How salary arbitration works in the National Hockey League (NHL)

Published 13 September 2016 By: Ryan Lake

How salary arbitration works in the National Hockey League (NHL)

The National Hockey League (“NHL”) offseason not only provides an opportunity for players who qualify as unrestricted free agents to sign lucrative new contracts, but it is also the period in which certain restricted free agents may have the ability to earn the current market value for their services. 

The mechanism that allows for the market correction in a restricted free agent's contract is known as salary arbitration. The NHL is only one of two professional sports organizations in North America that utilize a salary arbitration process. Major League Baseball, is the other league, which utilizes a similar mechanism.

 

History

In the 1970s, Major League Baseball (MLB) was undergoing some major transformations. Along with the Free Agency movement, led by Curt Flood, as discussed in the author’s related article: “Free Agency Explained," the league, was seeing player unrest and holdouts. The labor disputes were largely related to the player's desire to achieve higher wages and more freedom. The club owners and the then Commissioner Bowie Kuhn realized that things would have to change to maintain the success of the league. In 1973 the club owners voted 22-2 to create a salary arbitration process, in the hope that it would end the contract holdouts that were occurring. This decision has had a tremendous impact on baseball and the way player contracts are negotiated.1MLB’s salary arbitration process laid the foundation for the process that would eventually be instituted in the NHL.

The NHL is the only other major sports league the United States that utilizes a salary arbitration process. The NHL adopted a salary arbitration procedure to allow for an equitable process to resolve wage disputes while also enabling the league to make it more difficult for a player to reach the unrestricted free agent status. (For more about how a player can reach unrestricted free agent status, please see “Free Agency Explained”).

The NHL’s salary arbitration system was created through the use of the collective bargaining process. In the United States, the concept of collective bargaining was codified into law by the passage of the National Labor Relations Act in 1935. The passage of this act has allowed unions to negotiate the terms, wages and working conditions of their employment. The United States Congress recognized the benefits of collective bargaining, and thus provided a statutory exemption to the anti-trust laws, to allow for the collective bargaining process among multiple employers.2 This collective bargaining process typically governs most North American sports leagues.

The most recent NHL – NHLPA Collective Bargaining Agreement (“CBA”) between the NHL and the NHL Players Association (“NHLPA”) was agreed to in 2013. Section 12 of the current CBA outlines and governs the process of salary arbitration.

 

Player Qualification

Under the current CBA, only restricted free agents are allowed to utilize the salary arbitration process. As detailed in the “Free Agency Explained” blog, clubs retain certain rights with regards to restricted free agents, even after the term of their contract has expired. One of these rights is to prevent the player from signing with any other club. As one can imagine these restrictions often cause tensions between players and clubs and have the ability to make it difficult for the two sides to agree on the terms of a new contract. The salary arbitration process is used as a method of resolving these disputes in a fair and equitable manner. This process allows the player to achieve their market value while also preserving the rights of the club.

To qualify for the arbitration process, a player must meet the criteria outlined in the chart below, and be classified as a “restricted free agent”.3 

First Standard Player Contract Signing Age

Minimum Level of Professional Experience Required to be Eligible for Salary Arbitration

18-20

4 years of professional experience

21 3 years of professional experience
22-23 2 years of professional experience
24 and older 1 year of professional experience

Additionally, the CBA details the number of games a player must play in a particular season to accrue a year of professional experience. According to the CBA, “A player aged 18 or 19 earns a year of professional experience by playing ten (10) or more NHL Games in a given season. A player aged 20 or older (or who turns 20 between September 16 and December 31 of the calendar year in which he signs his first standard player contract) earns a year of professional experience by playing ten (10) or more Professional Games under a standard player contract in a given season.4

 

Salary Arbitration Election 

Once a player is eligible for the arbitration process, both the player and the club are entitled to elect to use the process. The CBA lays out different requirements depending on which party chooses to initiate the arbitration process.

Player

One avenue available to begin the arbitration process is an election by a player. It is common for a player to elect arbitration if they are unhappy with the Qualifying Offer received from the team or the negotiation process for a new contract, and believes their market value is greater than what has been proposed by the club. In these situations, the player must make a written request to the NHL’s “Central Registry, the NHLPA and the player’s club no later than 5:00 p.m. Eastern Standard time on July 5th in the League Year in which such player is eligible for salary arbitration.5 Once the request is formally made, in accordance with the requirements outlined in the CBA, the arbitration process will be initiated. 

