Tuesday, March 31, 2009
Today's New York Times has a headline that would not have been news to Karl Llewellyn, "Contracts Now Seen as Being Rewritable." But this is probably news and definitely fit to print because it provides space on page 1 of Business Day (above the fold!) for contracts prof David A. Skeel (left) to point out that it is now employment contracts that are viewed as "eminently rewritable." The article goes on to discuss additional wrinkles in the path of contracts law: in the current financial crisis, the federal government is re-writing contracts, and municipal governments filing bankruptcy under Chapter 9 are being excused from performing their union contracts.
Law students and recent graduates are also learning that employment contracts can be re-written. I have now heard from many quarters of recent graduates who are being told by BigLaw that they will have to start late and take a salary cut. And those recent graduates are the lucky ones. Other offers of employment are being rescinded entirely.
Thursday, October 16, 2008
Have you ever wondered whether non-compete clauses are enforceable in Russia? Yury Ivanov writes in the Moscow Times:
The main problem with a non-compete clause in Russia is that it may, in certain circumstances and in certain wordings, contradict with Article 37 of the Constitution of the Russian Federation. It proclaims: "Labor is free. Everyone shall have the right to free use of his labor capabilities and choice of type of activity and profession." This rule of law just generally provides freedom of labor, but the Constitution to a certain extent allows restriction of this principal rule. For example, Article 55 stipulates that "human and civil rights and freedoms may be limited by federal law only to the extent necessary for protecting the rights and lawful interests of other persons."
Russian law thus provides for many restrictions on infringement of confidentiality -- the Labor Code, Civil Code, and other federal laws concerning information protection and secrecy. These rules make employees liable only for divulging only confidential information. Unfortunately, in practice, confidential information is usually defined separately from a particular person, in our case the employee. Yet during the period of employment, the employee may obtain not only information separated from him but many other skills and knowledge, as described above. Moreover, the employee may not only divulge the information, but also use it in his own business or work for another employer. Furthermore, the non-compete clause is an independent covenant in any particular labor relationship and cannot be simply reduced to a confidentiality covenant.
[Meredith R. Miller]
Tuesday, August 19, 2008
The Wall Street Journal reports that school teachers in Denver do not like the pay for performance concept. They are staging sick-out and there is talk of a strike. According to the Journal, the Denver School District district is willing to offer bonuses of up to $3000 as a incentive pay to teachers willing to work in impoverished schools or to teach unpopular subjects. An interesting aspect of the program is that the bonuses are not merely one-time rewards; they are added to base salary and thus are cumulative.
The Union would like to see pay increases of course, but would like to see them more evenly distributed. Also, the current policy favors the young, ambitious and mobile over more veteran teachers. This may become a big issue around the time of the Democratic National Convention, because Barack Obama has often cited the Denver pay-for-performance plan as a model.
Wednesday, June 18, 2008
Back when The Simpsons was fresh and funny, they had an episode in which Bart and Lisa write an episode of Itchy and Scratchy for the Krusty the Clown show. Realizing that nobody at the networks will take them seriously as a couple of kids, they decide to use Grandpa Simpson's name. Unfortunately they don't know his name. They ask him, and he can't remember, but whenever he can't remember his name, he just checks his underwear. Then comes the following priceless dialogue:
Grandpa; Call me (pulling his underwear out of his pants). . . Abraham Simpson.
Lisa: Grandpa, how did you take off your underwear without taking off your pants?
Grandpa: I don't know.
I love that exchange, but it's not really relevant. What is relevant is that when Lisa proposes that she and Bart write a script for a cartoon, he responds, "Cartoons have writers?!?" "Sort of," she replies. Now you might remember that joke (or a variation of it) from any number of subsequent Simpsons episodes, but that's just because they've been recycling old material for at least ten years. Believe me, it was genuinely funny in 1993. Today, not so much.
But oddly enough, it turns out that cartoons really do have writers and now some of those writers are on strike. The New York Times reports that writers for a new Fox animated series about a high school, Sit Down, Shut Up walked off the job last Wednesday. They had been working without a contract, and Sony Pictures Television, which is producing the series, just notified them that the show is not covered under the agreement recently negotiated by the Writers Guild of America.
