The CEO’s wandering hands

June 24, 2014

Dov Charney and American Apparel have been in the news in recent days as a result of Mr Charney’s alleged predatory behaviour and sexual harassment. Perhaps this is merely an excuse for a powerplay aimed at obtaining control of the company, but a messy fight is inevitable. A couple of years ago John Galliano embarrassed himself and Dior with anti-semitic rants, and found himself jobless. Nicolas Ghesquiere made some post-employment remarks that didn’t flatter his former employer, Balenciaga, and was on the wrong end of a breach of contract claim.

How would your company equip itself to deal with difficult situations such as these, and what policies should be put in place to help?

Ensuring the protection of your brand is paramount.

Start with an assessment of your contracts of employment. It is arguable that such behaviour constitutes gross misconduct, but employers should not subject themselves to such uncertainty. Ensure that those contracts contain clauses requiring employees not to bring the business into disrepute, not to make any derogatory statements about the business and not to do anything that reflects badly on the business. These are essential, and common, tools, with the consequence of breach being summary termination without contractual compensation. Wielded quickly, but also carefully with an eye to the establishment of the facts and at least some semblance of a fair procedure to help avoid an unfair dismissal claim, these clauses can provide an early exit from the obligations of the employment contract. Shares, deferred bonuses and other incentive awards would usually be forfeited as carefully drafted plan rules would typically render the employee guilty of such behaviour a bad leaver.

Similar clauses should appear in settlement agreements, influencing the behaviour of and providing remedies against former employees.

Supplementing these contractual provisions with an appropriate equal opportunities policy that addresses the company’s zero tolerance of sexual harassment and victimisation, coupled with obligatory training for employees at all levels, will help in two ways. First, it provides another stick with which to beat the employee, a breach of company policy typically constituting a further breach of his contract. Second, it provides the company with some measure of protection against claims by those who may have suffered.

And finally, a whistleblowing policy may encourage such behaviour to be brought into the light. Early action will at least allow the company to protect itself from further damage to its reputation and brand as a result of a senior executive’s loose mouth or wandering hands.

The PR man’s adage that there is no such thing as bad publicity was only ever partly true. Alternatively you may wish to take heart from the reports that following Mr Charney’s dismissal, American Apparel’s share price rose!


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