Legal Definitions - sweetheart deal

A sweetheart deal refers to a secret, dishonest agreement between two parties that appears legitimate on the surface but is actually designed to benefit one or both parties unfairly, often at the expense of a third party or a larger group. This term is frequently used to describe situations where an employer and a union representative secretly conspire, leading to a collective-bargaining agreement that is unfavorable to the union members (e.g., lower wages or fewer benefits) in exchange for a personal benefit or payoff to the union representative.

Here are some examples illustrating a sweetheart deal:

• Union Negotiations: A large manufacturing company is negotiating a new contract with its workers' union. The union president secretly accepts a substantial "consulting fee" from the company's CEO. In return, the president pushes through a contract that freezes worker wages for three years and reduces their health benefits, despite strong opposition from the rank-and-file members. This is a sweetheart deal because the union president, who is supposed to represent the workers' best interests, colluded with the employer for personal gain. The agreement benefits the company (lower labor costs) and the president (the fee) but severely disadvantages the union members.

• Government Contracts: A city's public works department is soliciting bids for a major infrastructure project. The head of the department secretly meets with a particular construction company's owner. The owner agrees to renovate the department head's personal vacation home for free. In exchange, the department head ensures that the company's bid, though not the most cost-effective, is selected for the project. This illustrates a sweetheart deal because the department head and the construction company colluded. The department head used their position to award a public contract unfairly, benefiting the company and themselves personally, at the expense of taxpayers who might have received a better deal from another contractor.

• Corporate Acquisition: A large technology firm is in the process of acquiring a smaller startup. The CEO of the startup, knowing the acquisition is imminent, secretly negotiates a golden parachute severance package for themselves that is far more generous than what other executives will receive, and also ensures their personal stock options are valued at an inflated price. This is done in exchange for recommending the acquisition to the board, even though other acquisition offers might have been more beneficial to the company's shareholders as a whole. This is a sweetheart deal because the startup CEO secretly arranged a disproportionately favorable personal outcome from the acquisition. They acted primarily for their own benefit, potentially at the expense of the startup's shareholders or other employees.