Thursday, June 2, 2022
This is probably not Elon Musk's top concern these days, but last week a California court denied his company's motion to compel arbitration in a case involving a Tesla worker who alleges in her complaint "nightmarish conditions of rampant sexual harassment" at the company. Jessica Barazza alleges that she experienced a "pervasive culture of sexual harassment, which includes a daily barrage of sexist language and behavior, including frequent groping on the factory floor." She claims that she complained to managers and the company human resources department about what she described as a "frat house" environment, but the company failed to protect her.
At this point in the proceedings, Tesla is simply trying to get the case dismissed and sent to arbitration. Ms. Barazza claims that Tesla's arbitration agreement with her is unenforceable due to procedural and substantive unconscionability. The alleged ground for substantive unconscionability is the agreement's one-sidedness. Ms. Barazza must arbitrate its claims against Tesla, but Tesla can sue her. The procedural unconscionability relates to the take-it-or-leave it nature of Ms. Barazza's employment agreement.
According to Bloomberg.com, Alameda County Judge Stephen Kaus agreed with Ms. Barazza, finding that Tesla's arbitration agreement was unconscionable and denying Tesla's motion to compel arbitration. Judge Kaus's key procedural finding was the Telsa did not present Ms. Barazza with the arbitration agreement until she had already quit her previous job in expectation of starting work at Tesla.
New federal legislation bars employers from requiring arbitration of sexual harassment claims, but that law did not apply to claims that arose prior to its enactment.
Tuesday, March 22, 2022
In 2017, Jonathan Waber entered into an employment contract with Howmedica Osteonics Corp. (HOC), the parent corporation of his employer, Stryker Corporation (Stryker). The contract included a one-year non-compete and non-solicitation clause and choice of law and forum-selection clauses requiring adjudication of disputes in New Jersey. Waber is a California resident, and he worked in Palm Springs. Nine months after starting work for Stryker, Waber left to work for Depuy Synthes Sales, Inc. (DePuy). When Stryker threatened legal action, Waber availed himself of California Labor Code § 925, which permits a California employee to avoid forum-selection and choice-of-law clauses that would require adjudication of disputes outside of California.
Depuy and Waber then filed suit in a federal district court in Central California seeking a declaration that the forum-selection and choice-of-law clauses were void under California law and that the non-compete and non-solicitation provisions violated California Business and Professions Code § 16600. Stryker filed a motion to transfer to the District Court of New Jersey under 28 U.S.C. § 1404(a).
The District Court found that the forum-selection clause could not be enforced under California law. It then weighed the appropriate factors under §1404(a) and denied Stryker's motion to transfer.
After Depuy amended its complaint to add HOC as a defendant, the District Court granted partial summary judgment in favor of DePuy and Waber, holding the forum-selection, non-compete and non-solicitation clauses in Waber’s contract void and unenforceable under California law.
On appeal before the Ninth Circuit, HOC argued that the court must transfer the cases to New Jersey under Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988) and Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, 571 U.S. 49(2013). In an argument reminiscent of those deployed to defeat state statutory challenges to arbitration clauses, HOC asserted that only general contracts law, not state statutes directed at forum-selection clauses, can render such clauses invalid. In this case, however, courts have tended to find that state law governs the enforceability of forum-selection clauses, just as it would any other contractual provision.
In Depuy Synthes Sales v. Howmedica Osteonics Corp., a Ninth Circuit panel unanimously found that HOC read Stewart and Atlantic Marine too broadly. Those cases stand for the proposition that, given a valid forum-selection clause, federal law governs a court's decision on a motion to transfer under § 1404(a). Here, however, where there is no valid forum-selection, state law applies and informs the § 1404(a) analysis. Stewart assumed a valid forum-selection clause and never considered the effects of statutes like California's § 925. The District Court undertook the proper § 1404(a) analysis in this case, and so the Ninth Circuit found no grounds for disturbing its grant of summary judgment to the plaintiffs.
H/T to Timothy Murray
Monday, January 31, 2022
Last week, we posted about a healthcare provider, ThedaCare, that persuaded a judge to issue a temporary injunction preventing seven employees from starting work at a rival, Ascension, last Monday. As Madeline Heim reports here, the judge wisely lifted the injunction on Monday, allowing the workers to begin their new employment on Tuesday. On Friday, ThedaCare dropped its suit and went into full spin mode. Everything is now fine again, operating as normal.
Monday, January 10, 2022
Last week, the Supreme Court heard argument in two cases relating to the federal government's attempts to address the COVID-19 pandemic through vaccine mandates/testing and masking requirements in the workplace.
In NFIB v. Department of Labor, Petitioners bring a challenge to an Occupational Safety and Health Association's "Emergency Temporary Standard" (ETS). The ETS applies to workplaces with over 100 employees and requires that affected workers either get vaccinated or wear face masks and submit to weekly COVID testing. The ETS provides for both medical and religious exemptions from any vaccine requirement. While the Fifth Circuit granted petitioners an administrative stay of the ETS, all challenges to the ETS were consolidated and heard by the Sixth Circuit. One footnote from the Sixth Circuit opinion gives you a sense of the range of sensibilities animating these two sister Circuits:
In comparing this case with Alabama Association, the Fifth Circuit wrote, “But health agencies do not make housing policy, and occupational safety administrators do not make health policy.” BST Holdings, 17 F.4th at 619. The Fifth Circuit fails to acknowledge that OSHA stands for the Occupational Safety and Health Administration. See 29 U.S.C. § 651(b) (“The Congress declares it to be its purpose and policy . . . to assure so far as possible every working man and woman in the Nation safe and healthful working conditions . . . .”) (emphasis added).
In a 2-1 panel opinion, the Sixth Circuit refused to enjoin the ETS.
In the second case, Biden v. Missouri, the issue is whether the Supreme Court should uphold an injunction issued by a Missouri District Court blocking a federal rule that requires all health care workers at facilities that participate in Medicare and Medicaid programs to be fully vaccinated against COVID-19 unless they are eligible for a medical or religious exemption.
The cases come to the Court in a highly unusual posture. In the last few terms, the Court has been deciding cases in an expedited manner, without full briefing or oral argument, on what has come to be known as the "shadow docket." Perhaps in light of concerns raised in the legal community about the shadow docket, the Court has adjusted, placing the case on its regular docket, but with an expedited briefing schedule. Based on oral argument, it seems that the Court is poised to strike down the ETS, at the very least.
