When influencers fall out of favour: The fine print behind brand break-ups

Aspiring commercial solicitor Jasleen Kaur Bindra unpacks how exit clauses in brand ambassador agreements can shape legal risk, commercial strategy and public perception

In this digital era, any contract with a brand representative revolves around global marketing. These relationships between the company and brand ambassadors carry reputational and financial risk for brands, making exit clauses — whether morality, reputational harm or anytime termination clauses — essential.

The digital brand representatives on TikTok, Instagram, Snapchat and other social media, better known as influencers, play an instrumental role in shaping the public’s perceptions of brands. However, when disagreements or disputes arise, they can become obligations. Understandably, these companies protect themselves through carefully structured exit clauses in the contract. Through social media platforms like Instagram, TikTok, Snapchat and X, reputational harm spreads like wildfire, pushing brands to rely more heavily on legal exit mechanisms signed in contracts.

Legal foundations of exit clauses

Courts enforce exit clauses if they are:

• Clear and unambiguous,
• Proportionate- Not preferring any one party to the contract and
• Commercially justified

The UK case Yam Seng Pte Ltd v International Trade Corp Ltd ([2013] EWHC 111 (QB)) puts a great emphasis on emerging expectations of trustworthiness, reasonableness and good faith in commercial contracts.

Types of exit clauses

• Morality clauses: This was first adopted in America after the Roscoe “Fatty” Arbuckle scandal, these allow termination of contract for behaviour considered morally wrong or damaging.

• Reputational harm clauses: This can be triggered even if there is a potential harm damage without misconduct by the other party.

• Termination: This clause allows the company to exit with notice and sometimes paying a fee to the influencer as well.

• Social media conduct clauses: This clause regulates posting frequency, prohibited content on social media, and compliance with advertising rules such as Advertising Standards Authority (ASA) in the UK.

• Post-termination restrictions: This clause in the contract includes non-disparagement, cease-use of brand materials provided to promote, and limited non-competes for the same product advertised by them.

Global examples of exit clause enforcement

• Adidas & Kanye West (Ye)

Adidas terminated its collaboration with Ye after he made a number of antisemitic remarks on social media. The statement issued by Adidas was: they “do not tolerate antisemitism Kanye’s recent comments and have been unacceptable, hateful and dangerous for public. The comments violate and don’t match the company’s values”. Adidas immediately ended production of all Yeezy branded products, stopped all payments to him and his companies. Adidas estimated a short-term negative financial impact of up to €250 million and said we agree to bear it on net income in 2022. Adidas said it is the only owner of the existing designs of Yeezy products. Later (in 2024) the two parties reached an amicable settlement outside court ending legal disagreements, reportedly “without any financial transactions involved”.

Adidas raised its right to terminate the contract immediately; this is a classic application of a morality clause or reputational risk clause. The financial cost was significant: Addias sacrificed a very profitable partnership. The €250 million hit shows that enforcing morality clauses can come with a real trade-off. However, by owning the design rights to the Yeezy shoe products, Adidas retained a lot of monetary value even after ending the relationship. That lessens the loss to some degree. The resolution without further payments suggests Adidas was able to cut ties cleanly, possibly because the contract was well-drafted and executed: the exit clause gave them enough legal cover, and both parties were able to agree to walk away.

This case stresses how powerful a morality clause can be when the reputational risk becomes too large. It also shows that firms may be willing to accept considerable financial losses to preserve their brand identity and values. At the same time, having ownership of the product designs was a clever strategic move by Adidas, allowed them to salvage some of the business value. Adidas terminated its partnership after Ye’s antisemitic remarks.

• Pepsi & Madonna

Pepsi had a $5 million legal contract with Madonna in 1989, tied to her song released Like a Prayer. The music video for “Like a Prayer” was extremely controversial: it featured religious imagery including a church, stigmata and burning crosses. Religious groups (including the Vatican itself) strongly condemned the video, calling for a boycott of Pepsi. In response to the backlash, Pepsi cancelled the advertisement campaign and ended their sponsorship contract with Madonna even though Madonna kept the $5 million fee.

While “morality clause” in its current sense might not have been as clearly defined as it si today, Pepsi effectively executed a reputational exit after public repercussion became too intense. Financially, Pepsi ‘lost’ a lot of money: they paid Madonna, but cancelled the campaign. But reputationally, they may have felt they needed to distance themselves to avoid a larger public backlash. For Madonna, retaining the $5 million suggests she had strong bargaining power in the contract, or that Pepsi regarded the payment as non-refundable regardless of cancellation. That indicates the contract may not have had a strict clause “return money on cancellation” clause, or that Pepsi valued closure over chasing repayment. Over the long run, this storm arguably benefited Madonna (in terms of her icon status) — from a brand-risk perspective, Pepsi’s decision probably reflected the balance of protecting its mass-market brand image in the face of moral/religious pressure.

This case is a model early example of a brand reacting to public moral outrage via endorsement cancellation. It highlights that moral risk isn’t always about illegal behaviour in a contract controversy over art, religion, or social values can also trigger “exit decisions.” It also stresses how exit decisions might prioritize preserving brand image over short-term commercial gain: sometimes beaching a deal is cheaper than enduring a prolonged reputational crisis.

Lessons from these cases

Firstly, the Morality clauses or reputation-risk clauses in a contract are real and enforceable. The brands do use them to protect themselves when a celebrity’s behaviour becomes damaging. (3) Secondly, the Exit decisions involve trade-offs, there are possible financial loss, potential legal costs, the value of the celebrity to the brand, and long-term brand equity are all considered. (4). Thirdly, contracts matter which means the structure of the deal that triggers termination greatly affects how a separation plays out.

Drafting fair & enforceable exit clauses

To balance proportionate and fairness among parties the following is to be kept in mind. Firstly, use objective triggers. An example of this is instead of “inappropriate behaviour,” use specify measurable standards such as negative publicity, hate comments, morality issues etc. Secondly, the parties to the contract maintain proportionality. This means not every disagreement warrants termination between parties. Thirdly, in a contract include procedural fairness, the parties should execute proper notice and right to be heard. Lastly, ensure commercial justification, a clause in a contract must relate to legitimate brand protection interests.

Protecting influencers

The influencers should negotiate for the following clauses inn contract. Firstly, narrowed morality clauses, this means the company must list everything in the contract. Secondly, guaranteed minimum compensation for the influencers in case of termination. Thirdly, clear approval processes for the content they post online with fairness. Fourthly, as they are the creators they should have image rights protection or intellectual property rights. Fifthly, there should be fair-post termination obligations, weighing the rights of both the parties.

Regulatory considerations

In the UK, contracts executed must comply with the legislations like Advertising Standards Authority (ASA) rules, Consumer Protection from Unfair Trading Regulations 2008, Equality Act, 2010 and Defamation Act, 2013. This is not an exhausted list.

Conclusion

The public should expect increasing AI-based company risk monitoring. The future should have proper social media behaviour benchmarks. The companies should have proper crisis management policies so that it is easy for them to navigate the problems faced. Like any other trade union there should be legal influencer unions. There should be fair flexible termination clauses for both parties.

Exit clauses in a contract are vital in modern endorsement agreements. From the Huda Beauty dispute to Pepsi’s high-profile terminations, these clauses remain crucial to protecting companies from reputational fallout. The key in the contract between company and influencer is balance—protecting company’s interests while ensuring fairness, clarity, and respect for brand ambassadors’ rights.

Jasleen Kaur Bindra is an aspiring solicitor with a strong interest in commercial law, contracts, and compliance. She has completed SQE1 and continues to build practical experience in the UK legal sector, with a focus on commercial advisory work.