March 11, 2011
Return Fire! Charlie Sheen Sues Warner Bros.
Well, he did say he would sue - back when Charlie wanted to revive the show from hiatus. But then Warner Bros went and changed the game when, as the entire world probably knows by now, Warner Bros fired Charlie Sheen. Charlie, not being the type to take such things lying down, has returned fire with a lawsuit against Warner Bros and Charles Lorre, the producer of Two and a Half Men.
Charlie - fire-breathing, fire-fisted Charlie - is cast by his lawsuit as the victim - and a defender of the weak. In short, the lawsuit alleges that Warner Bros. and executive producer Charles Lorre maliciously conspired to wind down Two and a Half Men (2½ M) before Charlie Sheen went on the rampage. Sheen's suit portrays Warner Bros. as an immoral, conspiratorial, hypocritical, profit hungry betrayer, and Lorre as a fabulously wealthy, egotistical, vindictive bully.
The lawsuit contends that Sheen's antics were not a problem previously - on the contrary, at a time when the star was at risk of being convicted for a felony punishable with imprisonment, Warner Bros is alleged to have been eager to sign Sheen for another two seasons.
So what changed? According to the lawsuit - in two words - Charles Lorre. Sheen alleges a pattern of harassment, humiliation, and aggravation against him by Lorre over a period of years (Lorre's 'vanity cards' are referred to in the suit as an example of this). The suit alleges that Warner Bros. is utterly loyal to Lorre because of the close, lucrative working relationship between Lorre and Warner Bros - Lorre is said to have an office on the Warner Bros lot, and to have three new series, (for which his cut is allegedly higher than what he gets for 2½ M) under development. Stung by Sheen's radio and TV blitz that was supposedly provoked by the said harassment, Lorre allegedly decided to no longer work with Sheen and from the point onward refused to provide new scripts in breach of his contractual obligations. The suit alleges this is why Sheen was turned away from the set of 2½ M although he had undergone private rehab (that allegedly involved the services of an expert recommended by Lorre) and was ready, willing, and able to get to work. Sheen further alleges that the line that he was fired for being incapable to fulfil his duties is a trumped up story. Sheen strongly contends that he is fit and well, sober (as indicated by recently publicized drug test results), and that he is and always has been ready, willing and able to work. Warner Brothers, in other words, is accused of scheming with Lorre to maliciously suspend the show, and then wrongfully terminate Sheen's contract for no just cause.
Warner Bros is portrayed as fraudulent, immoral and hypocritical for allegedly pretending to fire Sheen for reasons of moral turpitude when, the suit alleges, it eagerly courted Sheen for the renewal of his contract after he had been charged with a felony and was facing jail time. Warner Bros is alleged to have reassured Sheen that their contractual relationship would not be jeopardized so long as Sheen's conviction and sentence did not interfere with his recording schedule. Warner Bros is also portrayed as mercenary and merciless for firing Sheen instead of accommodating him, when he was alleged to be suffering from certain physical and mental illnesses (which ailments Sheen denies in any event). The portrayal of Sheen as the victim continues through mention of Lorre's "vanity cards" as a deliberate attempt to harass, humiliate and damage Sheen, through to mention of the incident in which Sheen was turned away from the Warner lot.
The lawsuit recites a litany of woes including breach of express terms, anticipatory breach, breach of good faith and fair dealing, breach of duty to a third party beneficiary, intentional interference with rights, interference with prospective economic advantage, frustration of common purposes, disappointment of reasonable expectations and loss of intangible opportunities (continuation as the lead in a star series, and the opportunity to attract endorsements). Employment discrimination makes an appearance, as well as claims for unpaid wages on behalf of himself and the cast and crew of 2½ M. The suit seeks compensatory, punitive and exemplary damages, as well as attorneys fees.