This past offseason saw twenty-four (24) players elect to initiate the salary arbitration process.6 These players include Tyson Barrie of the Colorado Avalanche, Danny DeKeyser of the Detroit Red Wings, Chris Kreider and J.T. Miller of the New York Rangers, Alex Killorn of the Tampa Bay Lightning and Marcus Johansson of the Washington Capitals.7

Club

A club can also elect to start the arbitration process. When this occurs, it is known as a “club election." Pursuant to the CBA, a “club will have the right to elect to take a player to salary arbitration under the following conditions: (a) Players with Paragraph 1 NHL Salaries (base salary) plus Signing, Roster, and Reporting Bonuses Greater than $1,750,0008 in the prior league year” and (b) club-elected salary arbitration for players who have received Qualifying Offers. 

If a club elects to initiate arbitration under option (a) above, the club may only do so if the player is eligible to become a Group 2 Restricted Free Agent and eligible to receive a Qualifying Offer, but who has not yet received one. For more about Group 2 Restricted Free Agents and Qualifying Offers (please see Free Agency Explained). Additionally, the player must have received a base salary, including bonuses, in excess of $1,750,000 or the applicable minimum salary requirements as detailed in the CBA, during the last year of their most recent standard player contract.9

A club-election under option (a) will be instead of making a Qualifying Offer to the player. However, the player retains the right to sign an Offer Sheet from another club, anytime before 5:00 p.m. Eastern Time on July 5th immediately following the club’s election.10 If the player signs an Offer Sheet before the July 5th deadline, the club’s election for arbitration will be voided, and instead, the club’s rights will be governed by Article 10.311 (which is discussed in greater detail in Free Agency Explained). 

The other option available to a club is option (b) above, which is “Club-Elected salary arbitration for Players Who Receive Qualifying Offers.12 This is the most common form of club election. Under this option, the player must be a Group 2 Restricted Free Agent who has received a Qualifying Offer from the club but has declined to accept the offer. In this situation, the club may elect to take the player to salary arbitration to determine the player's base salary for the next league year.13 

Regardless of the option chosen by the club, a club is only entitled to take two players, per league year, to arbitration. Further a player can only be taken to arbitration, by club-election, once in their career.14 This past offseason only one player was taken to arbitration through the club elected process, this player was Petr Mrazek of the Detroit Red Wings.15

 

Hearing Procedures 

The salary arbitration hearing is conducted in substantially the same manner, regardless of whether the player elected for arbitration or if it was a club election. Both the team and the player are entitled to be present at the hearing and can also hire other representatives to participate in the hearings. In addition to in-person hearings, the parties are required to submit briefs, outlining their arguments, no later than forty-eight hours prior to the start of the hearing.16

In the brief, the parties must include all of the evidence that will be presented during the hearing. The CBA details what type of evidence is admissible and which types are not. Pursuant to the CBA, the parties are allowed to present “whatever witnesses, affidavits, documents, and other relevant evidence they may choose to present at the hearing.17 Further, the parties may present evidence on the following:

  1. The overall performance, including National Hockey League official statistics (both offensive and defensive), of the player in the previous season or seasons; (For more information on the official statistics take a look at Why Enhanced Statistics Are a Game Changer for NHL Contract Negotiations);18
  2. The number of games played by the player, his injuries or illnesses during the preceding seasons;
  3. The length of service of the player in the League and/or with the club;
  4. The overall contribution of the player to the competitive success or failure of his club in the preceding season;
  5. Any special qualities of leadership or public appeal not inconsistent with the fulfillment of his responsibilities as a playing member of his team;
  6. The overall performance in the previous season or seasons of any player(s) who is alleged to be comparable to the party player whose salary is in dispute; and
  7. The compensation of any player(s) who is alleged to be comparable to the party player, provided, however, that in applying this or any of the above subparagraphs, the Salary Arbitrator shall not consider a player(s) to be comparable to the party player unless a party to the salary arbitration has contended that the player(s) is comparable; nor shall the Salary Arbitrator consider the compensation or performance of a player(s) unless a party to the salary arbitration has contended that the player(s) is comparable.19

Additionally, the following evidence is not admissible during the salary arbitration process:

  1. Any Standard Player Contract the term of which began when the player party to such Standard Player Contract was not a Group 2 player;
  2. Any Standard Player Contract entered into by an Unrestricted Free Agent, including Standard Player Contracts signed by players after the player's club has exercised a walk away right pursuant to Section 12.10;
  3. The Standard Player Contract of any player who is not being offered as a comparable player to the party player;
  4. Qualifying Offers made by the club pursuant to Section 10.2(b);
  5. Any prior offers or history of negotiations between the player and the club;
  6. Testimonials, videotapes, newspaper columns, press game reports or similar materials;
  7. Any reference to actual or potential walk away rights;
  8. Any award issued by a Salary Arbitrator as to which a club exercised its walk-away rights pursuant to Section 12.10;
  9. The financial condition of the club or the League;
  10. References to a club's Upper or Lower Limit, or to the players' Share;
  11. Any salary arbitration award issued in 2005-2006; or
  12. Any reference to any salary or other compensation information in any salary arbitration opinion that took place prior to July 22, 2005. If any salary arbitration opinion issued prior to July 22, 2005, is cited as precedent, all references to any player's Paragraph 1 Salary or other compensation information will be redacted.20

In addition to outlining the evidence that will be presented at the hearing, the briefs must also contain certain comparable players that will be utilized to demonstrate the market value of the player who is the subject of the arbitration. The parties must also state what they believe the market value for the player is. Further, the party whom the arbitration was filed against must also state whether the arbitration award will be for a one or a two-year player contract.21 

During the hearing, each party is allocated a maximum of ninety (90) minutes to present their case, and may allocate their allotted time between their direct case and rebuttal, in any manner they choose. Subject to certain limited exceptions, each party, may only utilize the evidence and comparable players outlined in their briefs during the hearing.22

Once the hearing is completed, the arbitrator has forty-eight (48) hours to issue a written decision. In the decision the arbitrator must establish the following:

  1. The term of the Standard Player Contract, based upon the player's or club's election of a one or two-year Standard Player Contract, as set forth in its brief and as consistent with the CBA;
  2. The Paragraph 1 NHL Salary to be paid to the player by the club for the season(s) in respect to which the salary arbitration is conducted;
  3. The inclusion or otherwise of a Minor League clause (or clauses) and the amount of Paragraph 1 Minor League Salary to be paid under each of the season(s) in respect to which the salary arbitration is requested;
  4. A brief statement of the reasons for the decision, including identification of any comparable(s) relied on.23

If the arbitration was initiated by the player, the club may be able to walk away from the award issued by the arbitrator, subject to certain restrictions. A club has the right to walk away from an award if the award is for $3,500,00024 or more. If the club elects to walk away from the arbitration decision, for a one-year contract, the player will immediately become a free agent and be free to negotiate with any other team in the league.25 However, if the club elects to walk away from the arbitration award, for a two-year contract, the player and club will enter into a one-year contract equal to the compensation awarded for the first year as outlined in the arbitration decision. In this situation, the player will become an unrestricted free agent the next league year. Moreover, if the club initiated the arbitration, the club relinquishes their ability to walk away from the award.26 

With the exception of the limited walk away rights granted to clubs, the arbitration award is binding and cannot be appealed once handed down. The binding nature of the award tends to make both parties wary and encourages settlement of the cases prior to the issuing of a decision. This past offseason one player, Tyson Barrie of the Colorado Avalanche went through the entire arbitration process and completed the hearing. However, prior to the issuing of a decision Barrie and the Avalanche were able to come to an agreement on a settlement. The binding nature of this process creates great incentive for both parties to work together to resolve the dispute.

 

Conclusion 

The salary arbitration process in the NHL has become a key tool in the negotiation process between clubs and players. While the arbitration process is elected to resolve contract disputes for several players each season, the vast majority never make it to the hearing. This past offseason saw 25 filings for arbitration. All 25 of those players have been able to come to a settlement and avoided an arbitration decision. 

Unlike, MLB, who has several arbitration hearings each season, the NHL rarely sees a case go through the process without a settlement being reached. The arbitration process is a rather uncomfortable one for both the player and the club, and can significantly damage the relationship between the parties. The awkward nature of this process is at its highest during the hearing. This is because the club must demonstrate why the player in question is not as good as other players’ salaries equivalent to the amount that the player is asking for. This environment can be detrimental to the relationship between the club and the player and many times when a player, who has undergone the entire process, will decide to move to another team when they become an unrestricted free agent. In some extreme cases, the process has even caused players to demand a trade. Due to this, clubs and players are highly incentivized to find a resolution before undergoing a hearing. 

Since the process is designed to incentivize settlements and has proven that it works exceptionally well in forcing the parties to find a solution to the disputes, the process has been highly successful. The NHL has had far more success in creating a process and a culture that encourages settlements at a much higher percentage than that of MLB. This, however, may be due in large part to the salary constraints that are placed on clubs in the NHL that do not exist in MLB. The salary constraints placed on NHL clubs will be explored in further detail in the next few blog posts.

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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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