Commercial acquisition agreements in the USA are reported to be increasingly including a “Weinstein clause” to guard against the acquisition not of assets, but of liabilities. Shieff Angland partner, Shelley Eden, discusses whether these might be of use in the New Zealand environment.
The world after #MeToo has seen a massive cultural shift in what we consider to be acceptable workplace behaviour and has busted a number of myths about where bullying and harassment are found in our culture, and how significant the issue is.
Perhaps not a surprising response is that of lawyers attempting to protect their clients from buying into problematic companies by adding a “Weinstein clause” to merger and acquisition agreements and carrying out due diligence not just on the finances of the business, but on the people that work there.
A “Weinstein clause” is a clause in a purchase agreement giving a warranty about the behaviour of a company’s leadership. The intent is of risk management, to ensure that the purchasing company is not buying into trouble. Such a clause will warrant, for instance, that no allegations of sexual harassment have been made against management employees within a given timeframe. It is reported that in some cases, buyers have even negotiated the right to claw back a proportion of the purchase price if subsequent revelations of inappropriate behaviour damage the business.
Implications for New Zealand?
In New Zealand business acquisitions, due diligence as to the company’s assets, systems, staffing and accounts is usually extensive, especially in larger and complex mergers and acquisitions. This usually extends to ascertaining whether the company has personal grievance or other claims against it. Warranties ordinarily make clear that the purchasing company does not take on liability for any existing claims.
The “Weinstein clause” does not seem to be a common feature in local agreements at this stage. New Zealand has the advantage of being small, with the leadership of companies being purchased often a known quantity. So would such a clause be useful for the New Zealand environment?
The liabilities here for sexual harassment claims do not (perhaps not yet) reach the levels of claim companies can be up for in the US environment, where harassment claims can seek damages into the millions of dollars. And we have not (perhaps not yet) seen the scandals that have brought companies to their knees, with share prices plunging, and deals falling over, quite the same as has occurred overseas. Also, the fact that there have been no claims in the past does not prevent claims in the future, so the clause cannot rule out risk entirely, and could give a false sense of security to a buyer.
Also there is criticism that such attempts to manage liability are simply virtue signalling i.e. more about the appearance of moral correctness on the issue of harassment and bullying, rather than a genuine attempt to clean up workplaces.
More likely though, while an attempt to minimise risk, the rise of such a clause also signals that the tolerance for poor behaviour is changing. As New Zealand grapples with its own leaders’ poor conduct throughout its professional services firms, sporting bodies, government and businesses, buyers could do worse than seek due diligence not just of healthy finances, but also of healthy workplace culture.
- A “Weinstein clause” is a clause in a purchase agreement vouching for the behaviour of a company’s leadership.
- These clauses are appearing in US M&A agreements.
- They may be a tool for New Zealand businesses to assist them to ensure that any acquisition has a harassment-free culture.
Shelley Eden is a Partner of the firm, focusing on employment, trade practices and intellectual property. Shelley deals with all aspects of employment law and appears regularly at mediation and in the Employment Relations Authority, and has appeared in the Employment Court. She regularly presents to corporate clients as part of in-house training and development. Shelley works closely with our commercial team on statutory and regulatory compliance, competition and trade mark matters. A period out of legal practice included time in senior management, as well as lecturing in employment law and human resources management. She brings this experience to bear, providing clients with strategic, practical and timely advice. Shelley was admitted as a Barrister and Solicitor of the High Court of New Zealand in 1992. Contact Shelley at firstname.lastname@example.org or connect via LinkedIn
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