It bears noting that the Supreme Court itself subjects all people who enter its halls (and it allows very few people in) to a mandatory COVID testing regime. Both the Ohio and the Louisiana Attorney Generals, who are challenging the OSHA regulation, had to attend oral argument remotely, having tested positive for COVID. Justice Sotomayor, who has diabetes, attended remotely, perhaps because she knew that Justice Gorsuch would not wear a mask, despite court rules requiring that everyone in attendance other than the Justices wear N95 masks.
Such rules are wise. The median age on the Court right now is 66. We want the Justices to stay healthy, and it is perfectly reasonable that the Court should adopt rules to protect the Justices' health and safety. It will be most peculiar if the Justices deny the federal government the power to adopt rules that safeguard those of us who cannot control the safety of our own work environments.
The issue may be largely symbolic. Most people are vaccinated. They can still contract and spread the omicron variant, although its effects are likely to be less severe in the vaccinated. But the threat of serious illness or death, and the attendant anxiety accompanying that threat, is not symbolic for millions of workers whom the Court refuses to allow the government to protect. If the Court rules as court-watchers predict it will, it will be making a larger legal and political point. It may not uproot the administrative state root and branch, but it can engage in some selective pruning.
Perhaps, if the Court strikes down the ETS, workers across the nation should adopt Justice Sotomayor's posture and simply opt out. There has been a lot talk on the left about legislative action to temper the power of the Supreme Court. That's a dangerous game if plainly animated by partisan purposes. I have voiced my criticisms of Mark Tushnet’s version of “constitutional hardball.” But a genuine popular uprising in response to an overreaching Supreme Court decision can send a message strong enough to prompt bipartisan legislative action. For once, the left would have the intransigent Republicans over a barrel. The Court seems to want to own the libs so that it can strike a blow in a culture war. But even relatively unorganized labor can hit the Court and its ideological fellow-travelers where it hurts -- in the economy. A week or two without workers should be enough to get even the Republican base to call upon their legislators to vote yes on a piece of legislation or face consequences as the ballot box. A Court decision striking down a reasonable and necessary health and safety regulation can provide a rare opportunity for the people themselves to bypass failed mechanisms of checks and balances and hold the Court accountable for decisions that are inconsistent with our constitutional design and recklessly endanger American lives.
But who knows? Perhaps none of this will be necessary. The ETS was a response to the delta variant. Omicron poses different challenges, and the ETS may no longer be the right response. Or, the next variant may have be as deadly as delta and as communicable as omicron. The ETS is an emergency, temporary standard. The government needs to have the ability to act expeditiously and flexibly to national health challenges. If the Court does not get out of the way, we can call the loss of the Court's legitimacy another COVID casualty, but it's really a self-inflicted wound.
Tuesday, December 7, 2021
California is generally known as a state that takes a dim view of restrictive employment contracts so I was surprised to learn that a three-judge panel of the California Second District Court of Appeals recently upheld a trial court order enjoining Netflix from soliciting Fox employees.
There were two particularly striking facts about the case. First, the employees that Netflix approached had fixed term written employment agreements. The term of these agreements was initially two years, but gave Fox a “unilateral option” to extend the contracts for additional two-year terms. They also allowed Fox to pursue equitable relief, including an injunction, to prevent breach.
The second notable fact was that the Fox employees were paid substantially below market salaries -- approximately in the 25th percentile for their positions. That’s an “F” grade for salary, Fox! No wonder they wanted to leave.
It sounded as though Fox used some rather un-employee friendly practices, including the inclusion of a “no-shop” clause that prohibited employees from seeking new employment more than 90 days before their Fox employment agreement expired. Fox also told its employees that they could “work for Fox (and no one else) through the term of their agreements” and sent employees and prospective employers cease and desist letters. Fox, by contrast, had a contract payout policy where it could terminate employees prior to the end of their fixed term employment agreements. The company also exercised their bargaining power and “frequently offered employees new fixed-term agreements while they had significant time remaining on their existing contracts” and “made raises and promotions contingent on signing a fixed-term agreement.” According to Netflix, “at least 127 Fox employees had entered into sequential fixed-term contracts that, together, provided an employment term that was longer than seven years.”
Fox sued Netflix alleging unfair competition and tortious interference with contracts and sought compensatory and punitive damages and a permanent injunction. Netflix responded that Fox’s fixed term agreements were void as against public policy and that they were unconscionable.
The court sided with Fox, finding that “the undisputed evidence” showed that it intentionally interfered with the agreements of the Fox employees and that the
“undisputed evidence also showed that both employees’ salaries from Fox were below market, at least for most of the years of the employees’ employment with Fox, and that Netflix specifically targeted both of them, offering to double their salary and to defend and indemnify them against any claims brought by Fox.”
In other words, Netflix tried to hire Fox's underpaid employees by offering fair compensation but the court wouldn't let them.
To all this, I say - Are you kidding me, California Second District Court of Appeals?
Hopefully, Netflix will appeal. Better still, maybe the state legislature will pass a law prohibiting some of Fox’s nasty employment practices, such as the no-shop for 90 days provision.
Monday, November 1, 2021
As regular readers know, we here at the blog often fret about arbitration clauses because they appear most often in adhesive contracts (those offered on a take-it-or-leave-it basis) where the adherent lacks bargaining power such as wrap, consumer, and employment contracts. In the wake of #MeToo, a few states such as California and New Jersey, passed legislation banning forced arbitration for sexual harassment claims. However, these laws have been questioned as running afoul of the FAA. There is a bipartisan bill that was introduced in July but who knows how long that might take to become law given how busy those folks are over in D.C. with other matters. Fortunately, in some cases, workers have themselves sought to assert some bargaining power after contract execution, by voicing their discontent to management with their terms. On rare occasions, it even works. Last week, Activision Blizzard’s CEO Bobby Kotick announced in a letter that the company would waive arbitration for sexual harassment and discrimination claims. Presumably, this means that they would not require employees who signed contracts containing forced arbitration clauses to submit to arbitration if they brought a sexual harassment or discrimination claim. It doesn’t say whether the arbitration clauses would remain in their employment contracts, however, for new employees. Also, since a waiver may be retracted, there is a possibility that the company could reinstate the policy, but given the backlash that would cause, it seems unlikely (as of now but who knows). In any event, it’s a start and an indication that as difficult as it may be to harness the power of the collective, when efforts to mobilize are made, they can be quite effective.
