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In the context of professional sports, salary arbitration is a formal process wherein a player and club reconvene, assess, and negotiate the player’s worth prior to termination of the club’s contractual rights. Salary arbitration is a tool often utilized by players under compulsory rookie contracts to renegotiate terms of compensation to better reflect their value to the organization. Currently, only two of the four major professional sports leagues in North America permit salary arbitration: Major League Baseball (the “MLB”) and the National Hockey League (the “NHL”). This piece will provide a general examination and insight into provisions governing salary arbitration permitted within the MLB/MLBPA collective bargaining agreement (“CBA”) (the “MLB CBA”) and NHL/NHLPA CBA (the “NHL CBA”).

1. Salary Arbitration Eligibility

Both the MLB and NHL primarily distinguish eligibility for salary arbitration by the length of the player’s career to the respective league. Under Article VI(E) of the MLB CBA, a player is eligible for salary arbitration after satisfying at least three, but less than six-years of major league service time. Consequently, “pre-arbitration players” are generally those who have less than three years of service time.[1] Conversely, under Article 12.1 of the NHL CBA, only restricted free agents are permitted to utilize the salary arbitration process, which is a status obtained after fulfilling a specified number of league seasons as set forth in the NHL CBA. See NHL CBA Article 12.1(a).

2. Filing for Salary Arbitration and its Hearing Process

Once a player is deemed eligible for salary arbitration, the player is entitled to elect the use of the process.[2] Both CBAs promulgate specific filing requirements, which are generally deemed satisfied upon a formal written submission prior to the specified filing deadlines. See MLB CBA Article VI(E) and NHL CBA Article 12.2-4. During the salary arbitration hearing, both the player and the club will be permitted to present their case before an individual arbitrator or arbitration panel. Under Article VI(E)(10)(a) of the MLB CBA, the criteria to be considered upon “will be the quality of the Player’s contribution to his Club during the past season… the length and consistency of his career contribution… [and] comparative baseball salaries…” Notwithstanding a narrowly defined list of inadmissible evidence, the MLB CBA provides each party with broad evidential support and admits “any evidence” which may be relevant to the subject application on behalf of the player. Upon completion of the parties’ arguments, the arbitration panel “shall make every effort to [render a binding decision] not later than 24 hours following the close of the hearing.” See MLB CBA Article VI(E)(13).

Similarly, the NHL CBA provides the parties with broad evidential tools in furtherance of their salary arbitration positions. Admissible evidence under the NHL CBA includes, but is not limited to, the player’s overall performance; number of games of played; injuries or illnesses; comparable player compensation; and special qualities of leadership and public appeal. See NHL CBA Article 12.9(g). Within 48-hours after the close of the hearing, the arbitrator shall render and promulgate its decision via electronic mail. See NHL CBA Article 12.9(n). However, the arbitrator’s decision is not necessary binding upon the parties. Subject to certain limitations, the club is provided with a “walk away” clause, but the triggering of such an event permits the player to become an unrestricted free agent, and consequently, is permitted to contract with any other club. See NHL CBA Article 12.10.

3. Encouraging Settlement to Avoid Arbitration Hearing

Similar to judicial rules of court, the provisions set forth in the MLB and NHL CBAs are designed to promote settlement of contractual disputes and avoid the formal process of arbitration hearings. For example, both CBAs require each party to be responsible for its own expenses and participation in arbitration. See MLB CBA Article VI(E)(9) and NHL CBA Article 12.9(o). This requirement promotes a good faith basis upon which the parties will negotiate fairly and without unnecessarily prolonging the process. Further, the MLB CBA requires the parties to submit salary figures to the arbitration panel, which will render a decision from one of the two figures without averaging for common ground. See MLB CBA Article VI(E)(2). As such, this incentivizes the parties to provide realistic salary proposals from the outset and foster honest and pragmatic settlement negotiations. Likewise, the NHL CBA limits the amount of club elected salary arbitrations a player may be subject to and declines the club the right to “walk away” from an undesirable outcome when the process was evoked by the club. See NHL Article 12.3(c) and 12.10. Therefore, clubs are reluctant to frivolously evoke salary arbitrations against a player without just cause and reason. Accordingly, the inherent nature of the arbitration process in both leagues is designed to foster settlement between the player and the club and to avoid a prolonged formal hearing process.

 

[1] A narrowly defined sub-group of pre-arbitration players referred to as “Super 2s” are also eligible for salary arbitration. Super 2s are players who maintain at least two, but less than three years, of service time and have: (1) accumulated at least 86 days of service time during the second year and (2) rank in the top 22% of players who fall into this classification. 

 

[2] Unlike the MLB, which is required to provide its players with guaranteed contracts without the possibility of a reduced buy-out option, the NHL is provided with the opportunity of initiating salary arbitration to lower the amount of compensation due to the player. However, this election is seldomly evoked because of negative consequences triggered pursuant to player friendly protective provisions when arbitration is initiated by the club. See NHL CBA Article 12.3 and 12.10(e).

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