Josh Hamilton, the Angels, and Guaranteed Contracts

After an arbitrator ruled ten days ago that Josh Hamilton had not violated his drug treatment program following an alleged drug relapse, it looked like the Angels would be forced to pay him the rest of the roughly $83 million he is owed over the last three years of his contract. Now, however, it appears that the Angels are determined to do whatever they can to try to escape from the rest of Hamilton’s contract.

Before the Angels’ home opener on Friday evening, the team’s owner, Arte Moreno, spoke with the media. As one might expect, the discussion eventually turned to Hamilton, with a reporter asking Moreno whether the Angels would welcome Hamilton back to the team when he had recovered from his shoulder injury. Somewhat surprisingly, Moreno responded, “I will not say that.”

Instead, Moreno suggested that the team was exploring the possibility of cancelling the rest of Hamilton’s contract. As Moreno explained to reporters, “We have a contract with Hamilton and that contract has specific language, that he signed and that was approved, that said he could not drink or use drugs.”

The Major League Baseball Players Association quickly responded to Moreno’s comments on Friday evening:

“The MLBPA emphatically denies Los Angeles Angels owner Arte Moreno’s assertions from earlier today that the Angels had requested and received the approval of the Union to insert language into Josh Hamilton’s contract that would supersede the provisions of the Joint Drug Agreement and/or the Basic Agreement. To the contrary, the collectively bargained provisions of the JDA and the Basic Agreement supersede all other player contract provisions and explicitly prevent Clubs from exactly the type of action Mr. Moreno alluded to in his press comments today.”

So who is right? And what are the odds that the Angels could terminate the rest of Hamilton’s contract?

Because Hamilton’s actual contract has never been released publicly, it is impossible to know for sure exactly what it says. That having been said, Article III of MLB’s collective bargaining agreement specifies that all agreements between a player and team must take the form of the Uniform Player’s Contract (which can be found beginning at page 277 of the CBA, available here).

While the Uniform Player’s Contract does not mention alcohol or drugs, players and teams often to agree to extra provisions – so-called “special covenants” – that are added to the end of the standard agreement. Under Article IV of the CBA, if the player and his agent agree to a covenant, and the commissioner approves it, these provisions are generally considered binding so long as they do not contradict the terms of the CBA.

This means that the union would not necessarily have had to sign off on any supplemental provision included in Hamilton’s contract. But the MLBPA would have the right to challenge the language down the road if it believed that the enforcement of the provision would violate the CBA.

So it is possible that the Angels and Hamilton may have included language in his contract prohibiting him from consuming drugs or alcohol. And if Hamilton did in fact suffer a cocaine relapse, as has been reported, then that relapse may have violated this supplemental provision in his contract.

All that having been said, there is some reason to question whether Hamilton’s contract does actually address his drug or alcohol use. As Bill Shaikin notes, when the Angels signed Hamilton back in 2012, Arte Moreno insisted that the contract did not include any language protecting the team if Hamilton suffered a relapse. So it’s a little curious that Moreno would now claim that the contract does specifically bar Hamilton from drinking alcohol or using drugs, when he denied that such a provision existed back in 2012.

Assuming for the sake of argument, though, that Moreno’s 2012 statements were false, and that Hamilton’s contract does include language prohibiting him from using drugs or alcohol, then the team could potentially try to terminate his contract due to the reported relapse. Although MLB contracts are typically guaranteed agreements – with no opportunity for the team to escape the contract – as Jeff Passan noted back in 2013, some teams do include special covenants in their players’ contracts allowing the team to convert the agreement to a non-guaranteed contract in certain circumstances.

So it’s conceivable that Hamilton and his agent agreed to some sort of provision allowing the Angels to convert the contract to a non-guaranteed agreement if Hamilton were to use drugs or alcohol. In that event, the team could argue that, due to the recent reported relapse, it is free to terminate his contract without paying his remaining salary.