Warner Bros' termination letter, and Sheen's lawsuit present two alternative universes in which an innocent plaintiff is utterly wronged by a deliberate defendant. Given the impression created by Sheen's seemingly erratic behavior in recent times, Warner Bros is seen by some as having a strong case - if indeed it did terminate Sheen for incapacity and his blistering radio and TV rampage. Warner Bros seeks to portray those events as the last straw that led to a justifiable termination, following evidence of an uncured incapacity or serious medical condition, (a terminable event in Sheen's contract if lasting for ten or more consecutive days, or more than fifteen days in the aggregate over any single production year). Newspaper accounts seem to suggest that Sheen may have exceeded this allowance, but I wouldn't put my money on Warner Bros just yet.
Regardless of what has been decided in the court of public opinion, incapacity or a serious health (read mental) illness on the part of Sheen has not been proved yet. If Charlie did exceed the number of incapacitated or sick days permitted, there still may be room for a waiver argument. If Warner Bros truly sought Sheen out for renew his contract after he was charged with a felony, and further, reassured him that a conviction and jail time would not jeopardize their working relationship, Warner Bros may have waived the moral clause (subject to public policy concerns). Those actions if proved would also undermine the justifiability of terminating his contract on grounds of moral turpitude (was he allowed to stay in character off set?). Then there is the question of whether Sheen was terminated because Lorre felt it would be immoral to be a part of Sheen's alleged meltdown, rather than because of Lorre's allegedly egotistical, malicious wishes. Lorre allegedly has a history of personality clashes with stars he has worked with.
Of course, the whole issue of arbitration still has to be decided. Warner Bros insists that the contract requires the matter to be arbitrated. Team Sheen has made it clear ,by filing the lawsuit, that it does not share that opinion. Prepare for a rumble in the Tinseltown jungle. In the meantime, Charlie still has the (literary) Midas touch.....
Eniola O. Akindemowo.
The New Hampshire Approach to Breach of Contract Suits by State Employees
All eyes have been on Wisconsin lately, as Republican Governor Scott Walker has succeeded in pushing through legislation that repeals collective bargaining rights for state employees and requires state workers to make financial contributions for their health care and retirement benefits. New York Times coverage of that saga is available here and here. Little noticed has been New Hampshire’s push for reforming state employee benefits, as reported by the Union Ledger. The proposed plan would raise the retirement age for police and firefighters, reduce the amount of each worker’s salary included in the formula for pensions, and require workers to contribute more of their salary toward their retirement benefits.
What makes New Hampshire’s plan interesting is an amendment that was added to the bill that would effectively penalize workers who sue the state for breach of contract in court and win. These workers would pay “an additional 3% of their salary in pension contributions starting 10 days after a court victory.” Practically speaking, this provision makes a breach of contract suit by the state workers a lose-lose proposition: either pay the increased contributions, or hire a lawyer, win your lawsuit, and pay increased contributions anyway. Diana Lacey, the president of the State Employees Association, argues that punishing workers who seek to protect their rights in court is a “chilling attack on democracy.” As reported in the Nashua Telegraph, supporters of the legislation argue that reforming state-employee retirement benefits is “essential to the long-term viability of the system.”
How likely is it that the bill will pass? Talking Points Memo points out that the New Hampshire GOP has veto-proof majorities in the State House and Senate. While it is possible that there may be some Republican defections, the State House just passed Right-to-Work legislation, which demonstrates GOP solidarity on labor issues. If Republicans don’t break ranks on the bill, Democratic Governor John Lynch will have little to no power to stop the bill’s passage.
One wonders, however if the penalty provision could survive court scrutiny. Is it an unconstitutional state impairment of the obligation of contracts? Is it a possible due process violation because it chills access to the courts as a remedy for contractual wrongs?
