September 16, 2021

Volume XI, Number 259

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When a Stick Tastes Like a Carrot - Post-Employment Payouts for College Coaches

Post-employment payouts are a hallmark of college and university coaching contracts. In the case of a not-for-cause termination, the purpose of post-employment payments is to honor the payment terms of the contract and provide a reasonable financial bridge until the coach secures a new coaching role. In the case of a coach fired for cause, the loss of those payments is intended to be a penalty for whatever violation of trust or conduct led to the termination. The payments are never intended to provide a windfall for fired coaches, yet flawed drafting can lead to excess payments to coaches and poor publicity for the school.  Below are some scenarios that may lead to inadvertent payments, as well as some simple solutions to avoid them.

Insufficient Morals Clauses

Coaches who are terminated by the school generally for “cause” forfeit any payments remaining on their contract.  The definition of “cause” varies and generally includes violations of athletics codes and athletics division restrictions. However, a “cause” definition may not include violations of the school’s own code of ethics and code of conduct, which includes violations outside of the athletics world. As a result, the coach is being held to a different standard of conduct than the remainder of the school community – including her or his own players. Even contracts with a catchall general “bad acts” reason for cause may not produce the same level of accountability as the school’s core values that have been incorporated into a school’s code of conduct.

Backloaded Compensation

Many contracts include mitigation or offset clauses, where post-employment payments are reduced by the coach’s earnings from another source during the payout period. These offset clauses also require the coach to make a reasonable effort to find a comparable or market-rate position during the payout period. However, as a work-around, coaches may backload the compensation in their new contract, so that compensation overlap is minimal and the coach can continue to collect most of her or his post-employment payments. Forward-looking offset provisions would prevent a windfall from the coach’s new position.

Half-Hearted Mitigation

Another approach a coach may take to minimize offset of post-employment payouts is to take a short-term, lower-paying (or even volunteer) position from another organization, or briefly detour into a media position for the same sport. A forward-looking offset clause combined with regular accountings of job-hunting efforts could prevent a post-employment payout stream from becoming an extended vacation bank for the coach.

Timing is Everything

The timing of a coach’s exit could adversely affect a school’s ability to effectively fundraise and promote its program, including its ability to recruit new players and retain current players and staff. Restrictive covenants in the coach’s agreement could curb a coach’s temptation to exit at an inopportune time for the school.  Well-crafted restrictive covenants could allow the coach to continue to earn a living, but perhaps only in other conferences or at a different level of the sport.

Beware the Tax Man

The tax rules governing deferred payments to employees of non-profit organizations are complex and require advice from tax and legal advisors to make sure they are properly structured. These rules have become even more complicated in recent years with legislation passed to impose penalties on compensation paid by private universities in excess of $1 million (similar to “golden parachute” penalties in the for-profit sector). Despite the school’s efforts, the coach may incur significant personal tax liabilities or penalties from her or his compensation and post-employment payout package. Robust protective provisions for the school could temper the coach’s expectation that the school would remedy those liabilities and penalties.

2021 Goulston & Storrs PC. National Law Review, Volume XI, Number 84
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About this Author

Sonia Macias Steele Employment Attorney Goulston Storrs Law Firm
Counsel

Sonia Macias Steele advises public and private companies on all matters relating to executive compensation and the full spectrum of employee benefit programs, including individual employment agreements, severance plans, equity compensation, paid leave, noncompetition agreements, qualified and nonqualified retirement plans, health and welfare programs, and other fringe benefit programs.

Sonia’s clients rely upon her particular talent for translating complex tax code into digestible segments and providing practical, innovative solutions. Sonia has worked at leading law firms and...

617 574 0549
Jill Fox Corporate Attorney Gouston Storrs Law Firm
Associate

Jill Fox is a corporate attorney who focuses on complex finance transactions, including private equity sponsored leveraged buy-outs. 

She counsels lenders in connection with domestic and cross-border leveraged finance transactions involving syndicated institutional loans, secured credit facilities, and mezzanine debt issuances.

While at Goulston & Storrs, Jill has spent time as a legal secondee to a major financial institution, serving as in-house counsel to its commercial bank. In that capacity, she provided transactional support, analysis, and advice on structural...

212 878 5149
Martin Edel Sports Lawyer Gouston Storrs Law Firm
Director

Martin Edel is Chair of Goulston & Storrs Sports Law Practice. In Marty’s litigation and advisory practice, Marty advises and represents leagues, teams, media companies and individuals in licensing matters and disputes, intellectual property matters, employment, antitrust and other complex contractual disputes. His principal focus has been in the sports, media and financial institutions industries.

Marty has been recognized as a leader in the field.  He has been honored by Bloomberg at its annual 2018 and 2019 Sports Luncheon for 30 high profile executives in the sports industry...

212 878 5041
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