Structuring College Coaches' Employment Agreements: Important Clauses And Issues In Agreements - (Part One)
 
August 1, 2000
 

An institution’s athletics program should be aware of some important clauses, provisions and issues that are normally found in a coaching employment agreement.

Duties and Responsibilities of the Coach

An employment agreement should include a general duties and responsibilities provision. The employment agreement also must include a provision mandating that the coach abide by and comply with NCAA legislation, interpretations of NCAA legislation, intercollegiate athletics conference rules and institutional regulations relating to the conduct and administration of the athletics program. Beyond the general responsibilities and best efforts clause, the employment agreement should list specific responsibilities.

The institution will want, in addition to a list of specific duties, a clause indicating that the coach will perform other duties incident to and consistent with the position of coach as determined by mutual agreement between the institution and the coach. From the institution’s perspective, listing specific duties is advantageous, especially in attempting to enforce the termination provisions for just cause (i.e., failure to perform the duties and responsibilities specifically assigned).

Automatic Renewal or Rollover Provisions

Rollover provisions extend the term of an employment agreement for an additional year if the university is satisfied with the coach’s performance after the completion of each season. Thus, a rollover provision extends an agreement so that the remaining term of the agreement at the commencement of each succeeding season is the same as the original term of the agreement. Rollover provisions have at least four drawbacks to an institution. First, an institution’s notice of a decision not to extend the agreement for the extra year could be considered by courts to be a current breach of the agreement, which immediately entitles the coach to severance pay or some other remedy. To avoid this presumption, the agreement must expressly state the parties’ mutual intention to end the employment relationship at the close of the employment term. Second, rollover provisions are typically poorly drafted. Third, rollover provisions require the institution to give years of notice of its intention to let the agreement expire. Finally, rollover provisions are typically one-sided. While rollover provisions prevent the institution from removing the coach without paying for the balance of the term, agreements containing such provisions tend not to guarantee the institution that the coach will not terminate the agreement and coach at another institution.

Some state-supported institutions are prohibited from entering into agreements and contracts that bind the institution for more than a period of one year. An institution should consult with legal counsel about the existence and applicability of any such law in the institution’s state.

Reassignment Clause

A reassignment clause allows the institution to remove an individual as coach without terminating the employment agreement by assigning the coach to a new title and different duties. Often, such a clause will contain a statement that the coach is not to be assigned to any job that is not consistent with the individual’s education and experience.

If the coach refuses to accept such reassignment, the institution may attempt to terminate the agreement pursuant to the termination provisions. In these situations, the institution must avoid an accusation by the coach that he was constructively discharged by such reassignment. The institution should shift the burden of refusing to accept reassignment to the coach and such refusal to accept reassignment may be a just cause for the institution to terminate the employment agreement and limit the institution’s liability for liquidated damages. However, careful drafting of reassignment clauses must be undertaken to protect the institution. Any language contained in the agreement that gives the coach the apparent right to be in a specified coaching position (i.e., head coach) during the term of the agreement should be avoided. Such language could result in the coach bringing a suit for injunctive relief for the right to continue as head coach for the balance of the term of the contract. The coach also could contend that reassignment is, in legal fact, a constructive discharge, thus, entitling the coach to perform no duties while paid pursuant to the terms of the agreement. The fact that the coach receives the same salary is immaterial because the status associated with the original position may well have been the prime inducement for making the agreement.

Another issue that needs to be defined in any reassignment clause is the compensation that the coach will receive in the newly assigned position, if accepted. For instance, does the coach only receive the guaranteed base salary plus institutional fringe benefits, or does the coach also receive those other compensation perquisites that are normally associated with the particular coaching position.

A reassignment clause has been used by institutions as leverage to buy out the remaining term of the agreement. In such an instance, the institution will reassign the coach. There will be some confusion or conflict with respect to the salary fringe benefits and other compensation perquisites available to the coach by virtue of the reassignment. This will eventually lead to a negotiated settlement between the coach and the institution with the institution using the reassignment clause as leverage in such negotiations.

Compensation Clauses

Compensation clauses address the monetary aspects of a coaching employment agreement. Parties engaged in negotiations often believe that gain to one side translates to a loss to the other side. This causes each side to maintain rigid negotiating postures in order to ensure that their interests are protected. Benefits can be realized by both sides, however, since the success of one party can benefit the other party in some instances. An institution should focus on the beneficial aspects of compensation clauses and objectively analyze the compensation clauses’ true impact upon the agreement.

Normally, the institution is faced with various limitations on the scope of compensation for coaches. A coach’s salary, therefore, must be justified in light of salaries of other coaches and in the interest of preserving the institution’s emphasis upon its academic mission. The employment agreement should also include provisions governing periodic increases in the general base salary during the term of the agreement. Under well-drafted employment agreements, coaches will be entitled to merit increases based upon periodic evaluations. Merit increases based on periodic evaluations will occur on the same basis as evaluations and increases available to other institutional coaches within the coach’s employment classification. The institution may also negotiate with a coach, depending upon the coach’s leverage, a guaranteed minimum base increase per season.