[Jon Kohlscheen & JT]
March 10, 2011
Self Promotion: Telman on the Totten Doctrine
I have floated my ideas about Totten on this blog before here and here. My students booed and hissed when I scolded Honest Abe for having breached his promise to pay William Lloyd for espionage services provided during the Civil War. "Too soon," they howled. Undeterred, I have developed my ideas about Totten in a new article, Intolerable Abuses: Rendition for Torture and the State Secrets Privilege, now available for dowload on SSRN. The discussion of the Totten doctrine takes up pages 15-45 of the draft.
That part explores the ambiguities of the case and decries its deployment in the state secrets privilege context in cases that do not involve contractual claims. The case is ambiguous because in the space of a two page opinion, the Supreme Court gives numerous reasons for refusing to enforce the government's alleged promise to Mr. Lloyd. Perhaps there was an implied promise of secrecy. Perhaps public policy forbids the disclosure and thus the enforcement of such a policy. Perhaps there is some sort of evidentiary privilege that prevents the claim from going forward, but if so, its operation is unlike that of any other evidentiary privilege. And then in the end, what is the Totten doctrine? Is it simply the application of one of the above-mentioned contracts or evidentiary doctrines or is it a principle of non-justiciability?
The discussion of Totten takes up about 1/3 of the piece. Here is the abstract for the whole thing:
In Mohamed v. Jeppesen Dataplan, Inc., the Ninth Circuit, sitting en banc, issued a 6–5 opinion dismissing a complaint brought by five men claiming to have been victims of the U.S. government’s extraordinary rendition program, alleged to involve international kidnapping and torture at foreign facilities. Procedurally required to accept plaintiffs’ allegations as true, the court nonetheless dismissed the complaint before discovery had begun based on the state secrets privilege and the Totten doctrine, finding that the very subject matter of plaintiffs’ complaint is a state secret and that the defendant corporation could not defend itself without evidence subject to the privilege. This Article contends that courts should almost never dismiss suits based on the state secrets privilege and should never do so in a case like Jeppesen Dataplan, in which plaintiffs did not need discovery to make out their prima facie case alleging torts by the government or its contractors.
While much has been written on the state secrets privilege since 9/11, this Article focuses on the role of the Totten doctrine in transforming the state secrets privilege into something like a government immunity doctrine. The Article first argues that Totten was wrongly decided because it is overprotective of state secrecy and requires dismissal with prejudice of suits that would more appropriately be dismissed without prejudice, subject to re-filing when the relevant secrets are declassified. The Article next contends that Totten is a very narrow doctrine that cannot and should not have any role in informing cases such as Jeppesen Dataplan in which plaintiffs did not contract with the government.
In addition, the Article argues that the state secrets privilege, as laid out in the 1953 Reynolds case and subsequently expanded by lower courts, permits pre-discovery dismissal of suits based on the state secrets privilege and thus exacerbates the pro government bias already present in Reynolds. The Article explores seven ways in which lower court decisions have all tended to make it easier for the government to assert the state secrets privilege, while the lack of penalties for overly aggressive assertion of the privilege results in intolerable abuses.
While the Article thus offers fundamental critiques of both the Totten doctrine and the state secrets privilege, it does not advocate disclosure of state secrets. Rather, in a concluding section, the Article draws on federal statutory schemes relating to the introduction of classified information in criminal trials and offers numerous alternatives to judgment in favor of the government and its contractors before discovery has begun in cases implicating state secrets. Congress has repeatedly empowered courts to make decisions that protect government secrecy while facilitating limited access to secret information when necessary in the interests of justice and open government. In some cases, the government’s inability to defend itself may necessitate the socialization of the costs associated with national security secrets, but that result is preferable to forcing plaintiffs to bear all the costs of government secrecy.
Lawyer Sues Firm for Breach of Contract, Inter Alia
As reported in The Am Law Daily, in a case reminiscent of that Business Organizations chestnut, Day v. Sidley & Austin, attorney Raymond J. Carey is suing his firm, Foley & Lardner, for breach of contract and others claims, as reflected in this complaint. The complaint alleges that F&L is operating as an employer of its partners instead of a partnership, with the Management Committee (appointed by itself) running the show.
