Examine your Contract: Is your “Buyout” Liquidated Damages or Penalty Payment?

Shaw_Dana

Dana Drew Shaw

This time of year offers many coaches the opportunity to catch up on everything that is neglected during the season.  Among those things should be an annual review of your contract.  Just as you evaluate your team and staff, your personal career goals and current employment agreement should be examined and assessed as well.

A recent court ruling (Kent State Univ. v. Ford), should prompt coaches to take a minute to read and understand the termination terms of their employment.  In this case, the Ohio Appellate Court upheld a breach of contract claim against the coach which awarded damages in the amounted of $1.2 million.

It is common for coaches to have a buyout in their contract as other potential coaching opportunities may present themselves.  Many universities look to a liquidated damages clause when drafting a coach’s contract since determining the actual damages of a coach’s departure is difficult.  Calculating the exact cost to a university can rarely be estimated due to the additional responsibilities associated with the head coaching position.  The salary of a replacement coach is not the only factor, but numerous intangibles such as program brand, recruiting, and public relations are taken into account in estimating a cost.  Therefore, liquidated damages clauses are commonly drafted into the contract.

What should you be aware of if you do have a “liquidated damages” clause in your contract?  First, make sure to clearly understand the penalty for breach of contract.  The exact amount should be clearly articulated and agreed upon when executing the contract.  Next, discuss a clause that considers the length of the contract and has a decreasing penalty for each existing year of the contract rather than calculated by the remaining base salary.  Lastly, have your attorney review the contract for ambiguity and clear expression of the parties’ true intent.

For further review, look at Vanderbilt University v. DiNardo and Kent State Univ. v. Ford.  In both cases the courts upheld the liquidated damages clause and the breaching party (the coach) had to pay what was agreed upon in the contract.   Athletic Directors and coaches should understand and discuss the terms of a buyout and express them clearly in the contract.