Monday, September 20, 2021
It is difficult to assert an affirmative defense of economic duress under New York law. The party alleging economic duress has to show a wrongful threat and not merely point to his own financial hardship. The wrongful threat must be some threatening conduct that is not within the other party's legal rights. But in Herrnson v. Hoffman, Judge Oetkin of the District Court for the Southern District of New York found that plaintiff had alleged sufficient facts to survive a motion that the court treated as one for summary judgment.
Pro se plaintiff Samuel Herrnson alleges that defendant Mark Hoffman gave Herrnson a check for $16,000. Hoffman boasted of his wealth and allegedly gave Herrnson the money to assist the latter in a rent dispute he was having with his landlord. Hoffman allegedly told Herrnson that he wanted him to "view Hoffman Management as the place to be for the remainder of his career." Herrnson alleges that Hoffman wrote "loved" on the memo line of the check (he may have written "loan"). Herrnson deposited the money in an escrow account, anticipating litigation with his landlord.
Two months later, Hofmann and his co-defendants terminated Herrnson. Kinda gives Hoffman's statement "the place to be for the remainder of [your] career" a different cast. It's reminiscent of the Delphic Oracle's reply to Croesus: "If Croesus goes to war, he will destroy a great empire." In any case, Hoffman called Herrnson's escrow manager and had the funds frozen, telling the escrow manager that the $16,000 check was a loan, conditional on Herrnson's continued employment. As that employment had terminated, the loan was being called in.
Herrnson's narrative, accepted as true at this stage in the proceedings, was that Hofmann knew that Herrnson was contemplating an ADEA claim against Hofmann and his co-defendants, or similar claims arising under state law. Hofmann mischaracterized a gift as a loan in an attempt to strong-arm Herrnson into dropping his claim. Hofmann made Herrnson sign a general release in order to have the funds released.
Judge Oetkin was having none of it at the summary judgement stage. If Herrnson's narrative is accurate, he received nothing from the release, other than funds that had already been given to him. Defendants' motion to dismiss, converted into a motion for summary judgment was denied.
Tuesday, June 29, 2021
As reported in Isaac Chotiner's New Yorker article, Lebron James’s Agent Is Transforming the Business of Basketball, Rich Paul has been changing the way athletes and agents negotiate with teams. Paul, the agent for LeBron James and other N.B.A all-stars, started his agency, Klutch, nine years ago.
Paul and James became friends in 2002 when James -- only seventeen—was expected to be N.B.A.’s No.1 draft pick. When the two first met, Paul was twenty-one and selling vintage jerseys out of his trunk. James took an interest in one of the jerseys, the two struck up a friendship and stayed in touch. They bonded over being Black kids who grew up in the inner city and the difficulties that come with that. That background has given Paul a unique advantage when advising young players with similar experiences growing up. Paul's mother struggled with drug addiction. His father died of cancer while he was in college. He would have finished, he said, because it was important to his father. But after his father died, Paul's business ambitions took over.
Their contractual relationship began the summer of 2003, when James signed with the Cleveland Cavaliers. James began paying Paul a salary of $48,000. According to Chotiner, James regarded the payments as “an investment in what the relationship could become.” A few years later, Paul began working for James then-agent Leon Rose, at Creative Artists Agency (CAA).
Paul left CAA and formed Klutch Sports Group in 2010 after the controversial announcement made by James on “The Decision” —an ESPN live broadcast—in which he declared he was leaving the Cavaliers. James declared “I’m going to take my talents to South Beach and join the Miami Heat.” The press took a very dim view of "The Decision," but James has no regrets (or will admit to none), and his move from Cleveland to Miami became the model for later moves by star players who want to dictate where they play and with whom they play.
Paul began to develop powerful influence in the N.B.A with James as his star client. They have become associated with “player empowerment.” Player empowerment is the influence that athletes wield as they change teams and build new fan bases. The argument in favor of player empowerment is that too much control has been in the hands of teams who can trade a player on a whim. Players should have some say in where they work and live. This philosophy allows the league’s best athletes to have the most leverage because they bring in the fans, jersey sales, and general revenue. Paul believes players should have more power over who and where they sign with.
The dynamic between the league, athletes, and player empowerment, is intertwined with race. Historically, basketball—a majority Black sport—has always been run by white owners. As players have become increasingly more outspoken about politics, the league has had to follow suit, like embracing the Black Lives Matter movement.
The dynamic in NBA player contracts has certainly changed, at least at the top of the NBA food chain. The game used to be that owners would lock in young players to multi-year contracts. If the players underperformed or became injury-prone, the owners retained the ability to trade them. If the players exceeded expectations, they were systematically underpaid until their contract came up for re-negotiation. Sorry Scottie Pippen. Now, the star players can reverse the option. With Paul's help, they star prospects can now negotiate generous contracts but retain some contractual flexibility to move to different teams, and the league and the owners seem relatively powerless to prevent them from doing so.
Critics of player empowerment say it has put too much power in the hands of players. Bomani Jones, a sports journalist for ESPN state that player empowerment is a catchall for the fact that the league has done a terrible job empowering team, and that the N.B.A. has a problem with real estate; they have teams in places where young Black men do not want to live.
Although Paul is proud and willing to fight for his clients, he struggles with the impression that he is constantly battling with teams. He said that perception is all wrong. “What I am focused on was how to educate the athletes. It’s one thing to be a black man in America it’s a totally different thing to be a black athlete.”
For Black athletes, Paul explained, the sudden wealth of an NBA contract comes with a ‘black tax.’ Black tax is the difference in experience black athletes face compared to that of white athletes. For some Black athletes, their number of dependents is higher, their education may be lower, their financial literacy lower, and their family infrastructure is lesser. Paul and others at Klutch say they see their job not only as making money for players, but also teaching them how to spend it. Furthermore, family members of young athletes historically have only seen White men in a position of agent or head coach, so that is who they tend to seek out and listen to. It is difficult for Paul to represent White athletes because they do not seek him out and they do not expect or trust Black agents.
Klutch became known for driving hard bargains, especially for James. Paul's reputation was cemented when James joined the Lakers in 2018. The following year, Paul pressured New Orleans Pelicans to trade Anthony Davis to the Lakers—which cemented the roster that enabled the Lakers to win the NBA championship in 2020. Paul's strategy has aggressive: he let it be known David was demanding a trade and that the he really wanted to be traded to the Lakers. Davis's value to the Pelicans dipped precipitously. He didn't want to play for the team and he didn't want to risk injury. Paul effectively called the bluff of the owners. They disapproved of the tactics, but Paul forced them to recognize the market power their star players wield. The N.B.A. fined Davis fifty thousand dollars for the trade demand. Why even bother?
