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The FBI’s College Basketball Investigation Highlights The Need For Thoughtful Termination Provisions In Executive Employment Contracts.

Feb 26th, 2018

The FBI’s College Basketball Investigation Highlights The Need For Thoughtful Termination Provisions In Executive Employment Contracts.

By: Mitchel T. Denham, Partner

Recent media reports describing the scope of potential payments to student athletes sent shock waves through college basketball. Documents uncovered as part of the FBI’s investigation into a sports agency list dozens of players at top programs across the country as receiving thousands of dollars in what the NCAA may ultimately find to be improper benefits.  The FBI has already indicted multiple individuals including three NCAA Division 1 assistant coaches. The probe has also taken its toll in my home city of Louisville, Kentucky where former University of Louisville head coach Rick Pitino and former Athletics Director Tom Jurich were fired last fall, after reports surfaced of Pitino’s alleged involvement.  Now, it appears that University of Arizona head coach Sean Miller, who was allegedly caught on a federal wire-tap discussing a $100,000 payment to a star player, may be next.

It remains to be seen if there will be additional criminal charges, NCAA sanctions, or firings. One thing is clear—a lot of athletic departments across the country are concerned and some are dusting off their coaches’ employment contracts. Pitino and UofL are already embroiled in high stakes litigation over his termination.  Now, reports of a favorable provision in Sean Miller’s contract, which reportedly gives him his entire salary if terminated for cause, has the potential to result in a legal dispute between the coach and Arizona.

This situation highlights the immense importance of well-defined termination provisions in employment contracts. This applies not only to high-profile basketball coaches—but to University Presidents and private executives entering into an employment contract. Well thought out termination provisions may mean the difference between an employee walking away with nothing or leaving with a fair severance package. In the University setting, board members and policy goals frequently change.  In the corporate world, CEOs move on and companies regularly part ways with executives. Here are some tips for termination provisions when negotiating your next contract, whether you are an employer or an employee.

·       Clearly define the severance package. Recently, I negotiated an employment agreement for a Vice President of a private corporation. The initial draft of the contract sent to him by his soon-to-be employer contained no severance or termination provisions.  We, of course, changed that.  However, had he not sought our counsel, he could have been stuck with a contract where he was promised the moon, but left holding the bag in a few years. 

 

·       Differentiate between termination with cause and termination without cause. Generally, executive employment contracts provide for some type of severance if one is terminated without cause. However, a termination with cause usually provides for less, or even no severance. Therefore, it is important to differentiate between the two and specify what the employee walks away with under each scenario.

 

·       Clearly define what constitutes termination with cause. In a recent negotiation of a second contract on behalf of a University President, I found the proposed termination for cause provisions ambiguous and left wide discretion with the University. This left her susceptible to potential adverse employment action at the whim of the Board of Trustees.  While she enjoyed an excellent relationship with the existing board, those members were appointed by, and could be removed by, the Governor of the state. A new board, or board members, could have a different philosophy or ideas on the direction of the University.  Therefore, it was important to specifically define what constituted "cause.” In the end, we were successful in changing these provisions.

 

·       Specify the procedure and timetable in the termination provisions. There are several important provisions which come into play if an employer terminates an executive, particularly if they are claiming cause. Employees will want the contract to specify that he or she is notified of the specific reasons for termination in writing within a reasonable timeframe. In addition, there can be provisions permitting the employee to cure the deficiency.  Dispute resolution provisions, such as an arbitration clause, are also an important provision. Clear notice and termination procedures in the contract can head-off expensive litigation down the road.

Starting a new job and hiring a new executive is exciting and everyone anticipates mutual success.  But things often go wrong—just ask the coaches and the universities embroiled in FBI’s college basketball probe. Be sure you are protected if they do.

Mitchel T. Denham is a partner at the Louisville law firm of Thompson Miller & Simpson PLC.  He is the former Assistant Deputy Attorney General where he supervised nearly every division of the Kentucky Attorney General’s Office. He represents a variety of clients, including University Presidents and other executives negotiating employment contracts.