NCAA/Intercollegiate Athletics Compliance

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.

 

 

An ongoing controversy regarding fraud and academic dishonesty among student-athletes at the University of North Carolina at Chapel Hill (“UNC”) has brought to the forefront an important question:  Who is responsible for ensuring student-athletes are receiving an academically appropriate education?

The UNC scandal involves the revelation that a “shadow curriculum” was developed in the early 1990s during a period of complaints that student-athletes’ workloads were too strenuous given the heavy demands of competing in Division I athletics.  The shadow curriculum allegedly involved classes that never met, had little to no faculty oversight, and in certain instances required only a single paper to be submitted in order to complete the class.  Investigation findings suggest that for well over a decade, these classes were taken by a significant number of students – many of which competed on UNC’s football and men’s and women’s basketball teams.

The National Collegiate Athletic Association (“NCAA”) which regulates college-level athletics, has charged UNC with improper and unethical conduct as a result of the revelation of UNC’s implicit sponsorship of this shadow curriculum.  Although the NCAA has yet to levy its final punishment against UNC (the University has instituted several self-imposed sanctions), potential penalties could include a reduction in the number of scholarships available to UNC athletes in the future, a postseason ban on competition, and – in a worst case scenario – the “death penalty,” which would eliminate UNC’s eligibility for college-level athletics competition for an entire year or longer.

In response to the threat of these potential penalties, UNC has asserted that the NCAA is overstepping its role by threatening UNC’s athletic programs based on concerns over academic integrity.  The NCAA’s principal function is to regulate athletics compliance, not to determine whether student-athletes are being held to sufficiently rigorous academic criteria.  That should be reserved for the purview of the University.

And UNC has a point.  Charged with the regulation of athletics, the NCAA does not specialize in assessment of how difficult a college student’s coursework should be.  If the NCAA punishes UNC for its academic failings, it could open the floodgates for the NCAA’s role in oversight over the curriculum for student-athletes and begs the question, “What next?”  Will the NCAA demand that it be given an opportunity to audit and approve of university classes in order to ensure that student-athletes are being held to sufficiently rigorous standards?  And if so, on what basis?

On the other hand, the UNC scandal raises the debate of whether universities can be trusted alone with ensuring the academic preparedness of their student-athletes.  Perhaps an institution’s judgment could be clouded by conflicting incentives that potentially motivate them to place the success of their athletic programs over other principles.  After all, college sports – and particularly Division I teams in football and men’s basketball – generate mass amounts of revenue for their institutions.  For many universities then, it may be extremely difficult for them to decide to, for example, sideline their star player because he is struggling in calculus, when they are armed with foreknowledge that such a decision would have competitive and financial consequences.

Of course, universities cannot place their bottom line over the education of their students. If schools cannot be trusted to prioritize their students’ success over financial gain, then we are left with one very important question about the regulation of student-athletes’ education:  If not the NCAA, then who?

The present end result is universities must continuously assess both internally and with appropriate external counsel, the separation in oversight of academics and athletics.  Failure to do otherwise may force the NCAA to assert a more prominent role and increase risk to potential infractions.

 

We are in March.  The minds of many turn to March Madness as the NCAA hosts its annual tournament to crown college basketball’s national champion.  Of these, many want to take advantage of the tournament to promote their products or services.  However, this phrase is trademarked, and the owners are active in policing and protecting their mark, as sponsors pay large amounts for association with the championship.  It is important therefore to be careful of using “March Madness” in promotions and advertisements, as these uses could bring trouble.

“March Madness” – a Trademarked Term?

Yes, it is.  This, however, does not mean that newscasters, sports reporters or morning DJs can’t talk about the tournament using the name of the event. Instead, what it means is that commercial uses of the term that could imply some association with the event for which sponsors pay money, can be problematic – and could cost you or your sponsor money or time defending the use. So the safest way to avoid issues is to avoid the trademarked phrase in promotions and advertisements.

The NCAA was not the first to employ the March Madness theme for a basketball championship.  That honor goes to the Illinois High School Association. But those rights have been acquired, and are now protected vigorously by the NCAA (including associated marks such as “Final Four” and “Elite Eight”).  Marks objected to in the past by the NCAA include “April Madness” (for entertainment service), “Markdown Madness” (for auto sales services), “Skate Madness” (for skateboarding competitions) and “Freestyle Madness” (for various entertainment services).

Safe use.

In considering how best to use “March Madness” in a commercial setting, it is important to note that using the term in a manner where it is simply describing the event rather than for an attention-getting headline is more likely to be perceived as fair.  For example, in noting a list of events and other features, an ad may say, “During the March Madness tournament, we will be serving flights and celebrating the individual athletes from our home team.”  Using the term close to the event date rather than well in advance is also more likely to be perceived as fair, and not trading on the excitement that surrounds the games outside the context of the tournament itself.  The same considerations apply to sales of merchandise.

So be careful out there, and enjoy the games.

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.

Follow Tyrone on Twitter at https://twitter.com/tyronepthomas

Former UCLA basketball star and NCAA champion Ed O’Bannon was the lead plaintiff in a 2009 class action lawsuit that was the first serious challenge to the lifeblood of the NCAA’s very existence: all of its players are unpaid amateurs.  The case – forever called the “O’Bannon” case – claimed Division I men’s basketball and football players ought to be compensated for the commercial use of their names and likenesses.  Both sides appealed the Ninth Circuit Court of Appeals’ 2015 ruling, but on Monday the U.S. Supreme Court denied both petitions, preserving the NCAA’s coveted system of amateurism . . . for now.

The denial leaves in place the lower court’s ruling favor of O’Bannon, where a three-judge Ninth Circuit panel found that NCAA Rules constitute an unlawful, anti-competitive conspiracy between the NCAA and its 1,000-plus schools.  Before the Ninth Circuit heard the case, the District Court ruled that colleges must reward men’s basketball and football players up to $5,000 per year while they are in school for the use of their names, images and likenesses, but two of the three Ninth Circuit judges overturned the payment portion of the ruling.

Continue Reading Supreme Court Declines to Hear the O’Bannon Case, Holding in Place the NCAA’s System of Amateurism

No, the First Monday in October is not when the first poll for the College Football Playoffs is released.  And it is not the day of an important college football match-up.  However, it still might be an important day for college athletes—and the NCAA.

As many know, the First Monday in October is when the Supreme Court reconvenes.  It is also likely to be when we will find out whether the Supreme Court will hear the O’Bannon case, the Court having the pending petitions for a writ of certiorari teed up for decision at their September 26th conference.  O’Bannon v. NCAA, 802 F.3rd 1049 (9th Cir. 2015). Continue Reading First Monday in October Might be Big Day for College Athletes