Paul’s success has led to debate about what it takes to be a good agent. Paul cannot match his rivals in formal education. Most other agents are lawyers or have lawyers. But Paul understands the business, and he understands the psychology of the players, the agents, and the "Euro men in their fifties" who still make the decisions for teams. Now for Paul’s star clients, the job is about finding new ways to wield power, including using the media. In 2018 Paul negotiated an unconventional deal for NBA prospect Darius Bazley. Bazley reneged on a commitment to play for Syracuse University but was later paid $1 million for an internship at new balance. The next year the NCAA announced a new rule: agents could not represent college athletes unless they themselves had a college degree. Then James took to Twitter and dubbed the new regulation #TheRichPaulRule. Within a week the NCAA rescinded the rule.
Chotiner's article provides a behind-the-scenes look at how Paul recruits clients. He recounts a Zoom call between Paul and an NBA-prospect's mother. Paul encourages the young athlete to talk about his teammates and his team mentality, about his enthusiasm for playing defense and being a play-maker rather than just a scorer or showboater. The mother quickly grasps that the strategy is to spout cliches to counteract the prejudices about young Black athletes her son is likely to encounter. But to her, it sounds like forcing her son to repress his personality and bow before these new White masters. Paul is playing the long game. For him, it is not about bowing down to anyone. it's about achieving a balance that enables young stars to rise.
Once players rise to stardom, they have more freedom to speak for themselves. Klutch has athletes speak out on political or social issues. Michael Jordan would not even say whether he preferred classic Coca-Cola or new Coke. James has spoken out on the killing of George Floyd, police brutality, and Georgia’s restrictive voting laws. Paul said that however the players decide to involve themselves is up to them, and that they should not be tone-deaf to things happening around them.
The new model works well for the star players, but does it improve the sport? From my perspective in Oklahoma City, I still hear complaints about Kevin Durant's abandonment of the Thunder. I hear this from White fans, and I suspect that, while the NBA's popularity bridges racial gaps in the U.S., the people buying (unbelievably expensive) seats in stadiums and (unbelievably expensive NBA gear) are mostly White.
I've only been here a year, and with COVID, people aren't thinking much about attending sporting events (other than college football, which never stopped here), but nobody has ever brought up the Thunder in conversation with me since I arrived. I follow basketball a little, but I can't name a single Thunder player. I follow the Bulls, but I know at the start of every season that the Bulls do not have three all-stars, so they will not be in serious competition for the championship. Seems like a doomed model for small-market cities like New Orleans, Oklahoma City, and the New York Knicks.
Still, it seems preferable to baseball contracts where, for some reason, owners lock themselves in to multi-year contracts valued in the hundreds of millions of dollars with players who are nearing their peaks and will be paid tens of millions late in their careers. Such older players often are of limited value to the club, often relegated to the roll of designated hitter. I wonder whether, for that reason, the average age on American League teams is a bit higher than on National League teams. On the one hand, perhaps it is nice that these players get to enjoy the riches denied them in their primes. On the other hand, it must frustrate elite athletes to compete and under-perform. It also hurts their teams, because salary caps prevent baseball teams with older, expensive players from trading for top players still in their prime.
Thanks to ContractsProf Blog Intern, Alyssa Cross, for her research assistance!
Friday, May 28, 2021
The American Association of University Professors (AAUP) issues a Special Report, Covid 19 and Academic Governance. The news is not good. We law professors had a rough ride after 2008's Great Recession, but most law schools were able to ride out the storm and most law schools are now steering towards calmer waters. Meanwhile, smaller colleges and universities are taking on a lot a water as a result of the pandemic, and the report sadly evidences that contracts and tenure do little to protect faculty when educational institutions founder.
The title of this post is a quotation from a university administrator, allegedly in the service of "disaster capitalism." That is, some university administrations may have used the pandemic as an excuse to eliminate programs and faculty that were not carrying their weight in terms of revenue generation. Saying the quiet part loud, academic administrators welcomed the opportunity created by the pandemic. They invoked "act of God" provisions to close departments and terminate tenured faculty members, and they tossed aside existing faculty handbooks, replacing them with new ones written by administrators with limited faculty input. The result may be a permanent adjustment of university governance that will make it -- wholly unsurprisingly -- more resemble corporate governance, with power concentrated in the hands of university administrators, while faculty governance is constrained, especially with respect to financial matters.
The AAUP document is illustrative rather than exhaustive. It reports on an investigation into eight institutions. While the investigation was ongoing, the AAUP was inundated with reports of similar developments at other institutions, but the report remains focused on eight: Canisius College (NY), Illinois Wesleyan, Keuka College (NY), Marian University (WI), Medaille College (NY), National University (CA), University of Akron, and Wittenberg University (OH).
The report makes for sobering reading. There seems to be something of a playbook that administrations follow. Faculty as a whole respond rather timidly, voicing their objections but ultimately acquiescing as their colleagues agree to severance or early retirement. They have little choice, as courts tend to back administrations, who can rely on "financial exigency" or "act of God" provisions in faculty handbooks, and tenured faculty members have few options if they lose their jobs. The AAUP acknowledges that educational institutions face significant financial challenges, and the report does not suggest that there is an alternative to cutting programs and terminating tenure lines. Rather, it admonishes these institutions for failing to follow AAUP procedures and guidelines for doing so with the involvement of and input from faculty.
The AAUP tacitly acknowledges that it has a problem. According to the report Kenneth Macur of Medaille College wrote to his faculty on April 15th, “I believe that this is an opportunity to do more than just tinker around the edges. We need to be bold and decisive . . . . A new model is the future of higher education.” That new model does not include the tenure system as we currently know it.
The report indicates that AAUP reached out to Dr. Macur seeking an interview.
In his May 12 response, the president declined a request for an interview by the investigating committee, submitting instead a three-page statement, which claimed that Medaille “has no affiliation or relationship with the AAUP, does not have a faculty chapter of the AAUP, and does not have any faculty listed as members on the AAUP’s website. The AAUP does not govern, accredit, or have any authority over Medaille College.” It is symptomatic of the current state of affairs in American higher education, we believe, that a college president would declare his intention to dismantle tenure at his institution to the Wall Street Journal but refuse to participate in an investigation conducted by the AAUP.
