Wednesday, February 23, 2011
In United Automobile, Aerospace, Agricultural Implement Workers of America International Union v. Fortuño, Puerto Rico's labor unions sued its governor in order to challenge Act No. 7, enacted to address a budget crisis through, among other things, layoffs and salary freezes. Plaintiffs challenged this act as an unreasonable and unnecessary -- and thus unconstitutional -- infringement of the unions' collective bargaining agreements. See U.S. Const. art. I, § 10, cl. 1 ("No State shall. . . pass any . . .Law impairing the Obligation of Contracts").
In order to determine whether the Contracts Clause has been violated, courts employ a two-part test, first determining whether the challenged state action causes a substantial impairment of contractual obligations and, if so, determining whether the impairment is reasonable and necessary to serve some government purpose. The court assumed an affirmative answer to the first issue but nonetheless upheld the District Court's dismissal of the claim on the ground that plaintiffs had not adequately pled that the Act was not reasonable or necessary.
The First Circuit's finding turned in large part on its determination that plaintiffs bear the burden of establishing that the challenged legislation is not reasonable or necessary, despite clear law that courts need not defer to legislative findings on the subject when the government is the beneficiary of the challenged contract modification. The issue appears to be one of first impression for the First Circuit, although the court acknowledged that both it and the Supreme Court had previously used language that might be construed as placing the burden on the state. The Sixth and Ninth Circuits place the burden on the state; the Second Circuit places the burden on plaintiffs.
Having determined that plaintiffs have the burden, the court set out a multi-factor test for determining when state action that impairs contractual relations is reasonable and necessary. The court's application of this multi-factor test is complicated, but the upshot of it seems to be a severely heightened pleading standard, suggesting that one would have to hire economic experts and crunch some numbers in order to meet the burden and survive a motion to dismiss.
NB: In describing Act No. 7, the opinion indulges in a classic misuse of the word "plethora," viz:
Finally, Phase III temporarily suspended, for a period of two years, a plethora of statutory, contractual, and other provisions governing the conditions of employment for the remaining affected public employees.
Please don't make us tell you again. "Plethora" means "an unhealthy excess." It does not mean "a whole bunch."
Monday, February 7, 2011
Last week, we brought you news of a stand-off between the Transportation Security Administration and Congress over whether or not airports should have complete freedom to choose to hire private screeners. Over the weekend, courtesy of The New York Times, we learned of more breaking TSA news. According to the Times, TSA director, John Pistole, has agreed to allow a union to bargain on behalf of the working conditions of TSA employees.
But many traditional areas of collective bargaining will be off limits, and the TSA employees cannot strike. Although TSA employees already have the right to join a union, those unions can only represent TSA employees on individual issues; they are not currently authorized to represent employees for the purposes of collective bargaining.
Democrats applaud Mr. Pistole's decision; Republicans decry it, calling it a gift from the Obama Administration to organized labor. The decision may in part be prompted by surveys suggesting low morale among TSA workers. The hope is that collective bargaining can help with morale. As we indicated last week, private screeners' compensation packages must be equivalent to those of federal employees. Does this mean that, if TSA employees decide to join a union, that union will also effectively represent the interests of private screeners?
Wednesday, January 12, 2011
Balletomanes throughout the Great Flyover let out a collective "Hot Diggety!" when we learned that the New York City Ballet was to create a touring company so that the unwashed masses can soon be awash in the creations of George Balanchine and Jerome Robbins. Alas, there is trouble in paradise. Who'da thunk there could be tension or conflict within a dance company? Not Natalie Portman, that's for sure!
As Crain's New York reports here, the union that represents the dancers contends that the plan to create a touring company that does not include the entire company violates the dancers' contracts. The plan requires the union's consent, the dancers claim, and the NYCB did not get it. In fact, the union claims that it was not even consulted before the NYCB announced its plans to create a touring company.
