Do Paterno And Spanier Have Golden Parachutes At Penn State?

The Sandusky child molestation scandal at Penn State continues to be the biggest legal news in Pennsylvania. One lawsuit against Penn State and the Second Mile has already been filed, presumably because the victim was either nearing, or had already passed, the statute of limitations. A civil lawsuit can be filed at any point after a criminal act, though in that case the civil litigation is usually put on hold until the criminal case is finished.

I’ve already discussed most of the issues in the cases that could be filed by sexual abuse survivors in my previous post, linked above, but a new issue has started to bubble up: what happens to former football coach Joe Paterno, president Graham B. Spanier, athletic director Tim Curley, and university vice president Gary Schultz. Paterno and Spanier avoided criminal prosecution but were swiftly fired by the Board of Trustees for their roles in the scandal. (Technically, Spanier was given an ultimatum: resign or be fired, an effective termination that may have been given to Paterno as well. Spanier chose to resign.) Curley and Schultz were indicted for perjury and failing to report child abuse, after which Curley voluntarily went on administrative leave and Schultz retired.

Plenty has been written about the criminal prosecution about Curley and Schultz. As this Reuters analysis points out, prosecution on the failure-to-report-abuse claim might be tricky, but perjury is perjury, and it’s Curley’s and Schultz’s word against Mike McQueary’s over what exactly McQueary told them.

Outside of the criminal aspect, there’s an important civil litigation aspect just starting to gain traction, and that’s whether Paterno, Spanier, Curley or Schultz might have their own claims against Penn State. Consider this article about the PSU Trustees and Pennsylvania’s Sunshine Law:

[Q]uestions arose about whether the board had complied with the state’s Sunshine Act, because there was no evidence of required public votes on the matters. So the executive committee – nine of the 32 board members – decided to hold a brief telephone conference call Friday morning to resolve questions and formally approve those three major decisions.

The changes in status for Spanier, Paterno, and Erickson were the result of the questionable handling of child-sexual-abuse allegations against former assistant football coach Jerry Sandusky, whose arrest came five days before the departures of Paterno and Spanier.

“Due to the extraordinary circumstances” during the week of Nov. 6, Penn State spokesman Bill Mahon said after the executive committee’s five-minute phone call, “the board of trustees needed to act swiftly and decisively regarding personnel. While the board believes immediate action was necessary [three weeks ago], it is holding this special, preannounced public meeting of the executive committee to reaffirm and ratify the board’s prior personnel decisions.”

He added that the trustees “wanted to dot all the I’s and cross all the T’s.”

He said the firing, the resignation, and the naming of the new president were effective the week of Nov. 6. The full board will meet in January to “reaffirm” the action taken by the executive committee Friday, he added.

Even apart from the Sunshine Act, there are issues here worth exploring: what legal rights, if any, might Paterno and Spanier have against Penn State? I’ve seen news stories indicating that, at least for Spanier, they are “working out” a “multi-million dollar” severance package. Let’s look a little more deeply into that. 

The issues relating to Curley,  Schultz and McQueary are all pretty simple: either McQueary or Curley & Schultz lied to a grand jury. If Curley or Schultz are convicted, they can quite rightly be fired for criminal conduct in the course of their employment. If they’re not, and Penn State believes their version of events, McQueary himself can be fired even if he isn’t prosecuted for perjury. See, e.g., Rossi v. Pennsylvania State Univ., 489 A. 2d 828 (Pa. 1985)(“An employer may rid itself of a troublesome employee, without liability for wrongful discharge in the absence of a violation of public policy.”)

Of the many economic disparities in America, one of the most important is the differing employment rights of most employees versus upper management. The vast majority of employment in America is “at-will,” such that “an employer may terminate an employee for any reason, unless restrained by contract.” McLaughlin v. Gastro. Specialists, Inc., 750 A. 2d 283 (Pa. 2000) citing Henry v. Pittsburgh & Lake Erie Railroad Co., 139 Pa. 289, 21 A. 157 (1891). [There are the limited exceptions created by federal and state anti-discrimination laws — i.e., you can’t fire someone for racial, gender, religious, or similar reasons — but those obviously don’t apply here.]

Most employers are not “restrained by contract” from firing employees for any reason, unless the employee is part of a union that negotiated some limitations (like requiring arbitration of all terminations) or if the employee is part of upper management. In those realms, the situation changes, and executives at large corporations, universities, and quasi-private public agencies (like housing authorities) routinely have “golden parachute” clauses in their employment agreements that provide them with substantial severance payments even when they’re terminated.

Paterno and Spanier are undoubtedly upper management, with favorable contracts, and for the moment, the Board of Trustees still hasn’t said what Paterno and Spanier did wrong. I doubt they’ll fill in too many details, not until the victims’ lawyers force them to explain themselves in the lawsuits. But the details might not even matter; Paterno and Spanier might be entitled to severance even if they covered up sexual abuse of children.