According to the complaint, Carey, a labor and employment partner, joined the firm in 2000 after being sought out as part of an effort by the firm to open a Detroit office (which may or may not be visible in the night photo of the Detroit skyline below). Carey alleges F&L induced him to leave his equity partnership with another firm with an assortment of promises about his status at F&L that he now claims F&L had no intention of keeping. Those promises included a position as a full partner in F&L, guaranteed minimum monthly and annual compensation, which was to increase annually based on Carey's productivity, and a guarantee that he would be treated on a par with other F&L partners. Negotiations were protracted, allegedly due to F&L's refusal to provide documentation that Carey requested. Carey claims that he only accepted F&L's offer, which attached conditions to which he did not agree, because F&L posted his biography on its firm website, thus destroying his relationship with the firm at which he was then a partner.
Carey alleges that F&L did not honors its promises made during the contractual negotiations. Instead, the complaint alleges, he was denied partnership status until 2003. Even after this, F&L took away earnings rightfully owed to him by misrepresenting client relationships. During this period, Carey claims he was never even allowed to see his partnership agreement. When he eventually signed on as partner, Carey claims, F&L sent him only signature pages and refused to share with him the entire partnership agreement to which he became a party.
Carey, a 57 year old white male, was among the lowest paid F&L partners in 2010. Although he claims that he is the victim of "a pattern of discrimination on account of gender, race and age," he also alleges that he was discriminated against because he "continued to complain" to F&L's management that F&L had breached various promises relating to his conditions of employment. Carey claims that he has billed millions of dollars of hours for the firm and had equal or greater personal productivity than similarly situated F&L partners who are better compensated than he is.
Carey's breach of contract claim is interesting. He is alleging a breach of contract dating back to "at least October 2001" as evidenced by conduct in fiscal years 2005 through 2010.
[Katherine Freeman & JT]
March 9, 2011
Warner Bros vs Charlie Sheen: The First Salvo After The Last Straw
- I speculated that the gloves might 'come off' in response to Charlie's rant against Charles Lorre, creator of Two and a Half Men; The TL indicates that this, in conjunction with another bizarre interview (held on the same day), tried Warner Bros.' patience to the limit. The last straw was Charlie's non response to the request for confirmatory notice of treatment that Warner Bros. requested after the show was put on hiatus.
- The time for gritted teeth and walking on eggshells is over. No longer willing to put a good face on things, Warner Brothers has replaced the (forced) smile with the menacing growl of its notice of intention to seek legal remedy. Notice of this intention was served in the TL thus:
- "Mr Sheen's conduct constitutes breach of contract, breach of the covenant of good faith and fair dealing and tortious interference with Warner Bros.'s contracts with third parties, among other causes of action.....In any ensuing arbitration, Warner Bros. will seek recovery of all of its damages including lost revenue from the show and all other damages the law allows."
- Time Warner was sensitive to the possibility that it might be accused of illegal or immoral motives for standing by the self destructing actor after all. The letter states "in halting production of Two and a Half Men...Warner Brothers took the only responsible action open to it - morally and legally - in these painful circumstances. Warner Bros. would not, could not, and should not attempt to continue 'business as usual' while Mr Sheen destroys himself as the world watches".
- There was in fact a morals clause in Charlie's contract, albeit an unusually narrow one. If the producer in good faith was of the opinion that a felony offence involving moral turpitude had been committed, or if the actor was indicted or convicted of such an offence, the clause conferred on the Producer the right to treat the commission of those acts as an actionable breach. Sheen's proud assertion that Warner Bros did not have the power to 'dominate and totally interfere with my personal life', was therefore not entirely true. In fact Warner Bros.statements in the TL indicate further that regardless of whether Charlie was hired to play himself or not, he was not at liberty to cross the line of criminal conduct, or bring the network in disrepute by his self destructive behavior. The letter further states that "his admitted extreme cocaine use violates his obligation under ....the Terms & Conditions not to engage in any extra-hazardous activity without Producer's prior written consent..."
