With the start of college football season around the corner, attention turns to off-season shake ups in coaching staffs.  One controversial change involved defensive coordinator Robert H. Shoop.  Shoop traded in his blue and white at Penn State for orange at the University of Tennessee in January 2016, although his employment contract with Penn State did not expire until February 15, 2018.  This led to a dispute over Coach Shoop’s post-employment contractual obligations.

As a result of Shoop’s departure, Penn State filed a breach of contract suit against Shoop in April 2017, which subsequently was removed to federal court in the Middle District of Pennsylvania.  Penn State alleged that Shoop is “obligated to pay liquidated damages in the event of his resignation prior to the end of the stated term of the Contract.”  Section Six of the underlying employment contract provided that if Shoop resigned before the end of his contract term, he would be obligated to pay fifty percent of his base salary for the remaining term. Shoop’s annual base salary was $850,000. The only exception was if Shoop became the head coach at another university within one year of the date of resignation, and he did not. Based on these terms, Penn State is seeking $891,856.00.

Shoop has responded to the Penn State’s complaint, denying the allegations and setting forth sixteen affirmative defenses. The majority of the affirmative defenses focus on the enforceability of the contract, which raises the legal question: Is such a contract void because it is overly restrictive on Shoop’s employment opportunities?

In California, where the authors of this writing practice, non-compete contracts or restrictive covenants are generally unenforceable.  Restricting the movement of a coach to a different football team would be like restricting the movement of an engineer from Google to Amazon.  Such a restriction would be unlawful.  But, notably, Shoop’s contract with Penn State did not impose such a restriction after the termination of his employment.

Rather, the contract obligated Shoop to pay liquidated damages if he left prior to the end of his contract. California law permits non-compete clauses during the term of employment.  See Angelica Textile Servs. Inc. v. Park, 220 Cal. App. 4th 495, 509 (2013) (recognizing that section 16600 of the California Bus. & Prof. Code “does not affect limitations on an employee’s conduct or duties while employed”).  From a policy perspective, this makes sense— non-compete agreements that prevent future gainful employment are void, but a company, or in this case, a University, has an interest in prohibiting its employees from moonlighting during their employment.

Even under the stricter parameters of California and other states that have severely limited restrictive covenants, a court would likely find that contracts such as the one entered into by Shoop and Penn State are not unlawful non-solicitation contracts.  In Pennsylvania, restrictive covenants are generally disfavored, but may be enforceable if they are accompanied by new and valuable consideration.  See Socko v. Mid-Atlantic Systems of CPA, Inc., 633 Pa. 555, 560-61 (2015).  It does not appear that consideration is at issue in this contract, although Shoop formulaically asserts “lack of consideration” as an affirmative defense. It is therefore fairly likely that a court, applying Pennsylvania law, will find that the contract at issue does not contain an unlawful non-compete clause.

Shoop’s counterclaim sheds light on the primary defense theory he will assert at trial — constructive termination.  Shoop alleges in his Counterclaim that his “working conditions became intolerable” and he “experienced a hostile negative work environment.”  Shoop is seeking $75,000 based on Section 5 of the contract, which provided that if Shoop was terminated without cause, Shoop would be entitled to an amount equal to the lesser of (1) his annual base salary or (2) the prorated amount of the annual salary.  Shoop’s allegations do not explain how and when Shoop’s working conditions became “intolerable” or who, specifically, created a “hostile negative work environment.”

Looking at the drop in Penn State defensive team statistics over the two years Shoop was the coordinator, one could question if a hostile environment existed: in 2014, 2d in total defense and 4th in scoring defense; in 2015, 37th in total defense and 47th in scoring defense. Given the barebones nature of Shoop’s allegations, it is somewhat surprising that Penn State did not file a 12(b)(6) motion for failure to state a claim.  Instead, on July 21, 2017, Penn State answered Shoop’s counterclaim and denied the allegations.

Going forward, this dispute raises more questions about contracts in the collegiate athletic sphere. For example, if Shoop employs a novel defensive scheme at Tennessee that was developed at Penn State, there may be a trade secret issue.  Coaching staffs often move to new teams together; if other assistant coaches follow Shoop to Tennessee in the near future, will Shoop be liable for raiding Penn State’s coaching staff?  And, will colleges in states where non-compete agreements are enforceable impose such clauses to restrict intra-division or intra-conference movement?  How will cases like this impact student-athletes who transfer during their collegiate career?

