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Managing the Modern Workplace
V&E International Labor & Employment Resources

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 established.  
  • 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.

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Author

Martin C. Luff

Martin Luff Counsel