In such circumstances, all AAUP can do is name and shame, but it is not clear if that approach will be effective. One would hope that being the focus of an AAUP report would serve a disciplinary function on such institutions, but they seem willing to take the risk, and most likely consequence of negative publicity would be declining enrollments and more cuts to faculty and staff.
Wednesday, March 10, 2021
As Colleen Flaherty writes here in Inside Higher Education, John Carroll University, like many small colleges and universities, is having a hard time financially. It has already terminated two tenured professors and eliminated its Art Department. Further cuts would ordinarily require a finding of financial exigency.
But John Carroll gets words to mean whatever it chooses them to mean. Financial exigency now means a projected budget shortfall of six percent or more and a cloudy future. This is termed a "budgetary hardship." You might think that the question is how can words mean so many different things, to which John Carroll (now Humpty Dumpty) responds, "The question is which is to be master -- that's all."
Humpty Dumpty University's administration has proclaimed a new policy permitting termination of tenured faculty upon a determination of a budgetary hardship, and it has issued a new faculty handbook that eliminates a right of appeal from such terminations. The old handbook, Humpty Dumpty says, was outdated. The new policies, on the other hand, "prioritize the retention of tenured positions and the preservation of academic freedom, to which the board is fully committed.”
Faculty members are impressed. They had no idea that words like "tenure" and "academic freedom" were consistent with policies that permit the non-appealable termination of full-time faculty members based on unilateral declarations of economic hardship.
"That's a great deal to make words mean so many different things," the faculty ventured in a thoughtful tone.
"When I make a word do a lot of work like that," said Humpty Dumpty, "I always pay it extra. Ah, you should see 'em come round me of a Saturday night," Humpty Dumpty went on, wagging his head gravely from side to side, "for to get their wages, you know."
Well, at least somebody is getting paid.
Friday, January 15, 2021
According to this article in the L.A. Times, John Eastman, who has recently represented the President in connection with numerous lawsuits challenging election results, has agreed to resign his position as a professor of law at Chapman University. Professor Eastman joined Rudy Giuliani at the "Save America" Rally on January 6th. The L.A. Times reports that, at that rally, he made unsubstantiated claims of voter fraud in connection with the 2020 Presidential election.
More than 160 faculty members called for the University to take action, but Chapman's President Daniele Struppa refused, citing the limitations of his powers as university president and the important principles of academic freedom and contractual rights. President Struppa's statement is worth quoting at length.
I am not the Emperor of Chapman University, nor I am the Supreme Leader of Chapman University. I am the President of the university, and as such, I am bound by laws and processes that are clearly spelled out in our Faculty Manual. The Faculty Manual, despite its common name, is actually a contractually binding document that faculty, administration, and Trustees have agreed upon. This document contains the rules that determine how faculty are hired, and how they are disciplined, up to and including termination. The documents spell out cases under which such actions can be taken, and what process must be followed. The process includes a prominent role for the Faculty Personnel Committee and affords the faculty under discipline a process, and the right to grieve the decision in multiple settings.
I do not know anything about President Struppa (pictured), but if this statement is representative of his qualities, he is a very fine university president. I do have some concerns about wearing such a busy tie with a plaid sports jacket, but I would not question his leadership on that basis.
Happily, Chapman University and Professor Eastman were able to come to an agreement. He voluntarily resigned, and neither party will pursue legal action against the other. Some may think that Professor Eastman was strong-armed into forfeiting his position and some part of his academic freedom and freedom of expression. I choose to see this episode as one in which contract law and contractual negotiation play a starring role and put in a strong showing.
Monday, December 7, 2020
Over at Jotwell, Miriam Cherry has a post up about Jonathan Harris's very timely piece, Unconscionability in Contracting for Worker Training, 72 Ala. L. Rev. __ (forthcoming, 2021), available at SSRN).
In the article, Harris (pictured) looks at various training schemes that purport to assist new workers or job applicants as they enter the work force or transition to new work. Specifically, Harris discusses two new developments. First, training repayment agreements (TRA), require employees to reimburse the employer for outside trainings if the employee quits or is fired before a fixed period of time elapses. Secondm Income Sharing Agreements (ISAs), which require a trainee to pay a percentage of future income in exchange for the ability to participate in a computer coding course or program. The possibilities for exploitation are palpable. Read more over at Jotwell, or download the article. It's what all the cool kids are reading.
Friday, December 4, 2020
Contracts profs around the world are trying to de-mystify contracts and clarify their terms by creating graphic contracts analogous to graphic novels. This video explains the strategy (but you will have to click on it and go to YouTube to get it view it).
Thanks to J. Kim Wright for the link.
Tuesday, December 1, 2020
Both of these stories come from Bloomberg Law.
The first is a new podcast series from Bloomberg called Uncommon Law. Bloomberg does not seem quite sure of how it wants to characterize this occasional format, alternating between calling it a "podcast" and a "audio documentary." In any case, the episode from earlier this month on "virus exclusions" in insurance policies is a new twist on a theme we have explored in other posts here, here, and here.
Here is Bloomberg's summary of its podcast/audio documentary:
Businesses all across the country have been shutdown for days, weeks, or even months at a time due to the coronavirus pandemic. Many assumed their insurance policies would help them defray some of their lost revenue. But those assumptions were, by and large, wrong.
In this special audio documentary, “Business, Interrupted” we look at why insurers denied the claims of their shuttered policyholders. A team of reporters from Bloomberg Law and Bloomberg Tax look into the so-called “virus exclusion” clauses, that insurers quietly inserted into many of their business policies, and how those clauses are now creating strife between insurers and businesses.
We hear from several small business owners across the country about the shock they felt when their pandemic claims were denied, in some cases within hours after filing. We also hear from regulators and lawmakers about whether they will force insurers to retroactively honor these claims, a possibility that insurers view as an existential threat to their entire industry.
A second Bloomberg report summarizes developments in the gig economy, ranging from a review of court cases in which gig workers try to get courts to force employers recognize their status as employees to a discussion of California's Proposition 22 and a possible intervention by the U.S. Department of Labor.
Thursday, November 19, 2020
Yesterday, we linked to and summarized some of the findings of a New Yorker article by Eyal Press, highlighting Eugene Scalia's Labor Department's laissez faire approach to regulation of health and safety violations during the COVID pandemic.
