Transcript Employment Contracts: Termination Clauses

Integrating Fields in Sport Law:
Using the O'Brien v Ohio State University
Case To Teach Principles of Contract Law,
NCAA Compliance, and International
Arbitration
Sport and Recreation Law Association 2008
21st Annual Conference
Myrtle Beach, South Carolina
Dr. Anastasios Kaburakis – Southern Illinois University
Edwardsville
Linda Sharp, J.D. – University of Northern Colorado
Dr. Holly Sheilley – University of Louisville
Emily Dahlberg, M.S. (08) – Southern Illinois University
Edwardsville
Scope
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Contract Law
Administrative
Law – NCAA
Compliance
International Law
– Alternative
Dispute
Resolution (ADR)
College Coaching
Contracts: Termination
Clauses
Termination Clauses
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Termination without Cause
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Breach of contract by party terminating
contract
No legitimate justification for doing so
Liquidated damages or “buy-out” may be
specified in contract
Recent dispute between WVU & Rich
Rodriguez
Termination Clauses
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Termination for Just Cause
Employee has breached contract by engaging in
conduct that violates standards of job
performance set by employer
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Fails to meet requirements of job
Criminal behavior (morals clauses)
Conduct unfavorable to employer
Violations of NCAA, conference or university rules
Termination for Just Cause
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Negotiation of these clauses is critical
Employer wants to broaden provisions
while employee wants to narrow
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O’Brien v. Ohio State University
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exemplifies this type of dispute
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Sharp, Claussen & Moorman Sport Law: A
Managerial Approach, pp. 179-182
O’Brien v. Ohio State University
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Facts
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O’Brien hired as BK coach at OSU in 1997
In May, 1998 Alex Radojevic, BK player from
Serbia came for unofficial visit
Fall, 1998 O’Brien learned Radojevic had
played pro BK in Europe
O’Brien continued to recruit Radojevic and in
Nov 1998 Radojevic signed NLI
O’Brien (cont)
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In December 1998 O’Brien gave the
Radojevic family $6000
O’Brien said that this “loan” did not violate
NCAA rules since Radojevic not eligible to
be college player
In Feb 1999 O’Brien told OSU AD that
Radojevic could regain amateur status
Radojevic never enrolled at OSU
O’Brien (cont)
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March 1999 OSU gets to Final Four
O’Brien gets new employment K effective
September 1999
In Sept 1999 O’Brien signs NCAA
Certificate of Compliance that he has
reported any knowledge of NCAA
violations for 1998-99 academic year
O’Brien (cont)
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O’Brien does not disclose “loan” to AD until April 2004
O’Brien terminated for cause in June 2004
OSU alleged that plaintiff violated Section 4.1(d) that
required him to “know, recognize, and comply” with all
rules of NCAA and to “immediately report to AD” if he
had “reasonable cause to believe that any person had
violated such laws, policies or regulations”
OSU argued that failure to report loan to Radojevic
violated this section and was a material breach of
contract and university could terminate under Section
5.1(a)
Section 5.1(a) stated that OSU can terminate a contract
if a material breach occurred
The Relevant Section
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Section 5.1:
Termination for Cause - Ohio State may terminate this agreement at any
time for cause, which, for the purposes of this agreement, shall be limited
to the occurrence of one or more of the following:
(a) a material breach of this agreement by Coach, which Coach fails to
remedy to OSU's reasonable satisfaction, within a reasonable time period,
not to exceed thirty (30) days, after receipt of a written notice from Ohio
State specifying the act(s), conduct or omission(s) constituting such breach;
(b) a violation by Coach * * * of applicable law, policy, rule or regulation of
the NCAA or the Big Ten Conference which leads to a "major" infraction
investigation by the NCAA or the Big Ten Conference and which results in a
finding by the NCAA or the Big Ten Conference of lack of institutional
control over the men's basketball program or which results in Ohio State
being sanctioned by the NCAA or the Big Ten Conference * * * ;
(c) any criminal conduct by Coach that constitutes moral turpitude or other
improper conduct that, in Ohio State’s reasonable judgment, reflects
adversely on Ohio State or its athletic programs.
Ohio Court of Claims Decision
2006 Ohio 1104 (Feb. 15, 2006)
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Judgment for O’Brien-OSU breached contract
Judge found “fact” that O’Brien made loan for
humanitarian reasons not for recruiting
advantage
Radojevic ineligible to play NCAA BK at time of
loan (note that O’Brien still recruited Radojevic
despite his play in pro BK)
O’Brien did violate § 4.1 (d) but this was not a
“material breach” under §5.1 (a)
Was O’Brien’s breach “material”?