Around here in Philadelphia, we seem to have some sort of chronic problem with golden parachutes, with former Philadelphia Housing Authority chief Carl Greene suing for his own more-than-one-half-million payout and former Philadelphia schools Superintendent Arlene Ackerman collecting a $905,000 public buyout, plus unemployment benefits. As I discussed in the my post on the Greene case (linked above), Greene’s contract is among the more favorable contracts I’ve ever seen, limiting the circumstances under which they can terminate Greene “for cause” to:

(i) A material act or acts of dishonesty on MR. GREENE’S part, which is criminal in nature, intended to result directly or indirectly to MR. GREENE’S substantial gain or personal enrichment at PHA’S expense, and which results in demonstrable material injury and damage to PHA;

(ii) MR. GREENE’S willful and intentional misconduct, recklessness, gross negligence and failure to substantially perform his duties hereunder, other than a failure resulting from MR. GREENE’S incapacity or illness, if MR. GREENE’S willful and intentional misconduct, recklessness, gross negligence and failure results in demonstrable material injury and damage to PHA;

I would not be the least bit surprised if Joe Paterno, which Sports Illustrated called “arguably the most unfireable person in all of sports,” and Graham Spanier, who negotiated the fifth-highest university pay in America, both had extraordinarily favorable contracts that similarly guaranteed them substantial severance payments in the absence of a blatant fraud on the university or a dereliction of duty.

Which means Penn State might still owe Paterno and Spanier, even if it turns out both knew or suspected Sandusky’s crimes and then covered them up. Unless Penn State simply paid the golden parachutes that Paterno and Spanier likely had, then Paterno and Spanier likely have claims to them. If they have any sense, they won’t raise those issues now, but they have four years to sue under Pennsylvania’s statute of limitations for breach of contract.

All of which, together, raises an even larger issue: alumni at universities and stakeholders in other large institutions should press for more transparency in the terms of their upper management employment agreements. Considering that the vast majority of people work without any guarantee they’ll still have a job tomorrow, it should raise more than just an eyebrow when an upper-level employee of the company demands a clause that arguably allows them to cover up sexual abuse of children without losing their “multi-million dollar” severance package.

  • Guest

    When people who are highly valuable to organizations re-negotiate their contracts, they are in a position to demand highly favorable terms across the board. Obviously, higher compensation is the primary goal for the employee in re-working his employment contract, but the rest of the terms may tilt in favor of the employee as well, as in the instances you’ve noted. When these once-vaunted employees are revealed to be less than supermen, and are forced from their former organization amidst scandal, those highly favorable terms remain enforceable in favor of the former employee. That’s contract law. Sometimes it appears to render an unfairness, but that’s not the point of contract law. The point is to enforce the terms of the agreement between parties.

    Maybe there should be more “transparency” in these sorts of negotiations when public universities are involved, but it’s doubtful whether the alumni or public at large would hold up the hiring or continued employment of a popular football coach or successful university president over the details of an employment contract’s termination clause. During the negotiation of the contract, when the sun is at its peak for the employee’s career with the organization, I can’t imagine anyone objecting to these terms (except the organization’s lawyers, behind closed doors). It’s only later, when things go bad, that we wish that we could have better foreseen events and planned accordingly. Again though, the highest purpose of contract law is to enforce agreements that, in hindsight, we would have rather not made. In fact, contract disputes almost never arise when the transaction ends and all parties are pleased with the terms and performance of the agreement.

    • Guest

      “Maybe there should be more ‘transparency’ in these sorts of negotiations when public universities are involved, but it’s doubtful whether the alumni or public at large would hold up the hiring or continued employment of a popular football coach or successful university president over the details of an employment contract’s termination clause.”

      I hope that a silver lining of this tragedy is that football loses some of its prestige, although I doubt many will embrace the lesson. The idea that any football coach is worth as much as Penn State believed Paterno was worth is outrageous, particularly when he’s the coach of such a damaging activity. It’s a sport that harms the health of its players and is surrounded by a disgusting culture that excuses rape of women and children. I love how wrestlers and other members of male sports teams point to Title IX as the reason why their teams are cut when in reality it’s all because of football in most cases. Schools will cut any and all teams to save “precious” football, an expensive sport that rarely pays for itself. These institutions should focus on education and teaching, and it’s ridiculous that a college football coach would have such a favorable contract when most universities are doing all they can to nickle and dime students and professors by increasing tuition, moving away from a tenure system, and exploiting adjunct and non-tenured faculty.

    • Anonymous

      The unfairness to me isn’t in upholding the favorable contract down the line, but in the negotiation process. When hiring non-unionized entry-level employees, I’m sure Penn State is as aggressive as possible, shifting every last term in its favor. When hiring upper-level administration, everybody’s friends and the terms end up favoring the employee, to the point where you get situations like Greene and Akerman, and I presume Paterno and Spanier.
      In most situations, that doesn’t matter to me. I don’t care what contracts Koch Industries has with its upper-level administration, it’s the Koch brother’s money and company to lose. When we start taking about institutions that receive public funds, though, and non-monetary public assistance, then I start to care. I’d also care if a university with which I was affiliated or of which I was an alumni had it.

      • Guest

        Well, it’s good to be the king. Being friendly with the people at the top who set compensation is helpful, no doubt. However, highly sought-after upper management employees are perceived as indispensable to the organization and flight risks. When that’s the case, the employee is just in a better negotiating position than an entry level employee who gets shafted. Pro sports is a great example of such a market (not necessarily with respect to termination clauses, but in terms of overall compensation, for sure).

        I think your point on publicly funded institutions is a fair one. I certainly think that Spanier was probably overpaid. Paterno, on the other hand, was probably under paid, at least when compared to other comparably successful coaches. Plus, the football program is a money maker for PSU, and will be for a long time. I don’t think it’s really fair to say that he’s on the public teat because he works at a public university. Frankly, he’s been a tremendous source of revenue value for the state. Although I lean more in your direction with respect to other employees of the university who do not stand in such a position, there is a concern that if you don’t pay top dollar to get top administrators, your flagship state university will not be competitive with all the other, great flagship state universities out there. There’s something to that.