Today, we noticed this related article from the Huffington Post by Sanjana Karanth(h/t Ben Davis). The article reports on a wrongful-death lawsuit filed by the family of a worker at a Tyson plant in Iowa who died from COVID, allegedly after exposure at work. The plaintiff was one of five workers from the same factory who died from COVID; about 1000 employees -- over a third of the workforce -- were infected. The complaint alleges that managers at the plant set up a betting pool in which managers would try to guess how many workers would become infected. The complaint also alleges that the plant manager called COVID "a glorified flu" and instructed workers to show up, even if they had symptoms.
And now the link to yesterday's post: here is the closing paragraph of the article:
The Occupational Safety and Health Administration and the Centers for Disease Control and Prevention issued guidance at the beginning of the pandemic recommending that meatpacking companies put up physical barriers, enforce social distancing and install more hand-sanitizing stations, among other steps. But the guidance is not mandatory and is mostly unenforceable.
Wednesday, November 18, 2020
We have posted in the past (as part of our virtual symposium) about the extent to which workers in essential positions have been left without legal recourse as their employers fail to take adequate precautions to protect them from COVID infection. Rachel Arnow-Richman covered the topic here and here. Jeff Sovern and Ben Davis posted about the possibility that third parties who patronize businesses can be without legal recourse if they contract COVID due to the business's lack of precaution.
One response to businesses failing to take reasonable precautions might be that individual suits seeking to hold employers liable for workplace infection are inefficient and are unlikely to succeed because the odds are stacked against lone employees who sue large corporations. The better response would be government regulation and sanction of negligent employers under the authority of the Occupational Safety and Health Administration (OSHA).
Unfortunately, according to this New Yorker article by Eyal Press, the Trump adminsitration's Labor Secretary, Eugene Scalia pictured), has no interest in investigating companies whose workers are exposed to COVID at work. According to the article, like many other Trump appointees, Mr. Scalia previously made a career of opposing the policies of the agency he now heads. Unlike some of the others, he is competent, experienced, and an expert in the legal issues that his agency addresses. His take on those legal issues is highly anti-regulatory. Some highlights:
- In response to over 10,000 complaints regarding OSHA violations since the pandemic began, the Department of Labor (the Department) has issued a grand total of two citations;
- On April 10th, the Department issued a memo relieving employers of the duty to keep records about "work-related" infections;
- That memo drew protests and so withdrawn, but it was replaced this Fall with one saying that employers do not have to report COVID-19 hospitalizations unless they occur within twenty-four hours of a workplace exposure (which almost never happens); and
- The Department now has the fewest inspectors it has had in 45 years, and 42% of its leadership positions are vacant.
The article is long but highly recommended.
Thursday, October 8, 2020
Here's something you don't see every day: In Warfield v. Icon Advisors, the federal District Court for the Western District of North Carolina struck down an arbitral award finding that the arbitration panel had, in part, exceeded its authority.
Plaintiff James Warfield was a mutual funds wholesaler employed at-will by the defendant. After six months, ICON terminated Warfield. Warfield was a broker regulated by the Financial Industry Regulatory Authority (FINRA), and when he was terminated, ICON provided grounds for his termination on a Form U5 filed with FINRA. Warfield brought an arbitration, alleging that the U5 was false and defamatory, and also alleging that ICON engaged in deceptive trade practices. He sought $5 million in relief.
The arbitration panel awarded him about $1.2 million, finding that he had been unjustly terminated without just cause. Citing to § 10(a)(4) of the Federal Arbitration Act, the District Court vacated the award in part, finding that the panel exceeded its powers. It did so because it recognized a cause of action for wrongful termination without cause, and no such cause of action exists under North Carolina law for at-will employees. The court upheld the portion of the arbitral award that directed ICON to expunge allegedly defamatory language from the U5 form.
H/T Charles Calleros
Tuesday, September 15, 2020
Individual Employee Rights and COVID-19
Part II (What we really want to know):
Can faculty be terminated for refusing to teach in person?
Part I of this symposium contribution addressed the general public and private law rules bearing on whether an employer can lawfully terminate an employee who refuses to return to work because of COVID. This Part focuses on a specific example of considerable interest to our community: tenured university faculty members seeking to teach remotely. But first, one brief (and final) digression . . .
I. Unforeseen circumstances
Those who focus primarily on B2B contracts may think that I gave short shrift to the unprecedented nature of a global pandemic in Part I. Much of the commercial world is consumed with the question of whether contractual obligations can be set aside due to catastrophic circumstances. But excuse doctrines are of less significance in the employment context where, under employment at will, the law imagines that parties have no long-term obligations to one another.
In the case of employees with contract rights, however, concepts like impracticability could conceivably be brought to bear. If this were an actual exam question rather than a real-life dilemma, I would expect students to invoke doctrines of excuse. I would also expect them to begin their invocation with two mantras that I force then to incant in class:
Contract liability is strict liability. It does not matter why a party fails to perform, only that the contract terms have not been satisfied. If we were to imagine that the contract clearly obligated the employee to work in person, then her failure to do so is a breach even if she is acting justifiably. The same holds for the employer: if it is contractually obligated to provide a safe work environment, it is liable for its failure to do so despite its inability to fully contain the risks that make the workplace unsafe.
Changed circumstances do not excuse contract performance. Rather, they are the reason we contract in the first place. In entering a contract, parties obtain a degree of security in the face of an uncertain world: whatever happens, the other side is obligated to perform. The tradeoff is that come “hell or highwater,” they must perform too.
Of course, those are baseline principles. There are exceptions, and COVID-19 would appear to be a textbook example. Doctrines like impracticability exist to absolve a party from breach when an event so outside the norm of what either party expected makes performance virtually impossible. A global pandemic surely fits the bill for an unforeseen event – one so extraordinary that neither party can be blamed for failing to anticipate it at the time of drafting.
Whether the employee’s performance is indeed impracticable is a more nuanced question. Coming to work is not physically impossible. Its practicability or impracticability depends on a number of fact-driven considerations ranging from the contact-intensiveness of the work, to the employer’s mitigation efforts, to the employee’s underlying health issues. But such matters need not detain us. At this point I hope students recall the difference between recission and breach. Impracticability generally operates as a shield not a sword, meaning the employee could use the doctrine to relieve herself of any continued commitment to serve the employer. But what the employee wants is either to continue the relationship on her terms (remotely rather than in person) or access the remedies associated with breach of contract. Recission is not the outcome anyone is seeking.