If I could, I would now include a video of the NYCB performing, but they are very careful not to let any of their performances make it onto YouTube, so we'll have to make due with with this video of the San Francisco Ballet performing Balanchine's "Serenade"
I have to add that, although the San Francisco ballet is absolutely fabulous, this video does not come close to capturing the emotional punch that "Serenade" packs. You have to see it live and hopefully, once this little squabble is put behind us, audiences throughout the country will be able to do so.
Thursday, January 6, 2011
As many readers of this blog already know, many of us are currently in San Francisco attending the annual meeting of our bricks and mortar mother ship, the Association of American Law Schools. That meeting has been the subject of some controversy this year, as its official home is San Francisco's Hilton Union Square Hotel, which has been the subject of a union-organized boycott for over a year now.
Unfortunately, this is not the sort of situation that lends itself to neutrality. The workers are encouraging consumers to boycott the affected hotels rather than striking. Consumers thus choose whether to side with management or with the union by booking at the Hilton or booking elsewhere. And the union faces a challenge because without a strike and picket lines, boycotted hotels look pretty much like other hotels. You would not know when you walked by or entered the hotel that it is the subject of a labor dispute. Information about the boycott can be found here.
The AALS is caught in the middle, as it made its contractual commitment to the Hilton long before the boycott began and apparently could not back out without incurring very high costs. The AALS's leadership set forth their reasoning for not cancelling or relocating here. Subsequently, the vast majority of section organizers determined that their sessions will be held elsewhere, including two very exciting sessions organized by the Contracts section, as detailed in Keith's post below. I believe that our other regular bloggers will be in attendance, and we would all welcome the opportunity to meet with our readers and discuss ways to improve the blog.
Tuesday, November 17, 2009
I was amused to come across this 19th-century account of how "refined" people concluded contracts in the 19th century. It comes from Little Dorrit, by Charles Dickens (left). The exchange is between William Dorrit, recently released from the debtors prison and now (suddenly and rather mysteriously) a wealthy man, and a Mrs. General, whom he is contemplating as an agent for the cultivation of his daughters' manners -- or mannerisms.
Tuesday, October 20, 2009
The New York Times reports that the Sotheby's auction house has refused to provide government regulators with information on bonuses paid to Sotheby's executives. Sotheby's justifies this refusal by pointing out that if that information were to become public, its arch-rival Christie's, could use it to lure executives away from Sotheby's by offering still more lucrative compensation. In correspondence with the SEC, posted here, Sotheby's pointed out that its "chief competitor" -- i.e., Christie's -- is a private corporation not subject to disclosure rules.
This news fascinates me for three reasons:
1. Sotheby's and Christie's are undoubtedly at the top of the heap in the art dealing industry. Based on my circle of acquaintances, which includes many unemployed or underemployed artists, art curators and art experts, it seems likely to me that Sotheby's and Christie's benefit from being in a buyer's market when it comes to hiring executives. If both companies under-compensated their executives, where would those executives go? And if they left, so what? Couldn't Sotheby's and Christie's easily find highly competent replacements who would work on paint fumes just for the honor of getting those great auction houses on their resumes?
2. But even if I'm wrong about that, if Christie's were really interested in luring executives away from Sotheby's, couldn't they just ask the executives about what sort of compensation package it would take to motivate them to move? Is there a number one rule of Sotheby's Club that you don't talk about Sotheby's Club?
3. In any case, didn't Sotheby's waive its right to whine about the hassles of disclosure when it went public?
Monday, April 6, 2009
This was sent to me by Valpo Law alumnus, Jeffrey Gordon, whose blog can be found here.
Wednesday, April 1, 2009
While the House of Representatives debates whether financial institutions that received TARP money ought to be compelled to adopt "pay for performance" criteria for compensation, the American Federation of Government Employees is urging Congress to jettison the concept when it comes to federal workers. The 600,000-member AFGE says the Department of Defense's pay-for-performance initiative is "misguided" and "wrought with unfairness."
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.