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Material breach defined as “a failure to do
something that is so fundamental to a
contract that the failure to perform that
obligation defeats the essential purpose of
the contract or makes it impossible for the
other party to perform under the contract”
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Williston on Contracts, Chapter § 63:3
The Restatement criteria for
material breach
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Restatement of the Law 2d, Contracts, § 241. The Restatement test
is prevailing law, and it was used by the Ohio Court of Claims in
deciding this case:
(a) the extent to which the injured party will be deprived of the
benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately
compensated for the part of that benefit of which he will be
deprived;
(c) the extent to which the party failing to perform * * * will suffer
forfeiture;
(d) the likelihood that the party failing to perform * * * will cure his
failure, taking account of all the circumstances including any
reasonable assurances;
(e) the extent to which the behavior of the party failing to perform *
* * comports with standards of good faith and fair dealing.
Rationale for finding no “material
breach”
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The extent to which OSU was deprived of the
benefit it expected from employment K was not
as significant as OSU argued
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NCAA sanctions minor
Damage to OSU reputation minor
Breach of trust was reparable
O’Brien’s forfeiture of salary & benefits
substantial
O’Brien made good faith effort to resolve dispute
and OSU did not
Rationale (cont)
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NCAA compliance is important to OSU
BUT wording of § 5.1(b) contemplates
that coach could retain employment
during investigation and remain employed
unless serious sanctions imposed
Damages Award
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Court of Claims awarded just over $2.25
million on August 2, 2006
Amount determined by reference to
liquidated damages provisions in contract
(Sections 5.2 & 5.3)
Ohio Court of Appeals Decision
2007 Ohio App. LEXIS 4316
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Affirmed decision of trial court
Under broader contract terms not favoring
the employee to such a degree result
would not be the same
Contract must honor parties’ agreement
absent unconscionability
Questions and Discussion Points
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1. The judge in this case interpreted the facts in favor of
O’Brien when he characterized the loan as for
humanitarian reasons and not to gain an improper
recruiting advantage. What facts might support a more
sinister interpretation of the coach’s conduct?
Discussion Point: O’Brien’s “story” was inconsistent. If
he really felt that Radojevic was ineligible to play college
basketball, why did he have Radojevic sign a NLI and
come for an official visit? Then O’Brien changed his story
again and told Geiger that he thought Radojevic’s
eligibility could be restored.
Questions and Discussion Points
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2. Discuss how Ohio State could have strengthened its grounds for
termination for cause.
Discussion Points:
When Ohio State negotiated the employment agreement with O’Brien it
could have drafted language that provided that any failure to immediately
report any violation of NCAA or Big Ten rules is a material breach of the
contract. In that way, it would not be up to a fact finder to decide, as here,
that a single failure to report was not a material breach.
OSU negotiated a termination clause very favorable to O’Brien and it paid
the price here. A review of successor Thad Matta’s contract shows the
degree to which a lengthy list of behaviors could all be grounds for
termination
Ohio State could also have waited to see if the Radojevic incident would be
investigated by the NCAA as a major infraction. But in this case the NCAA
did not investigate for another 11 months after O’Brien was terminated, so
relying on this clause would have meant that Ohio State would not have
been able to terminate O’Brien at the earlier date, when there was a need
to do so based on public concern about the program.
Questions and Discussion Points
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3. Discuss the implications of this decision relative to
other colleges that may wish to terminate coaches “for
cause.”
Discussion Point: This ruling may deter schools from
trying to use the “for cause” provisions in coaches’
contracts. Often schools have chosen to take the easy
way out in these types of situations by terminating the
contract without cause and paying a buy-out to a coach
instead of risking litigation by the coach who has been
terminated for cause. The interpretation of the facts
here in favor of the coach is a deterrent to colleges that
might be considering using the “for cause” provisions
instead of buying out a coach who has acted in a less
than honorable fashion.