Or maybe it is. If any party is going to make a successful COVID-based impracticability argument, it is likely to be the employer, and not with regard to the safety or feasibility of in-person work. Rather an employer might be inclined to argue that the dire economic fallout from the virus has made it all but impossible to retain the employee for the duration of her contract. This argument may sound eerily familiar to readers whose universities have begun or threatened to lay off faculty pursuant to exigent financial circumstances provisions in their appointment and tenure policies. Such language is the faculty-employment-contract counterpart to a force majeure clause, and the prospect of its deployment is sobering. For present purposes, though, we will stick with the question of remote versus in-person work, rather than the dreaded scenario of no work at all. But word of warning to otherwise job-secure employees seeking to draw on excuse doctrines in the fight to obtain remote work: be careful what you wish for.
II. Are faculty a special case?
And now to the much-awaited question: what are the possible job consequences to faculty who decline to teach in person?
Tenured faculty members are similar to corporate executives. True, they earn less. But they have the equivalent of an individual written contract precluding termination absent specific grounds in the form of the university’s promotion and tenure policy. Unlike individual written contracts, it never ends. An executive at the top of the corporate hierarchy generally has a fixed term of employment. If the employer does not have the grounds or the stomach to terminate her during the life of the contract, it can wait it out and refuse to renew. The same goes for so-called “contract” faculty, whether or not they are on a tenure track. These employees can be terminated upon contract expiration absent any presumption of renewal. Not so with tenured faculty. If the university wishes to terminate a tenured professor for refusing to teach in person, it must establish that her conduct satisfies the narrow and exclusive criteria under which tenure may be stripped for performance-related cause.
In some cases, these causes may be even narrower than the already pro-employee definitions found in the high-level employment contracts of the corporate world. Consider the following publicly posted example from the tenure policy of a large public university in the southeast (that is not my employer):
Cause for termination must directly and substantially affect the fitness of the faculty member to function … in an academic community, or be related to a serious failure of a faculty member to discharge his or her obligations to [the University]. Examples include, but are not limited to, serious professional or personal misconduct, serious failure to perform academic duties in accordance with generally accepted norms, conviction of a serious crime and serious violations of [University] policy.
Just count the number of times the word “serious” appears to qualify the grounds for removal, and you see which way the deck is stacked. It will be extremely difficult for this university to revoke the tenure of a faculty member for refusing to teach in person but still genuinely seeking to fulfill those obligations in a different modality. This is particularly so if the faculty member is still fully performing her other “academic duties” – scholarship and institutional service.
In addition to having exceedingly narrow justifications for removal, university personnel policies on tenure revocation guarantee affected faculty a robust form of internal review. Depending on the type and culture of the institution (public or private, large or small, strong or weak traditions of faculty governance), this process will vary. It may be styled as a disciplinary proceeding or a grievance, it likely involves review by a particular faculty committee or governing body, and it probably concludes with an appeal to the university’s board of regents or trustees. Universities not being known for their institutional efficiency, this process can take a very, very long time. In addition, any failure to comply with the required procedural steps can itself create a breach of contract, potentially giving the professor another bite at the apple.
In sum, even if a university is confident that it has substantive grounds to remove a tenured faculty member, it may lack the ability to execute on it. By the time it dots and crosses every “i” and “t” of its procedures, the pandemic will surely be over. At that point one can imagine a simple resolution under which the university drops its charges and the professor quietly returns to the classroom.
Let us return to the not-so-hypothetical question that began Part I. I end all of my exams with the same instruction: Advise the client. If a colleague who fears both for her safety and her job asks me what to do about institutional pressure to teach in person, I need to provide a coherent response, not the meandering intellectual analysis we subject ourselves to grading (or which I have imposed on you here). This is where the true teaching moment lies: students learn that lawyers do not make decisions, but merely lay out the likely results of different scenarios. Ultimately the client must weigh the strength of her convictions against her tolerance for risk. All things considered, tenured faculty are well positioned to take the risk of refusing to return to in-person work. Most employees -- including many elite workers who enjoy just cause protection -- are not.
Monday, September 14, 2020
Individual Employee Rights and COVID-19
Part I: The Basics
For those fond of mining current events for exam questions, the present moment makes a fitting hypothetical. Consider:
An employee declines to come to work for fear of serious or deadly illness. The employer has attempted to mitigate the risk, but cannot ensure the employee’s safety. The employee asks to perform her job from home, but the employer refuses. What are the parties’ rights and obligations?
Or, to make it acutely personal: If we refuse to teach in person out of a justifiable fear for our health, could we lose our jobs?
Like all COVID-related legal matters (and all law school exam questions), there are no definitive answers only arguments on each side. Unfortunately for most employees, those arguments largely favor the employer. Tenured professors, we will see, are a rare exception.
I. Default rules and public law considerations
A. It all begins with employment at will
Ordinary employees are hired at will. They can be terminated for a good reason, a bad reason, or no reason, as the saying goes. Firing someone for not coming to work would seem like a good reason if one were needed. The employee has a good reason for not showing up too, but sadly that is worth little: a contract requires the assent of both parties, and in the workplace, the employer is usually the party who dictates the terms. The employee’s bargaining power, such as it is, lies in her ability to walk away from the deal. It is true that current working conditions are wildly different from how they were at the start of employment. This distinguishes the current situation from one in which an employee knowingly takes an inherently risky job (such as an infectious disease physician who will be exposed to biohazards). But no matter. In courts’ absurdly formalistic conception, each moment of an at-will employment relationship is treated as a “new” contract. The employer is free to terminate the employee and insist on her acceptance of the new normal in exchange for reemployment. In other words, whatever the agreement was before COVID as to safety, location, work format, and all other conditions of the job, the offer now on the table is for work amidst a global pandemic.
B. The search for an exception
That is the contractual baseline. There are various public law “hooks” that can protect the employee in specific circumstances, even allowing an employee who wishes to stay at home some job-protected paid leave. These include Congress’s temporary expansion of the Family/Medical Leave Act (FMLA); the Occupational Health & Safety Act (OSHA), which protects workers who report dangerous working conditions; and state public policy and whistleblower laws that protect workers who refuse to engage in unlawful behavior at work or object to conduct that creates a public safety risk.