Regardless of how these scenarios play out, this case will likely result in colleges and athletic personnel scrutinizing their contracts in greater detail before signing and increase the need for counsel specializing in these issues to raise the likelihood of enforcement.

 

 

As of this writing, it has been over 850 days since UConn women’s basketball team has lost a game.  When the Huskies last tasted defeat (in an overtime thriller to Stanford on November 17, 2014), football players at Northwestern University were pursuing their rights to collectively bargain after a ruling by the NLRB regional director in Chicago held they were statutory employees.  While the undefeated nature of women’s basketball in Storrs, CT has been a constant, the NLRB changed the game for Northwestern football players by declining to assert jurisdiction.  However, there remains a feeling in certain quarters of college sports that some form of pay to student-athletes is inevitable.

The order declining to assert jurisdiction over Northwestern’s football players was not the last word by the NLRB with respect to the University’s athletics.  Last fall, an advisory memorandum by the NLRB’s Associate General Counsel found certain rules in the University’s Football Handbook were unlawful.  The offending rules, which the University subsequently modified for purposes of compliance, related to restrictions on social media and health communications by players.  The fact that the Office of the General Counsel opined on this issue has raised concern whether the NLRB will reconsider its prior position if another college team petitions to assert collective bargaining rights.

Payments to college players would offer support to their argument for standing as statutory employees.  Similar to those of Northwestern, policies and rules that affect players would have to be evaluated for compliance with the National Labor Relations Act.  Considering the volatile impact of social media on college sports and the desire of many athletic departments to manage this area, the limitations and guidance to employers on social media policies would require rule changes in the athletic handbooks of many universities.

In addition to the right to organize, many individual employment rights would also flow from the new standing.  For instance, it has been long understood that coverage under workers’ compensation statutes is not available to college athletes, largely because any injuries would not be derived from job-related activity.  However, creating a compensatory arrangement for college players would bring back the logic used by the Colorado Supreme Court in 1954 when it ruled in favor of Ernest Nemeth, an injured football player from the University of Denver on a claim for workers’ compensation.  Key to Mr. Nemeth’s claim was that his football activity was part of his total “job” with the University.  Under this rationale wage compliance would also become a concern, especially given the non-exempt status that could be designated to college athletes.

The Pandora’s Box of legal compliance for student-athlete pay will also involve the IRS.  Under Revenue Ruling 77-263, the value of an athletic scholarship is excluded from the recipient’s gross income.  However, this ruling is grounded in the understanding that the value of the scholarship will not exceed the expenses incurred to attend the institution. The excess value paid to college players would raise question as to whether some portion or all of the athletic grant-in-aid would become taxable income.

While the idea of providing payments to student-athletes may appear a simple solution to some, there would be a host of devils in the details.  Any prospective framework would need limitations that not only address financial considerations (such as how this would impact availability of Olympic sports that are often the focus of Title IX compliance), but a cross-section of legal concerns.  This would be a task only slightly less daunting than beating a team coached by Geno Auriemma.

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In 2014, a group of minor league players sued Major League Baseball, the Office of the Commissioner, former commissioner Bud Selig, and three MLB franchises alleging numerous violations of the federal minimum-wage law. Some minor league players reportedly received $3,000 to $7,000 over a five-month season, even though they claimed to spend 50 to 70 hours a week in baseball-related activities. The case was amended to include all 30 MLB franchises, though eight teams were later dismissed. Central to the players’ strategy was obtaining standing to pursue a class action to defray individual costs and maximize recovery.  However, a recent ruling by a California federal court dealt a blow to the players by rejecting their request for class certification.

Although the players were conditionally granted class status in 2015, Chief Magistrate Judge Spero reversed this temporary status and ruled the players could not proceed as a class in part because of the individualized inquiries needed to determine which class members were owed compensation.

Continue Reading Minor League Baseball Players Strike Out in Attempt to Certify Class for Wage Claims