These #MeToo clauses relate to the ‘reps and warranties’ that are already a standard part of deal-making agreements. They provide a disclaimer for investors that the start-up in question has, to their knowledge, no claims of sexual harassment brought against it.
General representations and warranties given about complaints and claims from employees already exist in most corporate or business sales. These cover claims whether concluded, existing or anticipated. So there is to some extent already a solid foundation for #MeToo clauses to have successful effect in a practical sense. Technically there is no reason a breach of warranty could not be relied on in the usual way.
But, despite there being no good reason why such clauses cannot take effect from a transactional perspective, it remains to be seen whether they will have the intended effect of stamping down on sexual harassment in the workplace.
Will such clauses help in the fight against sexual harassment?
For any kind of workplace discrimination issue complete elimination is unrealistic. In the case of #MeToo clauses it is likely that their adoption has been driven by the wider popularity of the #MeToo movement, rather than a strong use case for fighting sexual harassment in the workplace. It is also unclear why such claims should necessarily be privileged above other claims, such as racism, or other kinds of harassment.
Education is probably the most effective response to addressing issues of workplace harassment. Companies should look to start with a solid, early and very specific agenda for diversity training that is backed by a robust disciplinary policy. The deterrent value of clauses is likely to be less effective than addressing the root cause that education and training can provide.
What it is about start-ups in particular that invites claims of sexual harassment?
By their very nature start-ups will have a longer ‘to-do list’ than larger companies. Because they are in the formative stages of development, they often won't have the benefit of an HR function to offer early awareness training in diversity. Consequently management may lack the controls that exist in more established companies.
However, singling out start-ups in relation to these clauses is not completely fair. The focus on start-ups points to a perceived gender bias in entrepreneurial culture, whereby young men are assumed to hold the majority of roles. Clauses such as this only serve to reinforce that bias. We must be careful not to demonise start-ups when there are plenty of examples of sexual harassment in more mature businesses too.
Whether #MeToo clauses will be effective in helping fight sexual harassment in the workplace remains to be seen. However, their adoption says a lot about fear of reputational damage in the wider context of fairness, equality and diversity. Turning customers off through this kind of failing can have a serious impact on a business. In this sense #MeToo has succeeded by turning this particular type of harassment into a focus and making diversity and equality more than just a ‘tick-box’ exercise. It reflects a realisation at shareholder and board level that reputation and revenue can be hit if there is a workplace culture that ignores, tolerates or even condones these behaviours.
Jennifer Maxwell-Harris is an employment partner at Joelson