O’Brien Contract v. Thad Matta
Contract
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Negotiation of the termination clauses is a
critical undertaking
O’Brien negotiated several limitations on
termination for cause
Matta’s contract has 15 specific grounds for
termination
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Includes “commission of a crime whether prosecuted
or not…”
“Failure to manage Team in a manner that reflects
the academic values of Ohio State…”
Thad Matta’s contract (cont)
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“Commission of…any act…which in OSU’s
reasonable judgment brings Coach into public
disrepute, contempt, scandal or ridicule…”
“Significant or repetitive or intentional violation
(or if OSU has a reasonable basis for believing
that a significant or repetitive or intentional
violation has occurred) by Coach (or any other
person under Coach’s supervision and direction,
including student-athletes) or any law, rule,
regulation, constitutional provision, bylaw or
interpretation of Ohio State, the Big Ten
Conference or the NCAA”
Thad Matta’s contract (cont)
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“A material breach of this agreement by
Coach after receipt of a written notice
from Ohio State specifying the act(s),
conduct, or omission(s) constituting such
breach which breach cannot be or has not
been cured within thirty (30) days after
the date that a written notice by Ohio
State identifying such breach is sent”
Learning Objectives
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Appreciate complexity of termination for
cause clauses
Appreciate importance of negotiating
these clauses
Understand various interpretations of
material breach
Understand importance of adopting
“worse case scenario” when drafting
contracts
Resources
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Sharp, Moorman & Claussen Sport Law: A
Managerial Approach
O’Brien v. Ohio State Univ., 2006 Ohio
1104 (Ct. Claims Feb. 15, 2006)
O’Brien v. Ohio State Univ., 2007 Ohio
App. LEXIS 4316 (Ct. App. Sept. 20, 2007)
Greenberg, M.J.(2006). Termination of
college coaching contracts…17 Marquette
Sports Law Rev. 197.
NCAA Governance
Spectrum of Cases
Professional Salary,
Professional
Contract,
Professional
Competition
Contract
w/ agent
Entrance
Exam (i.e.,
ACT, SAT)
Fraud
Providing false
information
Academic
Fraud (e.g.,
having
academic tutor
write paper)
Benefits from
booster
Benefits
from sports
agent
Ethical Conduct, Amateurism, Extra Benefits
(Student-athlete acting independent of institution)
Five-Year Clock
Extensions
Prize
Money
Competing for institution
while ineligible
(transfers, progress
toward degree, initial
eligibility) –
Financial Aid
General Eligibility, Financial Aid
(Institution primarily responsible for violation)
Where does Radojevic and Sedo fit on the spectrum?
Spectrum of Impact Approach on Outcome of Cases.
(The Analysis for EVERY case has changed; the spectrum considers outcome.)
NCAA Compliance Lessons
• Amateurism Clearinghouse
• Reinstatement– Could Radojevic be reinstated after
playing on a professional team?
• Extra Benefit – Coach O’Brien gave $6,000 to "Semi"
Patrovic, family friend of Radojevic, so Radojevic
could go home after father died… Does this constitute
an extra benefit?
• “Semi” Patrovic was an agent. Had Radojevic made
prior verbal or written agreements with him?
• Institutional Control – Did O’Brien have a duty to
report this earlier?
Student Athlete Reinstatement
• Student-athlete reinstatement is a department within
the NCAA's membership services program. The
student-athlete reinstatement staff processes violations
and waivers that directly affect the eligibility of a
prospective student-athlete or an enrolled studentathlete.
• When an NCAA member school self-reports a
violation, all eligibility issues are addressed first and as
quickly as possible. Then, if the violation has
institutional responsibility, it is forwarded to the
NCAA's enforcement staff to be processed as a
secondary or major infraction case.
Principles of SAR
• Student-athlete’s (SA)
responsibility for the violation.
• Institution’s responsibility for
the violation.
• Impact of condition on SA.
• Could violation reasonably been
avoided?
• Other mitigation presented by
the institution.
General SAR Philosophy
• Put SA back in the position prior to violation.
• Assess SA’s responsibility for violation.
• Evaluated totality of circumstances to reach
appropriate decision.
The Process
Old Student-Athlete Reinstatement
Process
Initial
Recruitmentevaluation,
questionnaire,
scholarship offer
Institution reviews
eligibility- bylaws
14.1.2 &14.11.1,
ISA questionnaire,
amateur status info,
AGA staff input
Eligible
Ineligible
SAR staff appeal
and info collection,
AGA staff
contribution
SAR staff
review
Eligible
Conditions
(repayment, withheld
from contests)
Ineligible
SAR Committee
Appeal
New Student-Athlete Reinstatement
Process
Initial
Recruitment
Division
I & II
Register with NCAA eligibility center –
online questionnaire & student release form
No
Certification
Division III
Certified w/
conditions
Certified
Institution submits
reinstatement
request to SAR staff
Certification by
institution
Ineligible
Eligible w/
conditions
Appeal to SAR
Committee
Eligible w/o
conditions
Decision and Appeal
• The NCAA student-athlete reinstatement staff
issues initial decisions in all cases.
