James Harden, “Withholding Services,” and Modern Anti Non-Compete Laws: A Potential Issue in the NBA Collective Bargaining Agreement
In what comes as no surprise to many NBA fans, former NBA All-Star James Harden requested a trade from the Philadelphia 76ers, his third trade request since 2020.[1] If Harden is not traded prior to the start of the 2023–24 NBA season, he has threatened to not play for the 76ers for as long as 76ers President Daryl Morey remains in charge of the team.[2] The 76ers are no strangers to trade requests or player hold-outs, as another former NBA All-Star Ben Simmons previously refused to play for the team until he was traded during the 2021–22 season.[3] The difference between the Simmons situation and the current Harden situation? In the newly agreed-to 2023 Collective Bargaining Agreement (“CBA”) between the National Basketball Players Association (“NBPA”) and the NBA, there is a “withholding services” clause stating that if a player in the last year of their contract withholds playing services for more than thirty days after the start of the season, that player cannot agree to a new contract with any other professional basketball team unless their current team expressly allows them to.[4] Also, unlike Simmons, Harden is currently in the final year of his contract.[5]
At the same time as the NBA reached this new Collective Bargaining Agreement, numerous states around the country, including New York, have passed new laws placing limitations on the existence of non-competes.[6] Passing these laws would potentially bring the “withholding services” clause of the NBA CBA into question under New York law. Is the clause effectively a non-compete? If it is, is it a violation of the non-compete laws of New York State? If the clause does violate, are the NBA or any of the New York teams subject to those laws? Lastly, if the clause violates and the NBA or the teams are subject to New York state law, must the clause be removed or is there an exception that would allow it to remain?
To begin, a few hypotheticals must be established to explore these questions fully. Firstly, while the New York State legislature has passed its anti-non-compete law, Governor Kathy Hochul has yet to sign it—assume she already has. Second, James Harden currently plays in Pennsylvania, but used to be a member of the Brooklyn Nets, so imagine he was magically traded back to Brooklyn and continues to hold out, subjecting him to both the “withholding services” clause and New York state law.
NEW YORK STATE’S NON-COMPETE LAW
“No employer or its agent, or the officer or agent of any corporation, partnership, limited liability company, or other entity, shall seek, require, demand, or accept a non-compete agreement from any covered individual.”[7] The statute defines a “non-compete agreement” as “any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after conclusion of employment with the employer included as a party to the agreement.”[8] “Covered individual” means “any other person who, whether or not employed under a contract of employment, performs work or services for another person on such terms and conditions that the individual is, in relation to that other person, in a position of economic dependence on, and under an obligation to perform duties for, that other person.”[9] The exceptions carved into the statute do not apply in situations like an NBA player not performing under their contract, only when an employee hands in notice of quitting or is given notice of termination.[10] Importantly, the bill grants a private right of action to workers to sue their employers within two years of signing or learning of their non-compete, their termination, or the date their employers enforces the non-compete, whichever is latest.[11]
THE NBA COLLECTIVE BARGAINING AGREEMENT’S WITHHOLDING SERVICES CLAUSE
Article XI, Section 3 of the 2023 NBA CBA states that:
“A player who withholds playing services called for by a Player Contract for more than thirty (30) days after the start of the last Season covered by his Player Contract shall be deemed not to have ‘complet[ed] his Player Contract by rendering the playing services called for there under.’ Accordingly, such a player shall not be a Veteran Free Agent and shall not be entitled to negotiate or sign a Player Contract with any other professional basketball team unless and until the Team for which the player last played expressly agrees otherwise.”[12]
The CBA, including this clause, was ratified by NBPA membership in April 2023 and took effect on July 1, 2023.[13]
HOW THE NON-COMPETE LAW APPLIES TO THE WITHHOLDING SERVICES CLAUSE
The clearest observation is the clause would likely be considered a non-compete agreement. “[A] player . . . shall not be entitled to negotiate or sign a Player Contract with any other professional basketball team unless and until the Team . . . expressly agrees otherwise” certainly sounds like a clause that restricts an individual from obtaining employment following the conclusion of their contract.[14] Whether Harden (or any player who sits out the last year of their contract) qualifies as a covered individual is more complicated for two reasons: they may not be economically dependent on their player contract, and by sitting out, they may not be performing work.
While New York’s proposed bill does not define “economically dependent” regarding a covered individual, the Second Circuit’s interpretation of “economic realities” under the Fair Labor Standards Act could serve as a valuable benchmark. In Frankel v. Bally, Inc., the Second Circuit described the economic realities test to say that an individual would be considered an employee “if as a matter of economic reality [they] are dependent upon the business to which they render service.”[15] James Harden is currently under contract with the 76ers for $35.64 million.[16] According to Forbes, Harden earned $22 million in endorsement payments last season and also has a $15 million investment in the Houston Dynamo Major League Soccer team.[17] “As a matter of economic reality,” Harden may not be economically dependent on his current NBA contract given his money earned outside of basketball.[18] However, it may also be fair to argue that if he was prevented from playing basketball by both his own refusal to play for the 76ers and the 76ers postponing his ability to exit his contract, those endorsement deals may end, making Harden significantly more economically dependent on the 76ers to employ him.
It is undeniable that, by being under contract to perform playing services, Harden would be “under an obligation to perform duties for” the 76ers.[19] However, under the statute, the covered individual must “perform[ ] work or services” for the employer, regardless of the existence of a contract or not.[20] It is not farfetched to imagine the 76ers claiming Harden is not a covered individual in the event he truly does not report to the team by doing exactly that—not working the last year of his contract. Likewise, Harden would likely counter by saying the contract was for two seasons, and by playing the first season of his contract for the team, he has “performed work or services.”[21] A potential court deciding this issue could look at it in two different ways. On one hand, they could decide this similarly to partial performance. In New York, “partial performance requires some actual performance of the contract[:] . . . [one party] must have conferred something of value upon [the other party] which [was] accepted.”[22] While partial performance in contract law does not directly relate to performing work or services under a contract, the court could view them similarly and find that Harden, by playing in the 2022–23 season, conferred actual value to the 76ers, thus partially performing his contract and “performing work or services” to make himself a covered individual.[23] On the other hand, the court could decide that partial performance is not analogous to performing work, that performing work instead requires full performance of the agreed-upon employment contract between Harden and the 76ers, and thus Harden did not perform work or services for the team and is not a covered individual. The answer is not clear.
FUTURE CONCERNS
Determining whether a player who refuses to play under the last year of their contract counts as a covered individual is just the tip of the iceberg in terms of issues the court will have to address. If we assume that Harden, or any other athlete that plays for the New York Knicks or Brooklyn Nets, would count as a covered individual, then the NBA would, in fact, be in violation of this proposed New York State law. The court must then determine whether a league that has teams in twenty-two states and two countries is even subject to the laws of the individual states in which they operate, or whether they are only subject to federal law. Then, the court will have to look to the long established non-statutory labor exemption for professional sports leagues.[24] As the term of the CBA at issue was collectively bargained and agreed to by the players, Harden may simply lose his grievance on the grounds that it was something his union representatives bargained for.[25]
Harden may eventually decide to end his holdout and elect to play for the 76ers during the 2023–24 season. Or the 76ers may trade him, and he reports to his new team. But if neither happens, the can of worms will likely pop open, and the NBA will have a genuine issue on their hands.
Footnotes