Now just what has become of writers? If they're so talented, why don't they just write themselves a contract. These guys don't even seem to have the creativity of the fictional cartoon writer characters on The Simpsons. Those guys would have dropped an anvil on the heads of the Sony Pictures executives. Or perhaps they would draw what looks like a tunnel on a brick wall so that the Sony executives would repeatedly walk into it. And then when the Sony boys finally realize that it's still a brick wall, a train would come through the tunnel and run them down. Now that's good writing!!
Sunday, April 20, 2008
The New York Times reports that JP Morgan has notified new Bear Stearns hires that they will not be needed. But the unemployed recruits can still keep what the Times calls a consolation prize -- they can keep their signing bonuses if they sign contracts in which they agree not to sue JP Morgan over their lost jobs. The bonuses range from $10,000 for college seniors to $50,000 for newly-minted MBAs. According to the Times, the students were paid these signing bonuses last fall, and JP Morgan is threatening to demand their return if the students refuse to sign the new contracts.
Thursday, March 20, 2008
MTV films is releasing Stop-Loss at the end of the month. Here's a synopsis from the website:
Decorated Iraq war hero Sgt. Brandon King makes a celebrated return to his small Texas hometown following his tour of duty. He tries to resume the life he left behind. Then, against Brandon’s will, the Army orders him back to duty in Iraq, which upends his world. The conflict tests everything he believes in: the bond of family, the loyalty of friendship, the limits of love and the value of honor.
But for those of you who like your media old school, The Nation has published Michael Zweig's "The War and the Working Class" The essay explores a number of contract issues in connection with the U.S. military's recruitment practices. These issues include "stop-loss," which Zweig describes as the military reserving "the right to extend the deployment time and active-duty status of every soldier beyond the service dates prescribed in their enlistment contracts and mobilization papers." According to Zweig, most soldiers were unaware of the stop-loss provision but by 2006, it had been enforced against 50,000 soldiers. Zweig also reports that court challenges to the enforcement of the stop-loss provision were unsuccessful.
Zweig also identifies another questionable practice. The military entices recruits with promises of benefits, such as educational training and signing bonuses but reserves the right not to pay such bonuses if the soldier leaves the military before her or his commitment is over, even if the reason for the soldier leaving the military is severe combat injuries. This seems like the sort of loophole that a legislature concerned about supporting the troops could easily close, but Congress has not done so yet.
Wednesday, February 27, 2008
The Associated Press reports that 93.6% of the members of the Writers Guild of America voted to ratify a three-year contract with Hollywood movie and television companies, thus ending the tragic writers' strike. Only 4.060 of the 10,500 Guild members affected by the strike actually voted on the contract ratification, but as Jon Vitti, author of the incomparable "Lisa's Substitute" episode for The Simpsons, knows, voting's for geeks.*
Prediction: stylish writers will be sporting strike beards again in Hollywood and New York City in 2011.
*In the episode in question, Bart challenges Martin for the office of class president. Martin offers a school library featuring the ABC of science fiction; Bart promises more asbestos in the classroom. Martin argues that a vote for Bart is a vote for anarchy; Bart counters that a vote for Bart is a vote for anarchy. As the election approaches just before recess, Mrs. K. offers Martin the opportunity for one final campaign speech. Martin, sweating, shaking and looking pale, can't think of anything more to say. Bart announces a victory party under the slide. As Bart is passing out celebratory cupcakes during recess, he asks Nelson if he voted. "Nahh, voting's for geeks," says Nelson. "You got that right," says Bart. Martin wins the election by a vote of 2-0.
Wednesday, February 20, 2008
Forbes.com has an article advising employees (and presumably independent contractors) in their negotiation of non-compete clauses. I much prefer the "in pictures" version of the advice. The 5 tips mirror my classroom teaching on the subject: (1) consult with an attorney, (2) limit the geography, (3) limit the span, (4) explore other restrictions and (5) get paid -- for the time you're locked up by the non-compete. Funny thing, though, is much of this advice could really be characterized as for employers -- keeping geography and span reasonable only serve to make the covenant enforceable. If the duration and geographic limits are unreasonable, the covenant won't hold up in court and the onus is on the employer to enforce it -- if the employee is a "lower level lieutenant" or "line worker" (the article's language), is the employer really going to invest the money it would take to enforce the non-compete? (Perhaps, if only to make an example of the employee). But, other than highly compensated employees, my impression is that the purpose of a non-compete is less about its actual enforcement and more about its in terrorem effect.
