On October 9, Los Angeles County Superior Court Judge Frederick Shaller confirmed his tentative decision weeks earlier that the "show cause" penalty in the NCAA's bylaws violates California law.
The decision was issued as a tentative ruling on plaintiff (former running back coach at USC) Todd McNair's claim for declaratory relief. McNair sought—and received—a determination that the NCAA bylaw provisions including the "show cause order" penalty levied against him were void under Cal. Bus. & Prof. Code § 16600.
The "show cause" penalty, often cited as one of the NCAA's "go-to" sanctions, is a provision in the NCAA bylaws that allows for a two-part penalty. The first aspect of the penalty is the specific prohibition set forth by the NCAA Committee on Infractions, and the length of time for which the prohibition and "show cause order" apply. The second aspect of the penalty requires member institutions to "demonstrate to the satisfaction of the Committee... per Bylaw 19.20 why it should not be subject to a penalty" for not taking "corrective action" against an institutional staff member found to have violated NCAA regulations.
Importantly, the show cause provision operates against sanctioned individuals and the universities that employ them (NCAA member universities agree to be bound by the NCAA bylaws as a condition of their membership). Any NCAA penalties imposed against an individual coach stay with him or her for a designated time and transfer to any school that hires the coach before the penalty expires. The member school may then appear before the NCAA Committee on Infractions and "show cause" as to why it should not be penalized itself for hiring the coach and how it would monitor the coach going forward. However, hiring a penalized coach may in turn subject the university to harsher penalties for any further rule violations–enabling the NCAA to enforce its rules by deterring its members from hiring coaches who have committed violations.
So, although the bylaws do not require the termination of a penalized individual, that is often the result because member schools can simply avoid the risk altogether by firing and/or refusing to hire a coach with a rules violation on his record. Bruce Pearl reflected the exception rather than the rule when Auburn hired him as its basketball coach in 2014 despite the months remaining on his penalty. This is a practical reality that the court factored into its determination that the "show cause order" provisions in the NCAA bylaws "are void as they constitute an unlawful restraint on engaging in a lawful profession pursuant to § 16600." The restriction not only affects individual coaches, but also the NCAA's member schools, who are "similarly restrained" in their "complementary" rights to "pursue their competitive business interests" by hiring coaches within their penalty periods.
The court went on to say that the show cause penalty against McNair was essentially a "career-terminating sanction" because "no NCAA member school, including USC, would likely risk the exposure to sanctions that would impact their athletic programs and lucrative media-related and athletic program income or status." The court further observed that the impact of the show cause penalty is exacerbated by the pervasiveness of NCAA-member schools; "the restrictive covenants provide a much greater restriction than a single non-compete agreement between employee and employer... McNair's ability to practice his profession as a college football coach has been restricted... not only in Los Angeles and California, but in every state in the country."
In an attempt to prevent the court from reaching its conclusion, the NCAA argued that section 16600 applies only to the actual parties to a contract. The court was unpersuaded, looking to the legislative history and intent behind the statute to ultimately declare section 16600's broad application. From the plain language of section 16600, "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void," the court reasoned that "it is clear that the legislature intended to broadly remove any impediments in contracts by which the right to engage in business and occupations of one's choosing could be abridged." (Emphasis added). To bolster its conclusion that the application of the statute to "anyone," including McNair, and not just parties," would be "consistent with the obvious intent of the legislature," the court pointed to the legislative history of section 16600, even briefly discussing a predecessor statute enacted in 1872.
The decision demonstrates the extent to which some California courts will go to invalidate restraints on employees and promote "open competition and employee mobility." We will follow the case should the NCAA appeal.
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