The Weinstein Clause, What Is It and Is It Destined for Australia’s Shores?

As a result of the actions of men such as Harvey Weinstein, Matt Lauer, Les Moonves, Kevin Spacey and others and the herculean efforts of the #MeToo movement, corporate America is beginning to put in place concrete steps to guard against the legal liability of its movers and shakers. In Australia, major employers who are contemplating acquiring a new business and are concerned about managing the risk of potential or actual employee litigation, should also take note.

What is the Weinstein Clause?

This trend towards managing the risk of poor employee behaviour was first identified by Bloomberg, in the article Wall Street Is Adding a New ‘Weinstein Clause’ Before Making Deals by journalist Nabila Ahmed in August 2018.  In the piece, Ahmed identified that investment banks and merger and acquisitions advisers were getting their shields out too, advising clients to add a “Weinstein clause” or mandate a “#MeToo representative” during deal-making to protect them from sexual harassment claims.

Some critics view it as ‘virtue signalling’, others however see it as a very real attempt to limit liability in a market where companies have been forced into insolvency (witness the Weinstein Company) and major merger & acquisition (M&A) deals fallen through because of the appalling behaviour of its chief executives and brand ambassadors (ie the proposed merger of CBS & Viacom).

Where previously in the M&A space, on-going employee litigation was seen as ‘small potatoes’ and no hindrance to a deal, today the picture is vastly different.  As a result of the exposure by #Me Too and other movements, bad behaviour of men towards women now can cost billions of dollars and result in the shelving of merger plans, all of which costs the shareholder and increases the prospect of highly costly litigation.

The American example is proof positive that the peccadilloes of CEO’s and individuals with major brands such as Kevin Spacey, Matt Lauer & Les Moonves have the ability to devastate the reputations and share price of major corporations.

Implications for Australia

In Australia the problem of men behaving badly and yes it is men, is just as bad.

Up to now the difference has been these individuals, for example Tim Worner of Channel 7, have retained the support of their owners and boards.  So whilst channel 7’s stock price plummeted in the short term, Worner’s work in getting the cricket contract across from channel 9 did much to salve his and company’s reputation with shareholders.

That said, the ‘Weinstein Clause’ is yet to feature prominently in our market and there may be a couple of reasons for that, including –

  1. The market size, the amount of M&A work done on the ASX is absolutely minute compared to our American cousins.
  2. Whilst Geoffrey Rush may no longer act, his absence from the screen is unlikely to impact on film studios here in Australia or the UK where he does most of his work, because his absence is not going to affect major productions, unlike Kevin Spacey for example. So the branding issue or lack thereof is a further sticking point when considering the impact of the Weinstein Clause here in Australia.

That said like all things good and bad from America, it will eventually arrive here and no doubt have an impact, the size of which will only be measured by the behaviour of Australia’s CEOs and major brand names.

Next Steps

Major employers who are contemplating acquiring a new business and are concerned about managing the risk of potential or actual employee litigation would be well advised to seek legal advice.

Employment special counsel Mike Baldwin recently spoke at a seminar on The Weinstein Clause.

The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.