- I suggested that the lack of a morals clause could cut both ways - freeing Charlie from the moralistic control of the network while absolving the network from responsibility for his poor choices. In detailing the actions justifying their invocation of the morals clause, Warner Bros pointedly refers to Charlie's alleged supply of illegal drugs to a third party in the TL rather than Charlie's alleged personal use of such drugs.
- Good faith and fair dealing have come into it - Warner Bros claims that it has discharged it's contractual duties of good faith and fair dealing to Charlie while asserting that Charlie has failed to do so.
- I mused on how reputational mud just didn't seem to stick to 'Teflon Charlie' and wondered if Warner Bros. would resort to some 'teflon abrasive', if the gloves were to come off. Well they have, they did, and the mud slinging has not merely stained his reputation. In the eyes of some, he's mired in the mud.
- Charlie's mental health is now squarely in issue. The TL opens with a direct attack on his mental state:
- "At the outset, let us state the obvious: Your client has been engaged in dangerously self-destructive conduct and appears to be very ill. For months before the suspension of production, Mr Sheen's erratic behavior escalated while his condition deteriorated.....Now the entire world knows Mr Sheen's condition from his alarming outbursts over just the last few weeks....". Later, the letter continues "In any event, Warner Bros is entitled to suspend Mr Sheen's employment...due to his "Incapacity"....defined....as including..."any physical or mental disabilities, which due to the unique nature of the Performer's Obligations, are not subject to reasonable accommodation".
- Warner Bros utilises speculative comments about Charlie Sheen's mental condition by a number of talking head medical experts in alleging mental disorder/mental incapacity:
- A number of health care experts observing Mr Sheen during these interviews have commented that he (1) appears to be 'manic' and/or 'bipolar,' (2) he suffers from a 'hypomanic' psychological state; (3) potentially poses a dangerous threat to himself and others; (4) requires immediate professional care."
- The suspension of the show was indeed a first discreet step towards distancing and ultimately disengaging from Charlie.
- Warner Bros relies on several grounds for termination. I suggested earlier that consistently failing to be in a fit condition to work, bringing the network into disrepute, and being charged with a serious felony were possible grounds for termination. The TL asserts that Warner Bros is entitled to terminate Charlie Sheen's contract because :
- he is not in a fit state to work due to mental incapacity or a serious health condition
- they have reason to believe that he has committed at least one felony involving moral turpitude, and thus breached his morals clause
- he has engaged in (harmful) PR activities without authorization..
Other grounds relied upon are that:
- by failing to perform material obligations (the TL asserts that his condition prevents him from doing so) Charlie committed an immediate default, also that,
- by refusing or failing to return to work, he also repudiated his obligation to perform,
- his incapacity, once persisting over a (fairly limited) period, constitutes a default justifying suspension, and,
- force majeur events have occurred as a result of his hampering production of the show, his being out of control (of Warner Bros.), his illness and loss of weight (disfigurement), and his breaches of contract.
The TL summarizes the case for termination by observing "based on the totality of Mr Sheen's statements, conduct and condition, including but not limited to his refusal to offer any cure in response to the notice of suspension, Warner Bros. is exercising its rights to terminate the Agreement under the provisions specified above."
Warner Bros. terminated Charlie's contract summarily, asserting the right to terminate, with written notice, for a serious health condition or uncured incapacity (lasting for more than 10 consecutive days, or 15 days over the course of the year), or anytime following suspension for a default. Charlie Sheen's contract obviously contained an arbitration clause, as the TL states "...Warner Bros. has submitted this dispute to arbitration...as required by the Agreement....We look forward to your cooperation with the arbitration process." The letter further insists in a heading that "This Dispute Must Be Arbitrated'.