Even if such language does exist, though, the MLBPA would argue that the Angels still cannot terminate Hamilton’s contract because the CBA and JDA prevent teams from punishing players for drug violations. Article III of the CBA makes clear that any special covenants in a player’s contract cannot violate the terms of the CBA, while Article XXVII incorporates the terms of the JDA into the CBA. Section 7.M of the JDA, meanwhile, states that “[n]o Club may take any disciplinary or adverse action against a Player (including, but not limited to, a fine, suspension, or any adverse action pursuant to a Uniform Player’s Contract) because of a Player’s violation” of the drug treatment program.

So in the MLBPA’s view, the JDA prohibits teams from imposing any form of discipline on a player for drug use. Even if the Angels did include language regarding the consumption of drugs or alcohol in Hamilton’s contract, then, the union would argue that this language is unenforceable in light of the CBA and JDA.

The Angels have several potential arguments they can assert in response, however. First, it is unclear whether the JDA would prevent the Angels from punishing Hamilton for consuming alcohol, since alcohol use is not typically covered by the JDA. So to the extent Hamilton’s recent reported relapse also involved alcohol use, the Angels could argue that the team is free to enforce any alcohol-related provisions in his contract.

In addition, even with respect to Hamilton’s reported drug use, the team could argue that Section 7.M only specifically prohibits a team from disciplining a player for a “violation” of the drug treatment program. Because an arbitrator ruled that Hamilton did not violate his drug treatment program in this case, the Angels could thus argue that they are free to enforce any applicable provisions in his contract since Hamilton’s conduct was determined not to be a violation of the JDA.

Even if an arbitrator were to rule that the JDA does not prevent the Angels from punishing Hamilton, though, the team would still have to prove that he violated the terms of his contract. Depending on the specific wording of the provision, this may or may not be the case. For instance, it is possible that the contract states that Hamilton must actually fail a drug test in order for the agreement to become non-guaranteed. Since Hamilton allegedly self-reported his recent relapse, and thus apparently was never tested, he therefore may not have violated the specific terms of his contract.

Alternatively, the contract could theoretically state that it would only become non-guaranteed if Hamilton were found to have violated his drug treatment program. Should this be the case, then the Angels could not void the rest of Hamilton’s contract because the arbitrator ruled that he did not violate the JDA. This might help explain the Angels’ controversial reaction to the arbitrator’s decision.

Meanwhile, it is also possible that the Angels have determined that even if they are unable to get out of Hamilton’s contract legally, by challenging the agreement they could make their relationship with Hamilton so toxic that he would be willing to accept a settlement for less than the full amount owed simply to be free of the team. As Jeff Passan pointed out in the 2013 piece mentioned above, there have been at least three other instances – involving Denny Neagle, Sidney Ponson, and Francisco Rodriguez – in which a team tried to terminate a player’s contract due to an alleged violation of a special covenant. In all three cases, the parties reportedly resolved the dispute by settling for roughly 90% of the remaining value of the contract.

All in all, then, without seeing the specific terms of Hamilton’s contract it is difficult to predict whether the Angels will be able to avoid paying any of the rest of the money owed under the agreement. Considering Arte Moreno’s inconsistency on whether Hamilton’s contract does actually address a potential relapse, though, as well as the MLBPA’s argument that the JDA prevents the Angels from punishing him for his alleged drug use, the safest bet is probably that the team will be forced to honor the last three years of Hamilton’s contract. But it’s not inconceivable that a creative legal team could potentially find a way to relieve the Angels of the rest of the team’s obligations under the agreement.

We hoped you liked reading Josh Hamilton, the Angels, and Guaranteed Contracts by Nathaniel Grow!

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Nathaniel Grow is an Associate Professor of Business Law and Ethics at Indiana University's Kelley School of Business. He is the author of Baseball on Trial: The Origin of Baseball's Antitrust Exemption, as well as a number of sports-related law review articles. You can follow him on Twitter @NathanielGrow. The views expressed are solely those of the author and do not express the views or opinions of Indiana University.

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