Wonder Blunder Times 3.5

by Tom Yamachika, President, Tax Foundation Hawaii

Gib Arnold, former basketball coach at the University of Hawaii, just hit the jackpot. By that I mean that he is going to be awarded $700,000 in a settlement with the University, not because he did anything notably good, but because the employment contract under which he was working was notably bad.

Arnold, you may remember, was recently canned by the University in the wake of the NCAA writing up the basketball program for seven violations over a four-year period. Three of them were Level 1 violations, the most severe under NCAA rules. The NCAA report regarding the violations specifically accused Mr. Arnold of hindering or obstructing the NCAA investigation of the other violations.

The University, as a result, showed Mr. Arnold the exit. But instead of tossing him for specific misconduct, the University terminated him "without cause" so the employer didn't have to prove a specific reason. And in that case, Arnold’s contract allowed him to receive “a lump sum amount equal to the total amount of compensation earned under the terms of this Agreement as to the date of termination.”

It is not uncommon for contracts to provide for "benefit of the bargain" damages in the event of termination. This means if the contract was for $1.4 million and he was paid $1 million to date, the termination would cost the balance of $400,000. But this language looks like it might entitle him to everything he would have been paid under the contract whether or not he was already paid some of it. So he told the University to fork over $1.4 million.

The result is that he is getting $700,000. As in Wonder Blunder times three and a half. Let’s take a look at a couple of things UH might have done differently.

First, would it really be impossible to uphold a termination FOR cause if the problem was even one serious NCAA violation that happened under his watch?  Never mind that the NCAA report accused Mr. Arnold of specific conduct covering up the other infractions. If we are paying a head coach all of this money, can't we expect the coach to be accountable for the program? CEOs earning far less have been given the axe for far less.

Second, why was vague language like this allowed in a major employment contract?  When the Star-Advertiser asked the University general counsel about it she said that going forward, at least two attorneys will review every athletics department contract; more emphasis will be placed on contract review; and some contract language will be standardized. 

In both law firms and accounting firms, it's common to have a "four eyes rule," meaning that major documents like opinions don't go out the door unless they are reviewed by at least two people. Typically, both of the people need to be in responsible positions, so having the janitor look at it doesn’t count toward the four eyes required. And no, one person with glasses doesn't count as four eyes either.

A four eyes rule for major contracts and similar documents, whatever the agency, is sound policy. We're glad that the University's legal team is finally adopting it. Now what about elsewhere in our state government? We want to make sure that Wonder Blunders are a thing of the past.

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