Though short of a cliff hanger, we are left with several questions. Will Charlie Sheen respond with 'all barrels blazing', or will he back down - or at least adopt a less confrontational approach - to begin to attend to the repair of his disintegrating life? Will he submit to arbitration, or fight for his day in court? Will there be a response, from health care officials, to the deepening allegations about his mental state? To what extent will his alleged mental state/incapacity lessen the brunt of the legal storm he has unleashed? Who will represent him - legally, publicly - now? (Reports of recent firings and resignations from his support team suggest that he will need to recruit new representatives.)
The first salvo, in what is likely to be a drawn out sensational (ist) legal battle, has been dispatched. Brace yourselves for the next episode of this tragic drama, in which family, mental health officials, and law enforcement officials may have more than a walk on role.
Eniola O. Akindemowo.
Second Circuit Again Invalidates Amex Class Action Waiver
A group of merchant plaintiffs filed an antritrust class action against Amex. Based upon a class action waiver in its mandatory arbitration provision, Amex sought to compel individual arbitration. In February 2009, the Second Circuit (Pooler, Sack and Sotomayor) invalidated the class action waiver on unconscionability grounds. See In re Am. Express Merchs. Litig., 554 F.3d 300 (2d Cir. 2009).
The case returned to the Second Circuit after the Supreme Court vacated the judgment and remanded for consideration in light of Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp, 130 S.Ct. 175 (2010). Yesterday, the Second Circuit again concluded (this time without Sotomayor) that "(1) the question of the enforceability of the class action waiver provision is properly decided by the court and (2) the class action waiver provision is unenforceable under the Federal Arbitration Act."
The Circuit Court again rested its decision on the evidence that plaintiffs "would incur prohibitive costs if compelled to arbitrate under the class action waiver." It held that "[t]he Card Acceptance Agreement therefore entails more than a speculative risk that enforcement of the ban will deprive [the plaintiffs] of substantive rights under the federal antitrust statutes."
In Re: American Express Merchants' Litigation, 06-1871-cv, NYLJ 1202484853954, at *1 (2d Cir., Decided March 8, 2011.
[Meredith R. Miller]
New in Print
Luca Anderlini, Leonardo Felli, and Andrew Postlewaite, Should Courts Always Enforce What Contracting Parties Write? 7 Rev. L. & Econ. (2011)
From the homepage for Dickinson's book:
Over the past decade, states and international organizations have shifted a surprising range of foreign policy functions to private contractors. But who is accountable when the employees of foreign private firms do violence or create harm? This timely book describes the services that are now delivered by private contractors and the threat this trend poses to core public values of human rights, democratic accountability, and transparency. The author offers a series of concrete reforms that are necessary to expand traditional legal accountability, construct better mechanisms of public participation, and alter the organizational structure and institutional culture of contractor firms. The result is a pragmatic, nuanced, and comprehensive set of responses to the problem of foreign affairs privatization.
We don't have a picture of the book, so the pigure at right will have to do. Here's the product description from the West website:
Summarizes the Federal Acquisition Regulation System (FARS), improper business practices and personal conflicts of interest, publicizing contract actions, outsourcing/privatization, and competition requirements. Addresses acquisition plans, contractor qualifications, contract delivery, and performance. Explains socio-economic policies, commercial items, options, sealed bidding, and negotiation. Reviews general contracting requirements, intellectual property, cost accounting standards, cost principles, financing, protests, disputes, and appeals. Explores research and development contracting, construction and architect-engineer contracts, inspection and warranty, value engineering, delays, suspension of work, modifications, subcontracting, and government contract termination.
March 8, 2011
Today in the NYLJ: Applicability of the UCC to Software Transactions
[Meredith R. Miller]
Breaking News from Lithuania
Friend of the blog, Tadas Klimas reports on his blog, Civitatus, that Lithuania has finally done away with the requirement that business entities use seals in connection with their government contracts. Professor Klimas links to a government press release which explains that the government is eliminating the seal requirement because seals have no utility. As the press release is in Lithuanian, we will have to take his word for it. In any case, Professor Klimas fully endorses this view, noting that no "normal" -- i.e. Western -- country uses seals.
