Nov. 1, 2017 – “Harvey Weinstein fired illegally? What were they thinking?!”

This must have gone through many people’s minds after learning, as first reported by TMZ on Oct. 12, 2017, (and picked up by other news media, including NPR, CBS News, etc.) that Harvey Weinstein may have been fired illegally by The Weinstein Company because the company might have breached Weinstein’s employment contract.

According to the TMZ article, “the contract states that if Weinstein ‘treated someone improperly in violation of the company’s Code of Conduct,’ he must reimburse TWC for settlements or judgments,” with reimbursement amounts ranging from $250,000 to $1 million. In the TMZ author’s reading of the contract, “as long as Weinstein pays, it constitutes a ‘cure’ for the misconduct and no further action can be taken.”

Say that you are a lawyer asked to represent a Wisconsin company confronted with the ramifications of an ill-conceived employment contract containing similar terms. Contract Law in Wisconsin, published by State Bar of Wisconsin PINNACLE^©, will help you devise a strategy for your client’s response.

Perhaps the Contract Was Not Breached

The first question is whether the contract even has been breached.

According to Contract Law, “Under Wisconsin law, a plaintiff claiming breach of contract has the burden of proving by a preponderance of the evidence that the contract exists, that the defendant’s actions violate its express language, and that the defendant’s breach is material and results or will result in injury.”

Two of the three requirements to establish breach seem to have been met: there is a contract and the company’s action in firing the executive was material and injurious. What is unclear, based on the known facts, is whether the executive complied with his obligations by reimbursing the company for settlements or judgments. If he did, the company’s firing of him seems a violation of the contract’s exclusive-cure provision.

A Contract Might Not Even Exist

Let’s assume the no-breach argument has been evaluated and found inadequate.

Here is another, based on the contract provision stating that “[the executive] can be fired for ‘the perpetuation by [the executive] of a material fraud against the company.'”

A basic definition of fraud is “intentional perversion of truth” (from Merriam-Webster) – i.e., lying. What laypeople call “lies,” contract law calls “misrepresentations of fact,” and such “statement[s] of fact that [are] untrue]” are extensively discussed in Chapter 3 of Contract Law.

The chapter explains the concept of materiality as well: “a misrepresentation is material if it is likely to induce a reasonable person to enter into the contract. … [I]f the person making the misrepresentation knows that the representation is likely to induce the recipient to enter into the contract (even if it would not so induce a ‘reasonable person’), the representation is material.”

Now, back to the facts.

Whether the former executive lied about the circumstances of these settlements will be key to his former employer’s material-fraud defense, as will evidence regarding the company’s reliance on the former executive’s statements when it was negotiating the contract with him. (There is some evidence that in the real-life case, The Weinstein Company was aware, before entering the contract, that Weinstein had settled lawsuits brought by various women.)

Honesty and fairness are so highly valued by the law that even if not for an explicit contractual provision tying firing to fraud, the company would be able to attack the contract’s validity based on alleged misrepresentations by the former executive.

The authors of Contract Law devote considerable space to discussion of misrepresentations, starting with a basic statement of the law: “The Wisconsin Supreme Court has held that a contract is voidable if a party’s assent was induced by a material or fraudulent misrepresentation of fact on which that party justifiably relied” (section 3.4) – and going on to explain the effects of the rule and how to establish the elements of misrepresentation.

Contract Seems to Contravene Public Policy

By now, you’re probably thinking, “I don’t care what the company knew and didn’t know: this contract stinks and it’s good this guy was fired.”

Judges are people, too, and the one designated to preside over a case involving such a contract might well share this thought. But he or she will need more than personal beliefs to resolve the case in favor of your client. Contract Law in Wisconsin presents additional alternatives for attacking the contract’s formation, and thus its validity, most notably the grounds that the contract is against public policy:

• “A decision to declare a contract void on grounds of public policy can be made only after the interest in enforcement of a particular promise is carefully balanced against the interest in upholding a public policy to which the contract’s terms are contrary.” (Section 3.27.)

• “Courts treat a contract against public policy the same as an illegal contract – that is, the court will leave the parties where it found them if they are equally at fault.” (Id.)

Voiding contracts on public policy grounds is not simple, because freedom of contract is itself a public policy. But the nature of the agreement between the errant former executive and the corporation would likely persuade a court to refuse enforcement of the agreement in the executive’s favor.

Turn to Contract Law in Wisconsin for All Contracts, Good or Bad

Fortunately, agreements like the one between Harvey Weinstein and The Weinstein Company are unusual, and it is hoped that Weinstein’s behavior – and the way in which the company chose to work around it – will not be replicated.

But disputes regarding run-of-the-mill agreements do arise regularly for all types of businesses, and in those common situations, Contract Law in Wisconsin is your go-to resource to attack or defend a contract.

Topics covered in the book’s fourth edition, supplemented in 2017, include:

• formation essentials and statutes of frauds;

• contract interpretation;

• warranties, disclaimers, and limitations of remedies;

• parties to contracts;

• conditions, breach, and performance and nonperformance;

• remedies; and

• general guidelines for drafting.

How to Order

Contract Law in Wisconsin is available in both print and online via Books UnBound^®, the State Bar’s interactive online library. The print book costs $219 for members and $269 for nonmembers. Electronic forms from the book are available online to print book owners and to Books UnBound subscribers.

Subscribers to the State Bar’s automatic supplementation service will receive future updates at a discount off the regular price. Annual subscriptions to Books UnBound start at $159 per title (single-user price, call for full-library and law-firm pricing).

For more information, or to place an order, visit the WisBar Marketplace or call the State Bar at (800) 728-7788 or (608) 257-3838.