[Meredith R. Miller]
Thursday, February 14, 2008
Last year, on Valentine's Day, this Blog appropriately recognized the existence of "Love Contracts." Unfortunately, due to the author's preference to wait until commercial television shows appear on DVD so that he can watch them without commercial interruption, he was unaware that the topic had already been treated in the American sitcom, "The Office." This blog has little to add to the insights one can derive from that show pertaining to love and contracts.
In the relevant episode, Michael Scott (Steve Carrell) and his supervisor, Jan Levinson (Melora Hardin), decide to go public with their sexual relationship. In order to protect herself and the Dunder Mifflin paper company, Jan presents Michael with a document pursuant to which he agrees not to sue the company for sexual harassment in the event of an adverse employment decision. Michael refers to the document as a "love contract." Jan objects, but I think Michael's got it right for once.
And isn't it lovely that the writers' strike has ended so that we can see what will come next for the happy couple? Now that's what a call a thoughtful Valentine's Day present.
Sunday, January 27, 2008
When it comes to executive compensation, scholars tend to fall into two camps. Some defend current levels of executive compensation as the product of a market. Simply put, highly skilled executives negotiate for very rich compensation packages because of the value they bring to the companies that they lead and because they would not agree to take on the risk and responsibility of such leadership if they were not appropriately compensated. Others (and I am in this camp) point out that executive compensation packages are not really the product of arms-length transactions since executives negotiate their salaries with boards of directors that consist largely of other executives who want to hire good people but also want executive compensation to be generous.
My reading of reports on the Delphi case suggests what would happen if executive pay were indeed the product of a negotiation involving an entity committed to protecting the interests of corporate constituencies other than management. Last week, in approving Delphi's reorganization plan, Bankruptcy Judge Robert D. Drain trimmed Delphi's proposed executive incentive pay from $87 million to $16.5 million, as reported here and here. Judge Drain questioned the compensation schemes because they were challenged by representatives from two unions that in turn represented Delphi workers who had accepted cuts in their own compensation packages in order to pave the way for reorganization. Under questioning from Judge Drain, Delphi's executive compensation consultant conceded that the approach he recommended was "novel," "rare," and "not the norm," according to Gretchen Morgenson's report in The New York Times.
I merely suggest that when parties reach an agreement for $87 million in compensation but then agree to $16.5 million in compensation under pressure from a judge, the original agreement is not the product of an arms-length negotiation. Would you be willing to do your job for less than 20% of your current salary? Perhaps Delphi has entered into some side agreement to provide additional compensation to executives in years to come, but if that is not the case, the Delphi reorganization plan seems like strong evidence of extraordinary elasticity in the market for executive services.
Wednesday, February 14, 2007
Contracts are all about promoting mutually beneficial exchanges. And it turns out office romances can also fall into that category. National Public Radio reports that companies may benefit from facilitating such romances. Romantically involved employees are happy, productive, loyal employees (once they get over the early part of the relationship, which apparently involves extra-long lunch breaks, pining, wool-gathering and other negative externalities associated with employees thinking about something other than the bottoom line). As Southwest Airlines has discovered, two romantically-connected employees can share information about the company and become more than the sum of their parts. As of 2002, Southwest employed more than 1000 married couples.
In order to protect themselves from sexual harassment suits in connection with such romances, companies are adopting so-called "love contracts." Love Contracts (also called Relationship Contracts) are apparently especially common in the entertainment industry. They permit employees to disclose their office romances while also shielding employers from liability. A sample form Relationship Contract can be found here.
What a lovely gift to get that special someone this Valentine's Day!