• Staff decisions may be appealed to the StudentAthlete Reinstatement Committee. The
reinstatement committee has the authority to
amend a decision or lessen a penalty imposed
by the staff, but it does not have the authority to
increase the penalty.
Amateurism Rules Certified by the
Amateurism Certification Process
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•
•
•
•
•
•
•
•
•
•
•
Contract with a professional team.
Salary for participating in athletics.
Prize money.
Play with professionals.
Tryout, practice or competition with a professional team.
Draft.
Benefits from an agent or prospective agent.
Agreement to be represented by an agent.
Tennis and swimming and diving rule. (Division I only).
Matriculation after 20th birthday-tennis. (Division I only).
Participation after 21st birthday. (Division I only).
Organized competition rule. (Division II only).
Amateurism Certification
Process
• Creation of prescribed penalties to be imposed.
• Cases not on prescribed list or where mitigation is
present will be forwarded to reinstatement staff.
• Reinstatement staff will provide condition as part of
certification process.
• Decision can be appealed by an institution to the
student-athlete reinstatement committee.
Amateurism Guidelines
• Sign an agreement or contract that states the team is
professional or the individual is a professional.
• Sign an agreement or contract that provides the individual
with money above expenses (even if the money is never
provided).
• Individual receives money above his or her expenses.
Amateurism Guidelines
• Individual has profited from his or her sport.
• Individual consistently represents himself or
herself as a professional athlete.
• Individual enters into a written or verbal
agreement with an agent.
• Individual accepts significant monetary benefits
from an agent.
Clear Decision
• Amateurism Clearinghouse Guidelines
• Division I Student Athlete Reinstatement
Guidelines
Case Example #1:
• Klaus graduated from high school in 2004 and served a
mandatory 10 months in the German Armed Services. While
serving in the German Armed Services, Klaus competed on a
second division tennis Bundesliga club team. Klaus participated
in 3 dates of competition.
• Klaus did not sign a contract or receive any money above
expenses from the team; however, the first position player on his
team did receive money above actual and necessary expenses
from the team.
• Klaus did not accept any prize money for his participation on
the tournaments and only accepted actual and necessary
expenses from the team.
• Klaus plans to enroll at an NCAA Division I institution in the
Fall of 2005.
Case Example #2:
• Steve graduated from high school in
June 2004. While in high school,
Steve competed in 8 contests for the
Hamilton Thunder, a team that
competes in the Canadian Professional
Soccer League (CPSL).
• The Hamilton Thunder team declares
itself to be a professional team.
• Steve received $450 in
actual/necessary expenses from the
team.
• Steve did not sign a contract with the
team, nor did he have an agreement
with an agent.
• Steve plans to enroll at an NCAA
Division I institution in the Fall 2005.
Case Example #3:
• Brad, a men’s ice hockey student- athlete,
graduated high school in May 2001.
• Brad competed for and received expenses
from an amateur ice hockey team for the
2000-01 and 2001-02 seasons.
• During the 2001-02 season, Brad was called
up and competed in 5 contests for a Major
Junior A team.
• Brad accepted $125 for actual/necessary
expenses from the Major Junior A team.
• Brad plans to enroll at an NCAA Division I
institution in the Fall of 2005.
Case Example #4
• Robin, a track and field student-athlete,
accepted $5,000 in prize money following
her participation in competition that was
held in her hometown over the summer.
• Robin had less than $100 in actual and
necessary expenses for the competition.
• During the remainder of the summer Robin
traveled internationally, participating in
various track and field competitions and
paying all of her expenses.
• Although Robin did not win any other
events or accept any prize money, her
actual and necessary expenses for all of the
other competitions totaled $6,000.
Case Example #5:
• Betsy, a golf student-athlete, competed
in an event that occurred outside the
institution’s playing and practice
season, but during the academic year.
• Based on her place finish in the event,
Betsy accepted a $500 gift certificate
for the local pro shop.
• Gift certificates are permissible under
USGA rules and are permitted under
NCAA rules during the summer.
• Betsy paid all of her own expenses,
including a $175 event entry fee.
National
ISFs
Continental
Federations
NFs-NGBs
Regional Associations
Senior Clubs
Junior Clubs – Rec & School
Programs
Club
World Championships & Olympics
Continental (e.g. European) Championships
National teams
Regional select teams
ISFs
CFs
NFs NGBs
Regional
Assoc.
Senior Clubs
Jr. Clubs, Rec,
& School
ISFs
FIFA/UEFA, FIBA/FIBA Europe
Champions League,
Euroleague
CFs
Professional Leagues Associations (ULEB, G14)
NFs &
NGBs
Regional
Assoc.
