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District Court Interprets "Morals Clause" in Employment Contract in Employer's Favor

In Haywood v. Univ. of Pittsburgh, NO. 11-1200, 2013 U.S. Dist. LEXIS 140263 (W.D. Pa. Sept. 30, 2013), the U.S. District Court for the Western District of Pennsylvania considered whether the University of Pittsburgh breached its employment contract with a former football coach who was terminated following his arrest in connection with a domestic incident several weeks after his hiring. In support of its decision to terminate the coach's employment, the university invoked the so-called "morals clause" in the contract, which essentially provided that the university would not have to pay the coach the amounts owed under the contract if the contract was terminated for "just cause" based on conduct that was contrary to the best interests of the university. The coach disputed the university's interpretation of the clause, arguing that, even though the university had the contractual right to terminate the employment contract for just cause, the university breached the duty of good faith and fair dealing inherent in the parties' contract by terminating him without conducting a proper investigation. The coach also separately sought to enforce an alleged oral agreement with the university to buy out his former coaching contract, which had been discussed, but was not realized, because of the coach's untimely termination. Also at issue was the university's counterclaim predicated on the coach's alleged disclosure of confidential information in the form of his compensation via a press release after he was terminated.

In considering the good faith and fair dealing issue, the court ruled in favor of the university. The court began its analysis by recognizing that the Pennsylvania Supreme Court would recognize the covenant of good faith and fair dealing, even though the supreme court has yet to rule on this issue. The court then recognized that, even in instances in which a party is given sole discretion under a contract, the party must exercise its sole discretion in a reasonable manner. In so concluding, the court specifically rejected the notion that implying a reasonableness standard into the contract was tantamount to re-writing the parties' contract. Nonetheless, under the facts of the case, the court found that the undisputed evidence proved that the university ultimately terminated the contract for just cause, even though it was disputed as to exactly when the contract was terminated. Consequently, because the university terminated the employment contract for cause, the coach could not prove any damages, an essential element of his contract claim.

The court also rejected the coach's attempt to enforce the alleged oral agreement to buy out his former coaching contract. Despite acknowledging that Pennsylvania law recognizes an exception to the parol evidence rule if parties do not dispute that a term was agreed on but not included as part of their written contract, the court read the "morals clause" in the employment contract broadly to permit the university to stop making payments not only under the employment contract, but also under any separate agreements between the parties, such as the agreement to buy out the coaching contract. Accordingly, given the court's finding that the university terminated the employment contract with just cause, the coach was not permitted to enforce the separate agreement.

Finally, in regard to the disclosure of the alleged confidential information, the court found that the university had failed to produce any evidence that showed that the salary information was confidential. In the absence of such evidence, the university was not entitled to judgment as a matter of law that the coach had breached the confidentiality provision in the employment contract. Because the coach had not separately raised this argument in support of dismissing the university's counterclaim, however, the court declined to enter judgment against the university on the counterclaim. Instead, the court ordered the coach to file a separate motion raising the issue so as to permit the university to have an opportunity to respond to the argument that the coach had not breached the confidentiality provision by disclosing confidential information.

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