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Baseball Arbitration? What’s that?

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A different sort of animal.

Billy Eppler wearing a black suit and black tie but no sunglasses standing at a podium with two microphones.
Billy Eppler at the 2019 BBWaa Awards Dinner

Overview of Alternative Dispute Resolution

Alternative dispute resolution (or ADR) provides a mechanism whereby disputes or differences of opinion can be resolved without need to resort to court intervention. This results in time saved and may result in money saved. Often, in ADR, the parties can agree to terms and conditions that are outside what a judge or jury could award at trial. A judge cannot order someone to apologize, but sometimes in mediation it turns out that an apology goes a long way.

Negotiation is perhaps the oldest form of ADR and does not carry the added cost of paying a neutral third party to resolve the dispute. We all negotiate. It is the give and take of bargaining. For those who cannot resolve their dispute using negotiation, the next level of ADR is mediation. Mediation is a voluntary process. The parties are not required to settle and the mediator has no authority to render a decision or to force a settlement. In facilitative mediation, the mediator is tasked with helping the parties come together and settle in a manner to which the parties themselves can agree. In evaluative mediation, the mediator is typically a noted expert, such as a retired judge, who will look over the case and give a non-binding opinion of what is likely to happen at trial. This will hopefully motivate people to settle their differences without having a trial. Transformative mediation is typically found in non-commercial fields such as criminal law. The mediator can have separate advance preparation meetings with a perpetrator and a victim, and then orchestrate a controlled meeting between them with the ultimate goal being personal growth and a sense of closure between the parties. Sometimes people have epiphanies about the magnitude of what they have done, for example.

Arbitration in the commercial sense can provide a neutral third party who can listen to an abbreviated presentation of evidence in view of the respective demands of the parties as named in their briefs, and make a decision. That decision may be to award one of the parties the relief requested or to give neither of them what they want. The Arbitrator may split the difference somehow and award a number between the parties respective positions. In binding arbitration, the decision is final and the winning party can take the decision to court and get a judge to convert the award into a judgment at a simple hearing. A non-binding arbitration award can be taken by the losing party back to court with the aim to overturn the Arbitrator’s decision.

Baseball Arbitration

A specialized form of arbitration has evolved in Major League Baseball as a way to resolve certain specific disputes between players and management. Labor grievances are typically resolved by a panel of three with one Arbitrator selected by the MLB Players Association, one Arbitrator selected by management, and a third Arbitrator selected by the other two arbitrators. They decide about various grievances the player or management may have about each other in light of the Collective Bargaining Agreement (or CBA).

In player salary arbitration, however, the Arbitrator is constrained to make an award granting without modification either the salary sought by the player or the salary offered by management. The Arbitrator cannot split the difference. This is the famous difference of “baseball arbitration.” This has the effect of forcing both sides to be as realistic as possible about their demands. If one side makes a ridiculous “pie in the sky” demand, the other side is probably going to win. Everybody knows that. The risk that the other side may prove more convincing at the arbitration drives people to the negotiating table in the days leading up to the arbitration. If you negotiate a settlement, you exercised a measure of control. If the matter goes to arbitration, the Arbitrator has all the control. Good luck to you!

Now then, to the specifics of baseball arbitration under the CBA. The players eligible for salary arbitration are the “super twos” (more on them later) and those players who have three or more years of Major League service time, but fewer than six years. “Super twos” have between two and three years of service time, have at least 86 days of service time in their second year, and they rank in the top 22% of players who fall into that service time calculation.

Management must tender a contract to each player on the 40 man roster with fewer than six years of service time by a set deadline each year. This year the deadline is December 2, 2019. If the club has not tendered a contract to an eligible player by December 2, 2019, that player becomes a free agent immediately. One of the very typical reasons for such a “non-tender” is if management believes the player is likely to receive an arbitration award that exceeds that player’s value to the club in the coming year.

If players accept the tendered contract, they have settled and there will be no arbitration. Meanwhile management and the other players continue to negotiate until early January, when the players who have not settled must file for salary arbitration. On January 10, 2020 the players who have filed for arbitration and their respective teams must exchange salary offers. The arbitrations will be scheduled between February 3, 2020 and February 21, 2020. The parties can settle at any time before the arbitration hearing. Seeing the offer of the other side (that may eventually become the winning figure) can be a very powerful motivation to split the difference before all control passes into the hands of the Arbitrator.

What Happens at the Arbitration?

The player (usually through his agent) and the team will present their respective cases for why their salary offer is the correct one. The rules of evidence are set out in Article VI, Section E, Part 10(a) & (b) of the CBA. The player’s on-field performance, leadership, fan appeal, the length and consistency of the player’s career contributions, the player’s past compensation, injuries etc., the team’s recent performance, and comparative baseball salaries are all in play. The most weight is given to each side’s presentation regarding comparable baseball salaries.

No consideration can be given to the financial position of the player or team, testimonials or press comments, prior contractual negotiations between the team and player, salaries in other sports, or the costs of the salary arbitration process itself. (The policy behind keeping prior salary negotiations confidential is that if the Arbitrator is bound to hear all that stuff, then nobody will ever negotiate. If you were worried about how much the arbitration costs would be, maybe you should have settled.) Finally, the Arbitrator or panel will choose the offer that is closer to what they believe is the player’s true arbitration value and make an award in exactly that amount.

Baseball Arbitration in the Commercial World

If parties agree, baseball arbitration can be used to resolve other forms of dispute. Two forms have evolved. Day baseball arbitration is the form where the Arbitrator is aware of the offer from each side and will select the offer that she believes is closes to the correct outcome. Night baseball arbitration is where the parties have submitted their respective offers to the Arbitrator but the Arbitrator remains unaware of the amount of the offers during the arbitration. In the end the winning offer is the one that is closest to the number that the Arbitrator decided the case was worth. People will use night baseball arbitration when they are strongly convinced that their number is the correct number.