How free agency works in the National Hockey League (NHL)

Published 15 August 2016 | Authored by: Ryan Lake

One of the most exciting aspects of the National Hockey League (“NHL”) off-season is the free agency period. This period is when certain players, who have met a variety of criteria, are free to choose which team they would like to play for.

Unlike the NHL draft process, as discussed in the author’s related article Signing New Talent: How The Entry Draft System Works in The National Hockey League, free agency provides the player with a great deal of power to choose where he would like to play.

 

History of Free Agency in U.S. sport

The concept of free agency in U.S. sports is a right that has been won by the players during the collective bargaining process. This right allows players, who have met certain qualifications, to be free to choose which team they would like to play for, once their current playing contract expires. It is now well established in North American sport and seen in all five major sport leagues.1 However, that was not always the case. The first league to have a free agency process was Major League Baseball (“MLB”). This progress for athlete’s rights did not come without a hard fought legal fight between the players and the owners. The players did not earn the right to have a choice of where to play until 1976.

The champion for the player’s cause was a ball player by the name of Curt Flood,2 A three-time All-Star player for the St. Louis Cardinals. Flood was a decorated and highly skilled center fielder, who helped his team win the World Series twice. While Flood was one of the best players of his era, his legacy reaches far beyond the baseball diamond.

In 1969 MLB was still operating with the “reserve clause”, which essentially meant that the rights to a player were owned by the drafting team until that team transferred those rights or released the player. The “reserve clause” was a clause in the player contract that granted the club the right to trade, release, reassign, or sell the rights to the player to another club, without input from the player, and did not allow for the player to sign with a new club once the original term of the contract had expired.

At the end of the 1969 season, Flood was traded by St. Louis to the Philadelphia Phillies, however, Flood refused to report to the Phillies.3 Instead of joining the team that technically owned his rights, Flood along with the MLB Players Association (“MLBPA”) filed a lawsuit against MLB challenging the reserve clause. 4

Flood and the MLBPA took the case all the way up to the United States Supreme Court.5 In 1972 the Supreme Court held that while Flood should have the right to choose where he would like to play, the reserve clause was not illegal due to the MLB anti-trust exemption.6 This exemption was granted to MLB by the Supreme Court in 1921.7 The Court went on to state that the only way players can receive free agency is either by an act of Congress or through the collective bargaining process.8

Soon after the decision of the Supreme Court, the MLBPA and baseball owners and players association came to an agreement to include a binding arbitration process for internal grievances in the collective bargaining agreement. In 1975, two pitchers were brought into the arbitration process since their current club had exercised the reserve clause renewal right, which allowed the club to renew an expired contract for an additional season. This right lasted in perpetuity. However, these two players never signed the renewal contract and argued that without signing the renewal they became free to sign with any team they chose. The arbitrator, Peter Seitz ruled any player who plays for one year without a contract has the right to become a free agent.9

In 1976, MLB and the MLBPA agreed to amend the Collective Bargaining Agreement to allow players who have played for at least six seasons to become free agents.10 Thus giving birth to modern day free agency.

 

Free Agency in the NHL

In 1972, the NHL granted limited and restricted rights to players. However, it was not until 1995 when the NHL granted the players the right to become truly unrestricted free agents.11 The modern free agency system in the NHL is governed by Article 10 of the current NHL–NHL Players Association (“NHLPA”) Collective Bargaining Agreement (“CBA”).12

During the negotiation process between the NHL owners and players, the sides were forced to compromise, and the result has developed into a waterfall of rights system. The owners sought to prevent younger players from achieving Unrestricted status early in their careers. This is something the players were able to concede, provided that older players, and players who have played at the professional level for many years be granted the right to be Unrestricted and free to choose where to play. In order to account for the different scenarios that may arise, and to capture players of all ages and playing experience the players and owners agreed to a grouping system.