Tuesday, October 24, 2006
In a 72-page opinion, Justice Ramos of the New York Supreme Court's Commercial Division, denied Richard Grasso's motions to dismiss claims broght against him by the State of New York and granted motions dismissing Mr. Grasso's counterclaims. The full opinion can be found on the Commercial Division's website (Index No. 401620/2004, Motion No. 28). According to press reports, the ruling will require Grasso to repay up to $100 million of a $140 million payment he received in 2003 as compensation for his services as CEO and Chairman of the Board of the New York Stock Exchange.
Grasso brought a counterclaim for breach of contract, alleging that he was entitled to $6.2 million in benefits because the NYSE terminated him without cause in 2003. Justice Ramos dismissed the counterclaim, even assuming that any such claim had not been waived when Grasso voluntarily waived entitlement to benefits beyond the $140 million already paid, on the ground that Grasso's employment agreement provided for termination benefits only upon written notice of termination and no such written notice was provided.
Justice Ramos conceded that the result was harsh:
Though harsh, the Court is compelled to hold that without a written ntoice, no matter the circumstances, Mr. Grasso must fail because a written notice is required by all of the contracts he signed (Ramos Oct. 18 2006 Op. at 18).
Still, he viewed his ruling as compelled by prior precedent and by Section 15-301(4) of New York's General Obligations Law.
Stay tuned, as Grasso plans an appeal.
Friday, October 6, 2006
The United Steel Workers announced today that 15,000 members who work at 16 Goodyear plants in the United States and Canada are going on strike today. The union had entered into a three-year agreement with Goodyear that expired in July. Talks apparently broke down over planned plant closings. The union claims that it agreed to the closing of one plant in 2003 and also accepted wage, pension and health care cuts. Given those sacrifices, the union is now unwilling to accept Goodyear's current plan, which reportedly contemplates two more plant closings.
While Goodyear has yet to issue its own press release (stay tuned for updates!), the Houston Chronicle reports that the company characterizes its offer as containing terms to which the union agreed in its contracts with other tire makers. Goodyear intends to "minimize impact" on its customers by relying on non-union plants and salaried workers at its union plants.
[Update: Still no press release from Goodyear on the strike, but follow this link for news reports on this strike gathered by LabourStart.org.]
Tuesday, September 26, 2006
Based on the statute of frauds, a Delaware court recently granted an employer's motion for summary judgment and dismissed a doctor/employee's claim for breach of an oral employment contract.
Dr. Aurigemma sued his employer, a rehabilitation center,
for violation of an alleged oral agreement pursuant to which the doctor alleged he was to
serve as medical director for the employer. The doctor alleged that he entered into an oral agreement on
September 4, 2003, whereby he agreed to serve as medical director for one year
beginning October 1, 2003. The employer
denied any such agreement and contended that, even by the doctor’s own
contention, the contract was not enforceable because the statute of frauds required that it be in writing.
The court held for the employer. The statute of frauds requires that a contract be in writing when it is not capable of being performed in one year. In this case, the doctor’s alleged oral agreement was for exactly one year of employment – but he allegedly entered into the agreement roughly a month before the commencement of his service as medical director under that agreement. The court held:
The general rule regarding the Statute of Frauds can be stated as follows: "An oral contract for a year's services to begin more than one day after the contract is entered into is invalid under that provision of the statute of frauds making invalid an oral contract not to be performed within a year." The time within which such a contract is to be performed is reckoned from the making of the contract, not from the time the performance is to begin." Although this rule of law has never been explicitly expounded in Delaware, it appears to be the widely accepted construction of this particular provision of the Statute of Frauds.
(footnotes omitted). Thus,
the alleged oral agreement came within the statute of frauds, necessitating
that it be reduced to writing.
