The #MeToo hashtag and the resulting movement swept across social media in 2017 following reports of sexual assault allegations against film producer Harvey Weinstein. Due in part to the #MeToo movement and the attention it brought to the issue of misconduct at work, purchasers are now increasingly alert to the reputational and financial risks associated with workplace sexual harassment. Some purchasers are addressing these risks by requiring that vendors provide diligence disclosure and a legal representation concerning sexual harassment in merger and acquisition agreements (often referred to as “Weinstein Clauses” or “#MeToo Reps”).
In addition to a compliance representation asserting that the target has complied with its legal obligations with respect to sexual harassment, such as maintaining a workplace policy, implementing anti-harassment training, and properly investigating all complaints or instances of harassment, a purchaser may want a specific representation regarding the experience of the target with respect to sexual harassment. For instance, a purchaser may request disclosure of any allegations of workplace sexual harassment made against employees, officers, or directors at the target company, any complaints of workplace sexual harassment received by the target company and/or its human resources department, and/or any settlements that the target company has entered into related to workplace sexual harassment. Further, a purchaser may want a vendor to represent and warrant that, other than those disclosed, no further allegations, complaints, or settlement agreements related to workplace sexual harassment of the kind described above exist.
What degree of comfort can a purchaser secure that such representations are accurate, and how effective are they at compelling the vendor to provide thorough disclosure? One pervasive problem with #MeToo diligence is that workplace sexual harassment typically goes unreported. If the vendors are unaware of such conduct taking place, they cannot disclose that conduct to a purchaser, and a vendor’s insistence that it has no allegations or complaints to disclose may be indicative of a cultural problem at the target. However, where a vendor does have knowledge of allegations, complaints, or has entered into settlements relating to sexual harassment, the effectiveness of #MeToo diligence will largely depend on how the vendor chooses to navigate the tension between providing thorough disclosure while upholding its obligations regarding privacy, privilege, and confidentiality.