So, Professor Klimas enthusiastically endorses the death of the seal, lamenting only that the change is long overdue. We offer a different perspective. Seals may be useless, but they are quaint, and imagine the poor Lithuanian artists who will be reduced to web design, now that life support has been removed from the seal industry. Now that seals have been sacrificed to the gods of utility, what's next? Coffee houses? Poetry? SpongeBob? Justin Bieber? Bricks and mortar law schools?!?
Weekly Top Tens from the Social Science Research Network
March 7, 2011
Warner Bros Officially Terminates Charlie Sheen - Read the Nastygram
Warner Bros has sent a persuasive and well-written nastygram to Charlie Sheen, setting forth in great detail its right to terminate his contract. Appears that Warner Bros is relying on an incapacity clause. I know, the constant network and tabloid coverage of Sheen is annoying, obnoxious, etc. But this is a well-lawyered and very public contract battle to follow.
[Meredith R. Miller]
Charlie Sheen's Bargaining Power
My co-bloggers have ably and fully discussed Charlie Sheen and his lack of morals a morality clause in his contract for Two and Half Men. The absence of the morality clause turns out to be explained by Sheen's adonis DNA tiger blood sheer bargaining power as a cash cow. The New York Times reports:
It was not the first time that the show’s managers had tried to intercede, but they had limited options: Mr. Sheen’s contract does not include any kind of morals provision that would have allowed him to be fired or replaced. According to one longtime Hollywood agent (who, like many people quoted in this article, spoke on the condition of anonymity so as not to create any conflicts in their business), the show’s success had provided him with the leverage he needed to keep any such clause out.
“He’s money,” this agent said. “He makes the cash register ring.”
[Meredith R. Miller h/t Fabrice Charles]
Will Sabathia Opt Out of the Bronx?
As Spring Training keeps moving on towards opening day, an interesting option looms for the Yankees' star pitcher CC Sabathia. Sabathia has a clause built into his current contract with the team that allows him to opt out of his contract at the end of the 2011 season and become a free agent. According to ESPN, by opting out, Sabathia would walk away from approximately $90 million in guaranteed salary. However, Sabathia has hinted at the idea after seeing Cliff Lee (age 32) sign a five- year, $120 million contract with the Phillies this past off season. Sabathia would be 31 at the end of the season and still able to command top dollar. However, if he waited until the end of his current contract, he would be 35 years old and may no longer have the bargaining leverage necessary to secure a long-term, high-salary contract.
If Sabathia decides to opt out of his contract at the end of the season, the decision could impact the rest of Major League Baseball and perhaps the entire sports industry. Prominent players may decide to ask for opt-out clauses in their contracts similar to Sabathia’s. Such clauses would enable star players to leave their teams if they were not happy with the atmosphere or the direction the team was going. It would also mean that players with opt-out clauses could choose to test the market if they think they could receive a higher salary on the free agent market after several years of solid performance. From the player’s perspective, such a clause is a win-win. The player has the option to stay with a guaranteed, long-term agreement or to seek a still richer payoff elsewhere.
If the opt-out clause becomes de rigueur among star players, the owners could respond by refusing to enter into long term contracts. If that were to happen, players would obviously be the big losers, as guaranteed, long-term contracts are an insurance policy against injury or Milton Bradley-like underperformance. In the alternative, the owners could demand a reciprocal opt-out option. Such an option could provide, for example, that if the player has not played a certain percentage of games during the first part of his contract due to injury, the team could opt out or could renegotiate the salary. It could also provide that if a player did not average certain statistical numbers over the first part of the contract, the team could opt out of the contract. This would get us closer to the pay for performance that this blog has explored in the past.
[Jared Vasiliauskas & JT]