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

 

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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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