Look Before You Leap — “Weinstein Reps” in Corporate Transactions
As Louis Brandeis observed, sunlight is said to be the best of disinfectants.
The exposure and discussion prompted by the #MeToo movement has shone a cleansing
light on the issue of sexual harassment in the workplace. One of the more
recent developments on this front has been the increasing prevalence of
“Weinstein reps” in corporate transactional agreements. But before a buyer asks
for one of these representations, or a seller agrees to give one, there are a
few points that should be considered.
The “Weinstein rep” usually takes the form of a specific
representation given by a seller of a business that there have been no
complaints of sexual harassment or, to the extent there have been any, the
company has taken all appropriate steps to investigate and address those
complaints. The idea behind it from a purely transactional perspective is
obvious — a buyer does not want to acquire a business with a potentially
devastating financial or reputational liability. However, before requesting such a representation on
the buyer-side — or agreeing to give one on the seller-side — give some thought
to whether it is needed under the circumstances and, if so, how it should be
drafted. For example:
- If you are a buyer, what are
you going to do with the information if there is a disclosure about historic or
ongoing harassment issues? If the deal goes ahead, the buyer cannot just bury
its head in the sand after becoming aware of problems that need to be
addressed. It needs to be ready and willing to take action.
- Is a formal disclosure in a
corporate transactional document the best place to record such issues? As noted
above, exposing harassment is a critical step towards addressing this social
ill, but there are significant confidentiality issues both with respect to the accusers
and the accused, particularly if the truth of the allegations has not yet been
- If a representation is given
and it turns out to be false, what kind of remedy will the buyer want and how
could damages be calculated? Losses, particularly where they relate to
reputational harm, can be difficult to quantify, so simply tying the
representation to a standard set of indemnities might not fully address the
issue. A more creative approach might need to be taken.
There are no one-size-fits-all answers to these questions. They
depend heavily on the nature of the business and the structure of the
transaction, but the key take-away is to look before you leap. Be sure to
understand what you are asking for and what
you are giving when it comes to these representations.