Yet none of these quite do the trick for the employee who wants to work from home. OSHA and other whistleblower-type protections make it illegal for an employer to terminate or otherwise retaliate against a worker for objecting to or reporting unsafe conditions or wrongful behavior. They do not protect a refusal to come to work even if for the same reasons. Congress’ pandemic-related legislation comes closer. Qualifying workers can take partially paid, job-protected leave for a maximum of 12 weeks (just a few weeks shy of a typical law school semester). But these apply only to small employers with fewer than 500 employees, which excludes most universities. Plus, the employee must have a qualifying COVID-related reason for leave, such as the need to quarantine due to exposure, not a general fear of contracting the virus.
In any event, leave from work is not the same as working from home. Employees wishing to perform their job remotely are effectively requesting an accommodation, much like what the Americans with Disabilities Act (ADA) guarantees disabled workers. Indeed, some employees might qualify for ADA protection, such as those who have immune disorders or other conditions that would make contracting COVID especially grave. But employees who are at risk due merely to age are not disabled, nor are accommodations available to employees living with or caring for a family-member who is disabled. Finally, ADA-qualifying employees are entitled to an accommodation, not necessarily the one they want. A court could find that an employer’s implementation of social distancing and sanitization protocols are a reasonable, and consequently sufficient, accommodation for the employee’s disability.
II. Contract-Based Job Security Rights
The questions, and in some cases the results, are different when the employee has some form of contractual job security. Teachers, for instance, regardless of tenure, usually are hired under a written contract for one academic year; top executives, multiple years from the date of hire. Other employees have implied contract rights to job security, meaning that the court treats the relationship as one that can be terminated only for just cause based on the reasonable expectations of the parties despite the absence of a formal agreement. Assuming the parties’ contract does not contain any express terms regarding the employee’s ability to work from home, their rights depend on whether a refusal to work in person constitutes cause for termination. If not, firing the employee is a breach of contract.
A. What is cause to terminate?
With a written contract, the “cause” question is often answered by express language. Some contracts simply state that the employee may be terminated upon just cause, but others contain a definition delineating the precise and exclusive grounds for termination. Failure to show up at work, or what the employer might describe as excessive absenteeism, would seem on its face to be “just cause,” at least in the usual course of things (more on COVID in a moment). But where the contract contains what I refer to as an “enumerated just cause provision,” ordinary cause to terminate usually will not suffice.
For instance, high-level executives often have contracts that define cause to include narrow performance-related grounds such as “incompetence,” “misconduct,” “failure to perform,” or “material breach,” none of which is quite on point for the remote work scenario. The employee is not incompetent (one might say that insistence on working from home demonstrates the opposite). If she is keeping up with work – completing tasks at home, meeting deadlines, interacting with colleagues virtually – then she is not failing to perform, which consequently means she is not in material breach. There is an argument for misconduct: the employer might say it ordered the employee to return to the office and she refused, an act of insubordination. But “misconduct” in this context is generally understood to mean intentionally wrongful behavior or violations of policy: misusing corporate assets, stealing trade secrets, or, of recent note, engaging in sexual harassment. An employer that relies on such language to terminate a worker who is still performing, albeit from home, is on shaky legal ground.
In contrast, employees with implied just-cause contracts or written agreements that do not define the term have less job security. The common law meaning of “cause” in such cases is any reasonable, good faith basis for terminating. Certainly, the employee can argue forcefully that cause is lacking: She is willing and able to perform and her reasons for avoiding the workplace are sound. But the suitability of working from home is a classic area of managerial discretion, and the legal standard, particularly in implied contract cases, is highly deferential to employers. Unless the employee is able to establish that the parties intended “just cause” to have a specialized meaning, neither the soundness – nor, in some jurisdictions, the accuracy – of the employer’s judgment is subject to review. Should the question prove a close one, the burden of proof lies with the employee to demonstrate breach of contract.
B. Wait…which breach came first?
But why begin with cause? As a practical matter it is always termination that triggers a lawsuit, but other aspects of the employer’s behavior bear scrutiny. How can the employer demand that the employee work under conditions that compromise her health? Might not the employer’s failure to provide a safe work environment itself constitute a breach of contract? If so, that could mean that the employee is within her rights to withhold performance altogether, stay at home, and sue for damages.
The answer turns on whether the employer has any contractual duties with regard to safety and whether it has materially breached. The parties’ contract is presumably silent as to COVID, as it is on so many terms of the relationship. Employment agreements, even written ones, are notoriously incomplete. In some unionized workplaces, however, the collective bargaining agreement requires that employers provide a safe work environment. It would not be hard to imply a similar obligation in an individual employment contract based on OSHA’s general duty clause or grounded in the implied duty of good faith.
The question then becomes what constitutes a breach of that obligation, one that is material in the context of the whole agreement. Clearly there is no way to fully eliminate the risk of contracting COVID for employees who physically interact with large groups of people, like teachers in the classroom. The employer that fails to take basic steps (like instituting social distancing and requiring masks) or that flagrantly fails to enforce their rules might be in material breach. But an employer that adopts measures consistent with existing medical protocols, limited though they may be, probably is not. This is especially so if the employee is not being deprived of the “principal benefit” of the contract – namely, her salary.
* * * *
Reader, you have waited patiently for an assessment of your personal employment rights. But the customary law of the blogosphere forbids posts in excess of 1500 words. Please see Part II of this symposium contribution.
Wednesday, August 19, 2020
In a previous post, I blogged about the legal (and particularly, legislative) constraints on private parties to recharacterize legally defined relationships such as calling an employee an independent contractor. In CA, the issue has been heating up and reached a critical point when AB 5, a new law addressing the classification of employees v. independent contractors, went into effect. As I mentioned in that prior post, the California Attorney General Xavier Becerra and the city attorneys of Los Angeles, San Diego, and San Francisco sued Uber and Lyft, arguing that they had misclassified their drivers as independent contractors when they should be employees under AB 5. Last week, a California judge agreed and issued a preliminary injunction compelling the companies to classify their drivers as employees immediately (due to the pandemic, this issue has even greater urgency given have financially stressed many drivers are. Uber and Lyft ridership is also way down). The Verge has the story and a copy of the complaint.
The takeaway is that parties to a contract may allocate their rights and responsibilities but only in areas where they have the authority to do so. Private parties do not have the right to characterize their relationship in a way that doesn’t reflect reality (as defined by statute). Facts matter, even in contracts.