.

Leaving aside the shocking nature of the allegations against Weinstein, this supposed contract raises separate questions about the legality and morality of a clause like this, and whether a company can really attempt to recuse itself from responsibility for its executive’s actions.

Avoiding the stairs

Michael Burd, chair and partner of Lewis Silkin LLP, said: ‘It is unheard of for a company to say to an executive, in effect, you can breach our policies about treatment of others with impunity provided you pay for the consequences.

‘Employers have duties of care to other employees, and often to third parties as well, and the existence of such a clause would be proof that the company was aware of the risk to others but deliberately avoided taking steps to protect them against it.’

US federal law, such as Title VII of the Civil Rights Act of 1964, and state law like the New York State Human Rights Law set out this responsibility.

Within UK law, that duty of care is also well documented – from an implied contractual duty owed by employers to their employees and the provisions of the Equality Act 2010, to the directors’ duties in section 172 of Companies Act 2006. A contract clause would not absolve a company from this duty.

“A clause so specific in an employment contract could also indicate that the company was aware that Weinstein posed a risk”

As Gareth Brahams, managing director of Brahams Dutt Badrick French LLP, explained: ‘A clause equivalent to the alleged one in Weinstein’s contract would blow out of the water any suggestion that the company had taken reasonable steps.’

James Hockin, a dual New York and English law qualified associate in the Withers LLP employment team, said: ‘In the US, as in the UK, such a contractual clause would totally undermine an employer’s defence against being held liable for the actions of an employee, as it would highlight that the employer was not exercising reasonable care to prevent and promptly correct harassing behaviour.’

Too great an asset

There have been suggestions that the allegations now surfacing were common knowledge within certain circles. And as Burd said, a clause so specific in an employment contract could also indicate that the company was aware that Weinstein posed a risk.

A clause like this would suggest a risk analysis of the value versus potential damage – reputational and financial – of having Weinstein at the company, the hypothetical balance sheet coming out in favour of the former CEO. As Brahams said: ‘That kind of clause could only occur in an organisation where one individual wielded so much economic power and value’.

This is not surprising; historically allegations in the industry such as this were swept under a rug with a payout and a non-disclosure agreement, allowing the employee – who is valued because of their unique network of connections, influence and industry reputation – to remain an asset to the company.

Brave new world

However, times have changed. Given the fallout for Weinstein, and by association his namesake company, that hypothetical balance sheet looks like a serious miscalculation.

The Academy of Motion Picture Arts and Sciences, better known as the Oscars, has booted Weinstein out. The Weinstein Company has meanwhile suffered a raft of cancelled projects and sponsorships, as partners like Apple, Amazon and car company Lexus seek to distance themselves from a toxic association, and it has looked for investors to secure its financial future.

The contribution of a well-connected executive can pale in comparison to the damage caused by the company’s connection to him.

It could also be argued that, in cases like this, a company has undermined its duty of care to its other employees. Sarah Chilton, partner, and Wonu Sanda, associate solicitor, at CM Murray said: ‘Employees may not just be able to seek remedy after an instance of harassment – the company has exposed them to a level of risk.

‘If employees could show that the employer knew about previous cases of harassment, then they may argue they have been forced to work in a dangerous, stressful and hostile environment, possibly detrimental to their mental and physical health. This could be a basis for constructive dismissal.’

“It could also be argued that, in cases like this, a company has undermined its duty of care to its other employees”

The Oscars board said of its decision to evict Weinstein: ‘We do so not simply to separate ourselves from someone who does not merit the respect of his colleagues, but also to send a message that the era of willful ignorance and shameful complicity in sexually predatory behaviour and workplace harassment in our industry is over’.

Elsewhere, New York state senator Brad Hoylman has co-sponsored legislation that would bar organisations from making contractual provisions to conceal claims of discrimination, harassment or other violations of public policy. ‘By silencing victims, we are just creating new victims’, he said.

Swift response

Boards should take note: take allegations of misconduct seriously. Any employee proven guilty by the evidence of serious harassment should have their contract terminated.

Sexual harassment should be treated with the same contempt as fraud, bribery or any of the other crimes for which rogue directors are cited.

Chilton and Sanda said such cases could increase harassment claims: ‘There has been a huge swell recently of women speaking out about harassment.

‘Where previously they were afraid of reprisal due to the power imbalance between the harasser and harassee – particularly as the harassee often feels they may be putting their career at risk by speaking out – recent high-profile cases mean now many feel they are more likely to be believed and in some cases see a duty to protect colleagues from future behaviour.

‘Also, moving forward, companies will be more sensitive and cautious around issues of harassment – where previously an employee guilty of harassment might be let off with a warning, now I think they are more likely to be dismissed.’

Even if we can somehow ignore the amorality of letting someone known to harass employees – or worse – continue to operate within the company, the numbers on the hypothetical balance sheet show it has to be a business imperative to take immediate action.

Neither The Weinstein Company nor Harvey Weinstein’s representatives had responded to our approach for comment at the time of going to press.

Sarah Chilton and Wonu Sanda, published by Institute of Chartered Secretaries and Administrators (ICSA)

By Henry Ker, Editor of Governance and Compliance