The court further held that no exception to the statute of frauds applied. The doctor argued that he partially performed the alleged contract to serve as medical director by assuming the duties of acting medical director on September 4, 2003. In response, the employer argued that the partial performance exception is limited to real estate and financial transactions and does not apply to service or employment contracts. Moreover, the employer argued, even though Dr. Aurigemma began to perform as interim medical director, this was not a partial performance of permanent medical director position duties. The court held:
Delaware law is clear that the part performance doctrine does not apply to oral contracts not to be performed within one-year. "It is ... uncontroverted that partial performance of services under an oral contract not to be performed within a year does not remove the contract from the operation of the Statute of Frauds so as to affect the portion of the services not performed." This view has been expressed as the majority view and is supported by case law in many jurisdictions. The purpose of the Statute of Frauds is to prevent frauds that may occur if oral contracts were permitted in certain areas of the law. The Indiana Supreme Court recently penned an excellent recitation of the purpose of the Statute of Frauds in considering an argument identical to that offered here by Dr. Aurigemma. In Coca-Cola
Co.v. Babyback International, Inc., that court said:
This purpose would be undermined if a party's conduct could form the basis for establishing and enforcing a claimed oral agreement not to be performed within one year simply because the same party's conduct arguably provided the only explanation for the agreement. Such an approach would invite persons to concoct and seek enforcement of fictitious contracts on grounds that the existence of an agreement would provide the only possible explanation for such persons' conduct. In contrast to real estate contracts, where evidence of part performance is relatively clear, definite, and substantial, the nature of evidentiary facts potentially asserted to show part performance of an agreement not performable within one year would be vague, subjective, imprecise, and susceptible to fraudulent application.
Aurigemma v. New Castle Care LLC,2006 WL 2441978 (Del.Super. Aug. 22, 2006).
Thursday, June 22, 2006
Today is the eve of the looming deadline for thousands of General Motors workers to decide if they are going to be part of one of the biggest employee buyout programs in corporate history. The offer in an oversimplified nutshell:
All hourly GM workers are eligible for some form of incentive, whether it's a $35,000 retirement bonus or a $140,000 lump-sum buyout. Retirees would get to retain their health care plans, but those who take the buyout would relinquish their pension and health care plans.
Workers must notify GM of their decisions by Friday.
The decision has many GM workers torn -- interesting descriptions of the risks and rewards being weighed by the workers faced with this decision (and they are both financial and psychological) are here and here. (Ironically (or not so ironically), today's news reports that GM's "turnaround" has lead to a good Q2).
So, if you were a long-time GM employee eligible for the $140,000 lump sum payout, would you stay or would you go? It is estimated that 20,000 employees will accept the offer.
[Meredith R. Miller]
Tuesday, May 23, 2006
No one can accurately measure how much value a good CEO adds to a large public company. No one knows how many people there are out there who have the skills and training to run large public companies. No one can accurately tell, even after the fact, whether a particular CEO was good or bad, or merely lucky or unlucky. When you couple this with the fact that the employment relationship is the ultimate relational contract, where the parties are not bargaining at arms' length, it's not surprising that you see people getting paid very large amounts of money. Our colleage Richard Bales over at Workplace Prof Blog has an interesting post about a method companies are using to mask exactly how much money the CEO gets.
Thursday, March 16, 2006
Employees of an Israeli parent company whose division has been spun off by the parent do not automatically become employees of the new company, according to a recent decision by the Israeli Supreme Court.
Rather, the workers can choose to remain employees of the former enterprise. In a fractured decision that resulted in three separate opinions -- none a majority -- the Court appears to have held that the employees' contract is with the parent and cannot be transferred without employee consent. If the parent no longer needs the employees, it can terminate them pursuant to whatever limitations and agreements it had with them previously.
Shoshana Gavish and Avi Ordo of Tel Aviv's S. Horowitz & Co., recount the decision in Do Employees Have The Right to Refuse to be Employed by Another Employer, in The Event of an Enterprise "Changing Hands"?
Monday, December 19, 2005
In Oregon, ORS 653.295 provides that a noncompetition agreement is unenforceable unless certain conditions are met. For example, under the statute, a noncompete is only enforceable if it was signed at the initial time of employment. In a recent case, an Oregon appellate court addressed an employee’s suit to enforce a noncompete -- the employer was attempting to get out of its payment obligations under the noncompete by claiming that the agreement was executed during the course of employment and, therefore, was not enforceable.