The NHL and NHLPA created two types of free agents and classified players into six different groups. Each type and group of player have separate rights that are granted to the player. The two types of free agents are Unrestricted Free Agents and Restricted Free Agents. Every player in the NHL, once their contract has expired, will be deemed either an Unrestricted Free Agent or a Restricted Free Agent.

 

Unrestricted Free Agents

An Unrestricted Free Agent is a player who has a certain amount of playing experience in the NHL or other professional leagues and whose previous player contract has expired. When a player is categorized as an Unrestricted Free Agent, they are allowed to sign with any other team within or outside of the NHL.13 

Pursuant to Article 10.1 of the NHL CBA, three groups of players qualify for unrestricted free agency - “Group 3”, “Group 5”, and “Group 6”:14

  • Group 3 players include any “Player who either has seven accrued seasons or is 27 years of age or older as of June 30 of the end of the league year, if his most recent standard player contract has expired.15

    These players “shall be completely free to negotiate and sign a standard player contract with any club and any club is completely free to negotiate and sign a standard player contract with such player.16 Players are entitled to become a Group 3 free agent an unlimited number of times, provided they meet the requirements set forth above.17

  • Group 5 players include “Any player who has completed ten (10) or more professional seasons (minor league or NHL seasons, but excluding any season in Major Juniors), and who did not earn in the final year of his standard player’s contract more than that year's average league salary, provided that such player has not previously elected to become an Unrestricted Free Agent pursuant to the terms of Section 10.1(b)(ii) of the CBA or the terms governing Group 5 Free Agents in any collective bargaining agreement preceding the current CBA.18

    Under the current rules of the CBA, it is very unlikely that a player will achieve Group 5 status since they are likely to achieve Group 3 before completing their tenth year of service.

  • Group 6 players include “Any Player who is age 25 or older who has completed three (3) or more professional seasons, whose standard player contract has expired and: (i) in the case of a Player other than a goaltender, has played less than 80 NHL Games, or (ii) in the case of a goaltender, has played less than 28 NHL Games (for the purpose of this definition, a goaltender must have played a minimum of thirty (30) minutes in an NHL Game to register a game played).19

    A player who achieves Group 6 status is free to sign with any club, and any club is free to sign such player without any penalty or restriction, unlike players who are classified as a Restricted Free Agent.

The final way a player may achieve Unrestricted Free Agent status is as a Draft Related Unrestricted Free Agent. This includes “Any Player not eligible for claim in any future Entry Draft … and not on a Club's Reserve List shall be an Unrestricted Free Agent. Further, any Player eligible for claim in the Entry Draft, but who was unclaimed, shall be an Unrestricted Free Agent.20 However, once the player signs a standard player contract, the regulations of the Unrestricted and Restricted Free Agent Groups will apply to that player.

While there are technically four ways that a player can achieve Unrestricted Free Agent status and become free to sign with any club of his choosing, most players achieve this status under the terms of Group 3.

Furthermore, typically, a player will become a free agent on the start of the new league year, following the expiration of their standard player contract. The NHL league year starts on July 1. The combination of the opening of free agency and Canada Day, which is also July 1, has created one of the most popular and exciting days in the off-season.

 

Restricted Free Agency

Restricted Free Agency refers to the situation where a player’s contract expires but the club still owns the rights to him. Most often a player becomes a Restricted Free Agent when his entry level contract expires, but he has not yet achieved the required amount of service time to qualify for unrestricted free agency. There are two groups of Restricted Free Agents; these groups include “Group 2” and “Group 4” players.

Group 2 includes players whose contracts have expired and (1) are not an entry level or Group 1 player, and (2) who are not old enough or achieved enough service time to qualify for Unrestricted Free Agency. The CBA describes a Group 2 player as:

Any Player who meets the qualifications set forth in the following chart and: (1) is not a Group 1 Player or a Group 4 Player, and (2) is not an Unrestricted Free Agent, shall be deemed to be a "Group 2 Player" and shall, at the expiration of his standard player contract, become a Restricted Free Agent. Any such Player shall be completely free to negotiate and sign a standard player contract with any Club, and any Club shall be completely free to negotiate and sign a standard player’s contract with any such Player, subject to the provisions set forth in this Section.21

In order to qualify for the Restricted Free Agency, a player must meet the required amount of service time that corresponds with when they signed their entry level contract, as detailed in the following chart.

