Terminating Tenure: Rejecting Tenure Contracts in Bankruptcy

Abstract

Financially distressed entities often use the bankruptcy system to restructure their contractual obligations. This article examines whether distressed institutions of higher education can do the same with their tenured faculty, and concludes that the answer is surprisingly unclear. The answer depends primarily on two key inquiries. First, do professors have material obligations to their tenuring institution under a tenure contract, or are tenure contracts more akin to one-sided option contracts? Second, will the bankruptcy court apply the Countryman test for executory contracts, or some other test--such as Westbrook's Functional analysis?

If tenure contracts are akin to option contracts, as this article argues, and a court uses the Countryman test, tenure contracts are likely not rejectable in a bankruptcy case. This is a surprising result, explored in greater detail in the body of this article. This article also considers, though largely dismisses, the argument that tenure is a protected property right under the Fifth Amendment Takings Clause. Nevertheless, such an argument might be made for strategic purposes.

Keywords: higher education, tenure, executory contracts, takings, constitutional law, bankruptcy law, Fifth Amendment, college, universities, nonprofit, for-profit, Westbrook, Functional test, Countryman, distress