Here's what happened:
Plaintiff was hired by defendant in 1973 to work as its chief engineer. In 1996, plaintiff planned to retire and informed defendant of that fact. To induce plaintiff to continue in its employ, defendant offered and plaintiff agreed to a two-year, part-time employment contract "following your retirement on August 3, 1996. The employment contract provided that plaintiff would work up to 300 hours per year at $1,040 per month, and would receive medical benefits equivalent to what he had received as a full-time employee during the two years of the contract and for an additional eight years following. The contract also specified that [plaintiff’s work would no longer include production engineering, field engineering or field service, but would include consulting on design and sales assistance.]
The part-time employment contract was also subject to plaintiff's entering into a noncompetition agreement with defendant. The noncompetition agreement recited that "[plaintiff] intends to retire on August 3, 1996, and [defendant] desires to have an agreement with [plaintiff] not to compete" and provided that defendant would pay plaintiff $30,000 per year for a period of ten years as consideration for the agreement, to begin on August 3, 1996. The noncompetition agreement specified that plaintiff would not directly or indirectly compete or disclose information he learned or obtained while working for defendant that was not already available to the public. In the event of plaintiff's death, payments due under the contract would be made to a person specified by plaintiff, provided that his estate was bound by the terms of the agreement. In 1998, the part-time employment contract was modified by the parties to extend it an additional eight years, until 2006. Under the modification, plaintiff agreed to work up to 200 hours per year for $1,200 per month, with medical benefits to continue throughout the period of the contract and up to eight years following its expiration.
The employer made the payments required under the noncompetition agreement until 2003, when it declared the agreement "void and not enforceable" under ORS 653.295. The employer argued that the noncompete was executed after the employee’s initial employment. The employee sued for breach of contract. The appellate court affirmed the decision of the trial court and enforced the noncompete.
After reviewing the statutory history of the phrase “initial employment,” the court held that:
because plaintiff's new employment relationship with defendant began after he retired and because his employment was as a consultant rather than as a chief engineer, the noncompetition agreement is enforceable under the statute. Here, plaintiff gave notice to defendant that he intended to retire on August 3, 1996. With his retirement on that day, plaintiff's employment relationship as chief engineer with defendant ended. But for the new agreement to employ plaintiff as a consultant, there would have been no employment relationship between them. The subsequent agreement to employ plaintiff in a different capacity as a consultant operated to create a new employment relationship that had not existed before. Under the agreement that employed him as a consultant, plaintiff's job responsibilities and working hours decreased dramatically, resulting in a completely different employment relationship from the one that had existed previously.
The court noted that its reasoning was consistent with “the legislature's intent to protect employees from the coercive effect of employers requiring a noncompetition agreement in the midst of the employment term as a condition of continued employment.” Because the employee intended to retire, the employer “lacked the leverage of a continuing employment relationship that concerned the legislature.”
McGee v. The Coe Manuf. Co. (Or. Ct. App. Dec. 7, 2005).
[Meredith R. Miller]
Thursday, December 15, 2005
I agree that any claim or lawsuit relating to my service with [DiamlerChrysler] or any of its subsidiaries must be filed no more than six (6) months after the date of the employment action that is the subject of the claim or lawsuit. I waive any statute of limitations to the contrary.
In 2001, the company had forced Clark into early retirement as part of a "salaried workforce reduction." He worked his last day on August 31, 2001. On September 8, 2003, Clark filed an action against the company, alleging age discrimination. The trial court applied the shortened 6-month statute of limitations in Clark's employment contract and dismissed the action. The appellate court affirmed. The court rejected Clark's argument that the agreement was an unenforceable contract of adhesion, and rejected his argument that it was unconscionable because Clark had " failed to present any evidence that he had no realistic alternative to employment with [DaimlerChrysler]."
Judge Neff dissented; she would have held that the contract provision was both procedurally and substantively unconscionable.
[Meredith R. Miller]
Tuesday, November 29, 2005
Contractual pre-dispute waivers of jury trials are not effective in California, according to a recent ruling by the state supreme court in Grafton Partners, L.P. v PriceWaterHouseCoopers L.L.P. (August 5, 2005).
Parties can agree in advance to arbitration, said the court, but they cannot agree in advance to have their case tried by a judge instead of a jury. What is striking is that this is not a consumer case, but one between sophisticated business entities. Christopher R. Ball and John M. Grenfell of New York’s Pillsbury Winthrop offer a brief report on the case.