Age of First Standard Player’s Contract Signing22 Years of Professional Experience
18-21 years old 3 years
22-23 years old 2 years
24 years or older 1 year

If a player achieves Restricted Free Agency, the club they were previously under contract to has the right to place a Qualifying Offer on the player. By placing a Qualifying Offer on a player the club retains the negotiating rights, and in the event of another team signing the player to an Offer Sheet (discussed below), the club will be entitled to compensation from the signing club.

For a club to place a Qualifying Offer on a player, they must offer a new one-year contract with compensation that conforms to the chart below. The following chart illustrates what compensation must be offered based on the player’s previous salary.23

Previous Salary Club must offer
$660,000 or less The club must offer no less than 110% of that salary
$660,001 - $952,380 The club must offer 105% of the player's salary
$952,381-$999,999 The club must offer $1M in salary
$1,000,000 or more The club must offer 100% of the player's salary

The Qualifying Offer does not have to be accepted by the player, and the player and club are free to negotiate a new agreement for any amount and term, as long as it conforms to the salary cap regulations of the CBA.

As mentioned above, another team is free to negotiate with a Restricted Free Agent and to sign them to an Offer Sheet. If a player signs an Offer Sheet, the team who owns the rights to the player will have an opportunity to match the offer and retain the rights to the player. However, if the club does not match the offer, the new club will have to pay compensation in the form of draft picks to the original club. The following chart illustrates the 2016 compensation requirements to sign a player with an Offer Sheet.

Average Annual Value of Salary

Draft Pick Compensation

Less than $1,239,266

$1,239,226 to $1,877,615

Third Round Pick

$1,877,615 to $3,755,233

Second Round Pick

$3,755,233 to $5,632,847

First and Third Round Picks

$5,632,847 to $7,510,464

First, Second and Third Round Picks

$7,510,464 to $9,388,080

2 First Round, 1 Second and 1 Third Round Picks

$9,388,080 or greater

4 First Round Picks

There other group of players that fall within the scope of Restricted Free Agents are “Group 4” players. These are players who leave the NHL for another league while still under contract to an NHL team. In the event the player returns to the NHL, the original club retains the rights to the player. This works in a manner similar to Group 2 players. One key difference, is, however, if another team signs the player to an Offer Sheet and the original club does not match the offer, no compensation is required to be paid from the new club to the original club.

The most common type of Restricted Free Agency is Group 2 players. In addition to the regulations we have discussed here, there is another option for Restricted Free Agents and clubs to resolve salary disputes. That option is to utilize the Salary Arbitration process. This process will be discussed in the author’s next blog.

 

Conclusion

The 2016 free agency period was one of the most expensive during the salary cap era. After the first two hours of free agency, NHL owners spent more than $500,000,000.00 on new players.24 Marquee names such as Milan Lucic, Kyle Okposo, Andrew Ladd, Eric Staal, and David Backes all signed contracts with new teams. In total 149 Unrestricted Free Agents entered into new contracts.25

While NHL players have fought and negotiated for the right to obtain free agency, typically only the top players in the league are able to enjoy the ability to choose where they want to live and work. Similar to many of the other major North American sports, the vast majority of NHL players never earn the right to be an Unrestricted Free Agent. While it is necessary to allow teams to retain rights to players in order to have a stable league, the NHLPA has been able to achieve some very powerful rights to improve the working conditions of the players.

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About the Author

Ryan Lake

Ryan Lake

Ryan is an American attorney at Lake Law Group, LLC and a sports consultant at Beyond the Playbook. He works extensively on ice hockey, soccer, baseball, basketball and Olympic movement issues. Ryan is also an Adjunct Professor at St. John’s University School of Law.

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