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Trump Has Upper Hand in Legal Fight With Bannon

Trump Has Upper Hand in Legal Fight With Bannon

Tuesday, 9 January, 2018 - 11:00

The increasingly bizarre dispute between President Donald Trump and his former campaign aide and White House staffer Steve Bannon continues to boggle the mind. Yet for me as a contracts professor, one corner of the contretemps raises a simple and clear question. I refer to the letter from Trump’s lawyer, Charles Harder, insisting that Bannon is in violation of a non-disparagement clause in the contract that he signed when he joined the campaign. If the facts are as claimed, I think the clause is enforceable.

Earlier this week, my Bloomberg View colleague Noah Feldman wrote that a court would probably find that First Amendment considerations rendered the clause void, because enforcement in this instance would suppress robust public-policy debate. There is force to this argument, but the precedents point the other way. As regular readers know, I am a great believer in strong First Amendment protections, but in this case I don’t think the Constitution is a bar.

Let’s begin with a basic proposition: Non-disparagement clauses are increasingly a part of employment contracts, and the courts routinely enforce them. It’s easy to see why. If an employer and an employee are bargaining at arm’s length, the employer’s insistence on such a clause will result in higher compensation for the employee. In other words, employers will pay employees a premium to give up the right to disparage. As long as the employee understands the trade he's making when he signs the contract, why should the courts interfere? As a general rule, they don’t. 

We can put aside non-disparagement clauses buried in the boilerplate of consumer contracts, which companies sometimes try to use to prevent those who buy their products from posting negative reviews. Most courts have understandably held such clauses unenforceable. But when non-disparagement clauses are included in employment contracts or separation agreements, they are enforced more or less routinely. The reason isn’t that judges don’t understand that the clauses might be abused. The reason is that the employee who agreed to the deal is bound by his own free choice.

For example, in Cooper Tire & Rubber Co. v. Farese, the US Court of Appeals for the 5th Circuit faced an argument that a non-disparagement clause might be used to prevent a former employee from disclosing instances in which the employer broke the law.

The judges were unimpressed. In 2005, they refused to strike down the clause based on “the mere possibility that an employer could use a non-disparagement clause to hide illegal activity.” The court conceded that the clause might possibly be set aside should the employee seek to disclose actual crimes. But the opinion implies that the proper venue for such allegations is the relevant public authorities. Free-speech claims are routinely raised by parties who are sued for violating non-disparagement clauses. Judges are generally unpersuaded. For example, here’s the response of a California appellate court in a 2010 case called Sahlolbei v. Montgomery:

Simply put, if Montgomery agreed not to disparage Sahlolbei, then a reasonable person could conclude that Montgomery waived his right to speak freely about Sahlolbei, and therefore, even if Montgomery’s statements are protected, he could be found in breach of the settlement agreement.

Even when the party in violation makes a disparaging statement with an eye toward publication, the courts reject claims that the public’s right to know should prevail. In Fisher v. Biozone Pharmaceuticals, Inc., a federal district judge enforced a non-disclosure agreement in 2013 when one of the parties emailed a journalist with disparaging claims about the other.

Nor have courts been impressed by claims of a public right to know. Just last fall, a federal court in Maryland rejected a First Amendment challenge to a non-disparagement clause included in the settlement of a police brutality suit. 

“The agreement itself was only eight pages long,” the judge wrote in Overbey v. City of Baltimore, “and the non-disparagement clause was not hidden in fine print.” The plaintiff, had she chosen to, “could have leveraged her position to demand that the non-disparagement clause be removed.” She chose not to do so, wrote the court, so the clause was enforceable. If a victim of police brutality can’t escape her arms-length promises, it’s hard to see why a presidential adviser should.

Don’t get me wrong. That Trump’s legal threat against Bannon might have some degree of merit doesn’t mean the threat should have been made. It should be beneath presidential dignity to go after a former staffer for cooperating on an uncomplimentary book, although given the thin skin of the current incumbent, I suppose we should expect little else. 

I should add that the president’s legal threat against the book’s publisher is utterly groundless; the publisher is not a party to Bannon's campaign-employment contract. And of course the fact that Bannon is distasteful to so many Americans should have no effect on his right to speak freely; on the contrary, those who are most despised are most in need of constitutional protection.

But if, as Harder’s letter claims, Bannon is in violation of a signed agreement not to disparage Trump or the campaign – and if, as I have suggested, Bannon entered into the deal with his eyes wide open – then what we are left with is not a test of the First Amendment but a simple action for breach of contract. I hope the action is never filed. Given the precedents, however, the outcome would be clear.

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