For about a decade, James Harden has been one of the better players in the National Basketball Association. During the same time period, Daryl Morey has been one of the better executives in the NBA, first with the Houston Rockets and currently with the Philadelphia 76ers.

Mr. Harden and Mr. Morey are now locked in a heated dispute with interesting implications under the collective bargaining agreement and contract law.

On August 14, Mr. Harden told a group of reporters, “Daryl Morey is a liar and I will never be a part of an organization that he’s a part of.” That was quite a change from 18 months earlier, when Mr. Harden had said he was “excited” to join the 76ers after Mr. Morey had traded for him. 

The dispute of course generates from Mr. Harden’s contract situation. Before the 2022-23 season, Mr. Harden signed a one-year contract for 2022-23 at a salary of $33 million with a player option for 2023-24 at a salary of $35.6 million. In signing the new contract, Mr. Harden gave up a $47 million player option he had for the 2022-23 season – a $14 million pay cut intended to help the 76ers sign other quality players. 

In June 2023, Mr. Harden exercised his option for the 2023-24 season. He now claims that he did so only because Mr. Morey promised to trade him, a promise he says has been broken.

The NBA responded by fining Mr. Harden $100,000 for violating a prohibition against public trade demands. The National Basketball Players Association has announced its intention to challenge the fine through a grievance arbitration.

The NBA, though, was not concerned solely with quieting Mr. Harden. The Association had concerns that the 76ers might have violated contract and salary cap rules by having a secret agreement with Mr. Harden. Indeed, the NBA had recently disciplined the 76ers for such acts.  With the money the 76ers saved from Mr. Harden’s new contract before the 2022-23 season, the 76ers signed veterans P.J. Tucker and Danuel House. The NBA determined that the club had negotiated with those players and reached agreements in principle with them before the club was permitted to do so. As a sanction, the NBA took away the club’s 2023 and 2024 second-round draft picks.

In the Harden situation, the NBA was presumably concerned that the 76ers had made oral promises to Mr. Harden when he signed his new contract or when he exercised the option. Such a situation has precedent. In 1999, then NBA-star Joe Smith agreed to a secret future contract with the Minnesota Timberwolves to allow the club to save money and salary cap space in the short term.  The NBA took away five first-round picks from the Timberwolves as a penalty. But the NBA’s investigation into the Harden matter reportedly did not find that Mr. Morey or the 76ers made any impermissible secret promises.

The 76ers have leverage against Mr. Harden’s professed refusal to play. The collective bargaining agreement says that if a player in the last season of his contract withholds his services for more than 30 days, the last season of the contract will be deemed not to have been played – depriving the player of free agency. The 76ers’ training camp is scheduled to begin on October 2. Mr. Harden is reportedly planning to attend. He has little immediate choice.

Mr. Harden’s most interesting defense may lie in the common law of contracts. The standard NBA player contract, like any well-written contract, contains a merger clause declaring that the agreement is the entire agreement and overrides any prior agreements, written or oral. One of the rare avenues for escaping such a clause – and the agreement of which it is a part – is in arguing fraudulent inducement. Mr. Harden could theoretically allege that he exercised his player option only because of Mr. Morey’s (alleged) misrepresentation that he would thereafter trade him and thus that the contract is unenforceable. A principal issue in any such claim would be whether Mr. Harden’s reliance on Mr. Morey’s alleged representation was reasonable. Mr. Harden is experienced in NBA contract negotiations and is represented by sophisticated counsel. He and his attorney arguably should have known that Mr. Morey could not guarantee that Mr. Harden would be traded. Perhaps this issue will be resolved as part of the grievance.

Whatever the outcome, the dispute provides valuable learning opportunities for employers. 

• First, no matter how good the relationship is with an employee, do not make oral promises that might contradict the terms of a written agreement.
• Second, in negotiating with current or prospective employees, be realistic about the organization’s plans and prospects in order to avoid disagreements at a later date.
• Third, if you are in a highly regulated industry or otherwise subject to external rules, be sure that you know those rules in addition to setting your own internal policies.
• Fourth, in any negotiation, including those with employees, it is essential to know your Best Alternative to a Negotiated Agreement – what are your options if you cannot come to a satisfactory arrangement with the employee?

As of right now, the 76ers seem well-positioned to force Mr. Harden to play. At the same time, he has stated that the relationship is beyond repair. The 76ers do not want such an attitude in the locker room, but they also do not want to trade him on the cheap. Something has to give.