Governor Brown Signs Legislation Placing a 12-Month Limit On Buyout Clauses In School Superintendent Contracts

Lozano Smith Client News Brief
September 2015
Number 52

This week, Governor Brown signed a new law (AB 215) that will prohibit school superintendent contracts executed on or after January 1, 2016 from providing more than twelve (12) months of severance pay if the superintendent's contract is terminated without cause. In recent years, several costly superintendent buyouts have gained great notoriety, and AB 215 was introduced in response to those situations.

A cap on superintendent severance payments actually predated AB 215 and has been in existence for many years. For a local agency employee on an individual contract, existing law states that the maximum cash settlement allowed is his or her monthly salary through the end of the contract term and, if the unexpired term is greater than eighteen (18) months, the maximum settlement is eighteen (18) months of pay. For a school district employee on an individual contract, existing law also contains a limit of six (6) months pay for any cash or noncash settlement to a superintendent if the local agency employer believes, and subsequently confirms by an independent audit, that the superintendent has engaged in fraud, misappropriation of funds, or other illegal fiscal practices. Under existing law, the appropriateness of the settlement amount is determined by an administrative law judge after a hearing.

AB 215 restricts the discretion of school boards on these two matters for any superintendent contract signed on or after January 1, 2016. Thus, the new limit will apply to new contracts or to any existing contract amended after the start of the new year.

Under the new law, a school superintendent's maximum cash settlement is limited to the lesser of: (a) the remainder of the superintendent's contract or (b) an amount equal to twelve (12) months of salary. The new law expressly applies this limit to a district superintendent of schools and does not specifically reduce the 18-month limit for other employees with individual contracts (e.g., assistant superintendents, chief business officers). In practice, however, we expect that the new 12-month limit will be used for the superintendent's subordinates as well. It should also be noted that the eighteen (18) month severance pay limitation is still applicable to non-school public agency employers.

AB 215 also now prohibits a local agency employer from providing any cash or noncash settlement to a school superintendent if the employer believes, and a subsequent independent audit confirms, that the superintendent has engaged in fraud, misappropriation of funds, or other illegal fiscal practices. AB 215 removes the existing pre-judicial administrative appeal process for the employer's determination.

Employers should note that existing law also prohibits a public employer from agreeing to a settlement that continues an employee's health benefits beyond the term of the settlement, or until the employee finds other employment, whichever is first. Under AB 215, a one-year period will now be the maximum time allowed for this extension of health benefits to a school superintendent who is terminated without cause under a contract signed on or after January 1, 2016.

AB 215 was opposed by several groups on the contention that it will further inhibit the ability for school boards to recruit highly qualified superintendent candidates. These groups further asserted that the higher cost of buyouts actually discouraged the practice, and that the lower cost will lead to an increase in buyouts and administrative turnover without a significant cost savings. Notwithstanding these arguments, AB 215 is now law and will apply to any superintendent contract signed on or after January 1, 2016.

For further information about AB 215 case and superintendent contracts, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.
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As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.