Sinclair-style employment contracts that require payment for quitting are very uncommon. Here's why
- Written by Elizabeth C. Tippett, Associate Professor, School of Law, University of Oregon
Sinclair Broadcast Group, a company that owns local news stations across the country, is itself in the news for requiring its newscasters[1] to read a script about “one-sided news stories plaguing our country.”
While that kind of top-down editorial order might prompt some journalists to quit for ethical reasons, some Sinclair[2] employees have said that their employment contracts made it prohibitively expensive[3] to walk away. And not just in usual the “I’m making too much money and don’t want to adjust my lifestyle” kind of way. Instead, their contracts actually force them to pay Sinclair a huge fine if they quit.
Can that possibly even be legal?
Before becoming an academic, I represented companies in employment law matters, which often involved advising on employment contracts. A Los Angeles Times journalist posted[4] an excerpt of a contract that he claims to have received from a Sinclair employee. After reviewing it, I agree with other attorneys who noted[5] that the legality of the provision depends on whether the fine is similar to the costs Sinclair would incur if the employee leaves prematurely.
The more interesting question to me, however, is why more employers don’t try to do the same thing.
Guaranteed work
One reason is that the supposed Sinclair contract provided for a special perk: guaranteed employment for a fixed period of time. In exchange, the employee agreed to work for Sinclair for that period.
This is highly unusual. The default rule in American law is “at will” employment, meaning an employee can be fired (or quit) at any time, for any reason, without notice. If the contract allows you to quit at any time, you haven’t breached the contract by quitting. Without a breach, there’s no legal basis for the company to demand payment.
Companies are generally very reluctant to offer anyone – even CEOs[6] – a fixed period of employment because they are always worried that business conditions might change – and so too their sentiments about the employee’s value to the company.
However, in rare situations involving creative talent such as TV anchors or radio hosts, companies will sometimes make these promises to individuals whose departure would be really bad for business. For example, if a recognizable news anchor and local celebrity decided to quit and, say, start a YouTube channel criticizing their former employer in the middle of ratings, that’d be bad news.
‘Golden handcuffs’ are a more traditional way to get employees to stick around.
Inozemtsev Konstantin/Shutterstock.com
‘Won’t you stay … ’
But companies have only limited tools at their disposal to force employees to stay if they break their promise to complete the term of employment. Courts won’t issue an order[7] telling an employee he or she must stay at a particular job because the 13th Amendment[8] prohibits involuntary servitude.
So companies try other ways to get valuable employees to stick around. They might offer them an obscene amount of money or stock options – this is known as the “golden handcuffs” approach. Or they will include a noncompete clause that makes it harder for the employee to find another job without moving away or switching professions. The Sinclair contract included one of these.
What is unusual about the Sinclair contract is that it required an outright payment for quitting, regardless of whether the employee worked for a competitor. The contract posted on Twitter demanded a payment of 40 percent of the employee’s “annual compensation” multiplied by the percentage of the term remaining on a contract.
So if the employee quit halfway through the contract, he would owe 20 percent of his annual compensation. The contract included an exception if the employee provided 45 days of notice and quit for a “permitted reason,” but the excerpt provided did not specify what that meant.
Being told to jump in a lake isn’t always meant kindly.
Monkey Business Images/Shutterstock.com
‘Go jump in a lake’
There are a lot of reasons why demanding payment for quitting is very uncommon. For starters, employees valuable enough to be offered a term contract might not respond favorably. It’s like inviting someone to an expensive dinner and then threatening to steal her wallet if she has a bad time and decides to leave early. Not exactly an enticing offer.
Most employers also know intuitively that penalties are simply bad PR. And that demanding various payments from employees after they’ve left is chasing good money after bad. The litigation cost of recovering the money is almost always more[9] than the amount of money at issue.
Nevertheless, Sinclair has in fact sued[10] a former anchor who quit, requesting US$5,700 in damages and other costs. That was less than the $25,000 the company initially demanded, but still too much for the man to bear.
Sinclair eventually appeared to realize this was a mistake and offered to settle with the former employee for $1,700 in exchange for a gag order. But by that point the reporter was so fed up that he told them[11] to “go jump in a lake” and has since shared his story with many news outlets.
I suspect the next up-and-coming news anchor will say the same thing if Sinclair offers a similar contract.
References
- ^ requiring its newscasters (theconcourse.deadspin.com)
- ^ some Sinclair (www.bloomberg.com)
- ^ prohibitively expensive (www.latimes.com)
- ^ posted (twitter.com)
- ^ other attorneys who noted (www.bloomberg.com)
- ^ even CEOs (www.sec.gov)
- ^ won’t issue an order (scholar.google.com)
- ^ 13th Amendment (www.law.cornell.edu)
- ^ more (www.google.com)
- ^ sued (www.orlandoweekly.com)
- ^ told them (www.latimes.com)
Authors: Elizabeth C. Tippett, Associate Professor, School of Law, University of Oregon