The institution should also consider including in an employment agreement conditional compensation clauses subject to approval of the institution’s budget and appropriations. This clause will normally indicate that payment of compensation as set forth in the agreement is subject to approval of annual operating budgets by the institution’s governing body (i.e., state legislature, board of regents) and the subsequent appropriations of sufficient funds to compensate the coach pursuant to the terms of the agreement.

Fringe Benefits

The coach’s employment agreement should also contain a provision for fringe benefits. The coach normally is entitled to the standard institutional fringe benefits (i.e., group life insurance, health insurance, paid vacation) appropriate to the coach’s institutional employment classification. Furthermore, a provision covering reimbursement for employment-related expenses (i.e., travel and out-of-pocket expenses reasonably incurred in connection with the performance of the coach’s duties) should also be specified in the agreement. The reimbursement provision should be consistent with standard procedures of the institution upon presentation of vouchers or statements itemizing such expenses in reasonable detail. The institution, as additional compensation, may provide the coach with the use of an automobile during the term of the employment agreement. An automobile provision should also contain a periodic auto replacement provision as well as a provision for the use of an institution-provided gasoline credit card. Finally, the institution should provide comprehensive liability insurance and be responsible for all costs of maintenance and repair with respect to the subject automobile.

Other forms of fringe benefits may be offered to the coach depending upon the coach’s contractual leverage. For example, the agreement may grant tuition waivers for the coach’s immediate family members, season and complimentary tickets to each of the institution’s team games including post-season games and tournaments, club memberships to golf, country club or health club facilities, and living accommodations.

The employment agreement must specifically list the fringe benefits provided as part of the employment relationship to avoid any future assertion by the coach of any assumed fringe benefits not listed in the agreement.

Moving/Relocation Expense Allowance

Moving/relocation expense-allowance provisions are included in employment agreements to cover expenses incurred by the coach in the move from the coach’s old employment to the new coaching position. The allowance should cover some, if not all, of the following moving-related expenses:

House Hunting and Travel Expenses

Expenses for moving household goods and personal affects (i.e., packing, storage and insurance, temporary lodging).

Extraordinary costs incurred to dispose of former residence (i.e., mortgage prepayment penalty)

Costs incurred in the buy out of an existing leasehold obligation

Miscellaneous residence purchase related costs (i.e., attorney fees, commissions)

The moving/relocation expense-allowance provision should either set a maximum limit on the total amount the institution is willing to expend on such allowance or specifically list without limitation expenses for which the moving/relocation expense allowance applies.

Bonuses

Bonus clauses in employment agreements operate as supplemental compensation in the form of performance-based incentives. A bonus incentive clause may be drafted as a specified set amount or a percentage of either the coach’s base salary or of the net revenues received by the institution as a result of post-season play. The following represents examples of bonuses that may be included in an employment agreement:

• Signing bonus for the execution of original employment contract or renewal contract
• Participation in post-season tournaments or bowl games
• Regular season win/loss record
• Regular season or conference championship
• End of year conference championship tournament
• Home game attendance
• Graduation rates or grade attainment levels
• Length of service based on years of employment (i.e., annuity).

Additionally, an agreement may include a bonus incentive for personal appearances and speaking engagements. Specifically, the agreement may require a particular number of appearances to be made by the coach as part of the salary compensation package. Under this type of bonus incentive clause, appearances over and above the base minimum result in additional compensation.

Additional Retirement Benefits

Annuities appear to be popular today in college coaching employment agreements. Annuities, and other retirement benefits not included in an institution’s fringe benefits, are used as additional incentives for the coach to finish the full term of the agreement. The institution can employ two basic methods for providing additional retirement benefits.

First, the institution can purchase an annuity owned by the coach. Under this method, the coach includes as income the premiums paid by the institution. The advantage for the coach is that the earnings are tax-deferred until they are withdrawn. In addition, interest or earnings of annuities are allowed to compound on a tax-deferred basis, therefore creating a substantial increase in the net worth of the annuity in a very short time. Annuities are normally purchased through insurance companies; examples of annuities products currently offered are straight or life annuity, joint mid survivorship annuity, refund annuity, deferred annuity, and variable annuity. Before an annuity clause is drafted and finalized, the institution should advise the coach to seek assistance from a financial advisor and a life insurance agent so that an annuity may be structured to fit the coach’s economic and retirement situation.

Second, the institution can agree to pay a retirement benefit as deferred compensation. In particular, the institution can use a commercial annuity to accumulate funds to pay the deferred compensation benefits. This type of annuity is owned by the institution and the retirement benefits are paid by the university. The institution and the coach should consult legal counsel for the special income tax considerations when negotiating deferred compensation for institutional coaches.

The next article in the series will discuss additional important coaching employment agreement clauses, provisions and issues.

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