Professional Clubs Associations (EPL, ESAKE)
Senior Clubs
Jr. Clubs, Rec,
& School
Top (pro) competition (Super Leagues, A1, A2)
Lower levels (amateur or pro-am; Divisions
II, III, IV, V, etc.) + Promotion and relegation
Promotion
to
First team
Junior Clubs (U12, U14, U16, U18)
High School and College
competitions
International ADR
In re: Toronto Raptors v. Buducnost
The Radojevic saga continues
Setting the stage
• Radojevic drafted 12th in the 1999 NBA draft by
the Toronto Raptors
• Entered into contract with Buducnost in 1996
• NBA-FIBA agreement in 1997 stipulating:
• Valid contracts will be honored by both sides
• Final and binding arbitration upon disputes
• If Radojevic was deemed still bound by
Buducnost contract, NBA would have to wait
NBA-FIBA agreement
• “Player Contract = written agreement for a
specified term and for a specified salary or
other compensation.”
• Licensing system, Letters of Clearance, mutual
requests re: contract status
• “Any disputes… shall be resolved finally and
conclusively by an International Arbitrator”
• Best efforts deterring interference w/ contract
The arbitration
•
•
•
•
London, England, 8/19/1999
International arbitrator: Iain Patrick Travers
Toronto Raptors v. Buducnost
Yugoslav Basketball Federation denied issuance
of letter of clearance
• Side note: NATO bombings 3/24-6/10/1999
• Was Radojevic subject to a valid contract?
• Was the contract effectively terminated?
ex aequo et bono
Contract clauses
• For the following three years (1998-1999, 1999-2000,
and 2000-2001), the Player’s compensation shall be
agreed upon after the first two seasons have elapsed
• The Player has the right to cancel this contract by
unilateral statement of will, to the Club’s detriment, if
the Club defaults on payment of any monetary sum due
to the Player for a period longer than 90 days, or if the
Club does not provide him with the conditions for
training or necessary medical aid.
The contractual matter
• Claim: Not a valid binding contract, missing material salary
stipulation for the last three years
• Response: Defer to Yugoslav Federation policy
• Min. & Max. salary fixed
• Teams invest in talent development, not salaries
• Lodging, meals, medical aid, and necessary support =
Other compensation
• Arbitrator disagreed
•
•
•
•
Specific terms for first two years
No stipulation of resolution upon remaining salary dispute
Salary is distinct from non-monetary obligations
Governing law (any) did not provide for treatment of material omission
• “An amount to be agreed on an unspecified date” lacks certainty
NO CONTRACT = FREE RADOJEVIC
The medical issue
• Secondary – Had it been the most significant, arbitrator
would allow time for further evidence
• Knee injury while training in Greece (September 1996)
• Greek doctor misdiagnosed injury Good job Hippokrates!
• Surgery in Podgorica October 1996
• Respondents pts:
• Health care standard way below US ($ discussion)
• Went above and beyond
Compensation
• Secondary breaches
• Fascinating clauses:
• ≥ 20MPG = DEM 15,000 (11 monthly installments)
• 7-19MPG = DEM 9,000 (11 monthly installments)
• If injured, receives DEM 15,000/11mos rate!
• Claim: Did not receive last installment and DEM 6,000
at the conclusion of the season
• Response: HE LEFT!
• Arb. decision: Indeed, he could have waited 90 days;
thereafter he would be able to terminate the contract
What if this occurred today?
• New FIBA ADR–FIBA Arbitral Tribunal (FAT)
• New contracts + FAT arbitration clause
• Court of Arbitration for Sport (CAS)
• Appeals (+waiver of Swiss Federal Tribunal appeal)
• Could CAS contribute to NBA-FIBA disputes?
• Now dispute would be first dealt via FAT
• FAT v NBA-FIBA arbitration agreement conflict
• NBA-FIBA agreement needs amendment (defer to FAT)
• What if… ULEB decides to break away… again?
Useful teaching points
• Radojevic was honest “to the extent that, on occasion, he gave
answers which might not have been entirely helpful to his
cause”
• “…an individual must comply with a contract that he enters
into”
• Under the scope of Arts. 81, 82, et seq. EC Treaty, and Sherman
Antitrust Act § 1, critique minimum and maximum salary limits
• “…other compensation” & Salary determination upon injury –
Omit & Be precise
• Contractual obligations determined by prevailing circumstances
• Termination – Specify timing and include buyout clause
• Governing law – Which is it?
Discussion
Thoughts on “Integrating fields”
teaching case studies
Thank you for your participation