Brand owners have engaged celebrity endorsers to sell products for decades, but not all of them make it through a celebrity endorsement unscathed. O.J. Simpson, Chris Brown, Tiger Woods and Ryan Lochte are among the celebrity endorsers to be dropped by sponsors following personal or professional scandals. In most cases, the sponsor relies on a so-called morals clause to justify terminating the relationship.

Generally speaking, a morals clause is a provision in a contract which stipulates that certain actions or activities undertaken in an individual’s private life can be grounds for termination of the contract.

The Ontario Superior Court of Justice (Court) recently highlighted the importance of precise and thoughtful drafting of morals clauses when it ruled in Zigomanis v. 2156775 Ontario Inc. (D’Angelo Brands) (Zigomanis) that a former professional hockey player’s endorsement contract was wrongly terminated because the athlete’s behaviour did not constitute a breach of the morals clause, among other reasons.

BACKGROUND

Mike Zigomanis was a professional hockey player. In 2011, he signed a promotional agreement with D’Angelo Brands to help market and promote an energy drink. At the time, Mr. Zigomanis was a professional hockey player but was party to a “two-way” agreement with his franchise, which meant he could be demoted to the franchise’s minor league team.

In 2012, D’Angelo Brands purported to terminate the promotional agreement. Mr. Zigomanis brought an action for breach of contract. At the heart of the case was whether D’Angelo Brands was entitled to terminate the agreement. D’Angelo Brands relied on two reasons to justify termination:

1. Demotion to minor hockey team: The first reason was that Mr. Zigomanis had been demoted to a minor league hockey team. This was alleged to result in a loss of cachet for the energy drink. D’Angelo Brands alleged that, when it signed the agreement, it expected to have the cachet of the player’s professional hockey team behind the energy drink. The demotion to the minor league team, and the alleged negative press that came with the demotion, reflected poorly on the product.

The Court found that D’Angelo Brands could not terminate the agreement as a result of the player’s demotion to the minor league team. Nothing in the agreement addressed events or situations outside Mr. Zigomanis’ control that might cause D’Angelo Brands to want to discontinue its relationship, such as a demotion. The Court also highlighted the fact that the contract contained an “entire agreement” clause and that D’Angelo Brands could not “attempt to re-write the parties’ agreement” to include other obligations that were not explicitly set out in the contract. If D’Angelo Brands wanted to impose such obligations on Mr. Zigomanis, it should have included them in the agreement.

2. Breach of morals clause: The second reason for the termination was an alleged breach of the morals clause, which entitled D’Angelo Brands to terminate the agreement upon Mr. Zigomanis committing “any act which shocks, insults, or offends the community, or which has the effect of ridiculing public morals and decency”.

In December 2011, the existence of nude photographs of Mr. Zigomanis on the Internet became widely known and several stories about them appeared in the media. At the time, Mr. Zigomanis told his team and coach that the photographs were not of him, but the photographs were in fact, of Mr. Zigomanis. At trial, he testified that he had taken the photographs himself and sent them electronically to his then-girlfriend around the end of 2010 or the beginning of 2011 (well prior to entering into the endorsement agreement). Mr. Zigomanis did not authorize or consent to the photos being posted on the Internet, and there is no evidence he had anything to do with the posting. In fact, when he became aware of the postings, he retained a lawyer to try to have the photographs taken down.

Mr. Zigomanis did not speak with the media or D’Angelo Brands about the photos. After December 2011, the story subsided. None of the media reports mentioned Mr. Zigomanis’ connection to the energy drink or D’Angelo Brands.

COURT’S DECISION

In considering the application of the morals clause, the Court noted that the clause was concerned with Mr. Zigomanis’ actions. In other words, the act in question must be one committed by him, not someone else. The Court found that the undisputed evidence was that the Internet posting was not an action of Mr. Zigomanis and therefore the morals clause was not triggered.

But could the clause be triggered by Mr. Zigomanis taking the photos and sending them to his then-girlfriend? In this regard, the Court found that although taking the pictures and sending them to his then-girlfriend were the actions of Mr. Zigomanis, all of these activities took place before the contract was executed. Therefore, the issue was whether the morals clause could have retrospective effect. The Court found that, on its face, the clause was not stated to be retrospective and therefore did not apply, but noted that D’Angelo Brands could have inserted a clause concerning past and future personal conduct when drafting the agreement.

Notwithstanding these findings, the Court went a step further and considered whether, by taking nude photos and sending them to his then-girlfriend, Mr. Zigomanis committed an act “which shocks, insults, or offends the community, or which has the effect of ridiculing public morals and decency”. The Court highlighted the fact that the exchange of intimate communications between individuals is a historic practice, noted the realities of modern methods of communication, and emphasized the fact that the law supports the expectation of privacy around such intimate and private communications. It concluded that consenting adults communicating intimate and private photographs to one another by electronic means, with an expectation of privacy, would not be likely to shock, insult, or offend the community. Accordingly, even if D’Angelo Brands could rely on the past actions of Mr. Zigomanis, those actions would not trigger the morals clause.

Ultimately, the Court concluded that D’Angelo Brands had wrongly terminated the agreement and awarded Mr. Zigomanis damages in the amount of the contract.

CONCLUSION

The Zigomanis case highlights several important issues that parties should consider when drafting sponsorship or endorsement agreements. Specifically, when dealing with athletes, one should consider what happens to the relationship if the player is demoted, traded, or injured. Even Wayne Gretzky was traded! If the brand owner expects that the celebrity endorser will maintain a certain level of performance, prominence, status, or reputation (whether athletic or otherwise), this must be spelled out explicitly in the contract.

With respect to morals clauses, Zigomanis highlights that such clauses must clearly capture the specific objectionable nature of the conduct that would give the brand owner the right to terminate or repudiate the contract. In this regard, an expansive clause may be preferable to one that itemizes specific infringement, for example, being charged with a criminal offence. However, as highlighted by the findings in this case, such clauses may be more difficult to enforce since they require a qualitative, and arguably somewhat subjective, assessment of whether a particular activity or incident is “offensive” enough that it triggers the termination right in the particular facts of a given case.

A party may therefore wish to combine an expansive clause (as in this case, for example, conduct that “shocks, insults, or offends the community”) with specific types of activities which, although may not reach the threshold of the more expansive clause, would nonetheless be behaviour that a brand owner may not want to be associated with. Setting out specific violations allows the party engaging the endorser to tailor the agreement to address any particular sensitivities of the brand owner, its products, and its target market. This may be particularly relevant where, for example, the product is targeted to children or youth and the endorser’s conduct is important to the maintenance of the brand’s reputation and image.

Finally, parties should consider how past unknown conduct, which may later come to light, will be dealt with. In this case, the Court highlighted that D’Angelo Brands’ attempt to rely upon the past conduct of Mr. Zigomanis as a justification for termination was “an attempt to insert into the contract an additional clause amounting to a warranty of past good conduct”. Indeed, if a brand wishes to afford itself termination remedies for conduct of the endorser that occurred before the signing of the contract, this must be clearly stated in the provisions of the contract and cannot be “read-in” after the fact.