It’s February, so for me and scores of others in the baseball industry, it’s time for the annual ritual known as salary arbitration. A time when players and clubs make their case before a panel of arbitrators to determine the player’s salary for the coming season.
I’ve been at this for over 15 years and it still remains among the most difficult and challenging things I take on in my practice. As I sit here now in Tampa between cases, my thoughts turned to the number of people I have met over the years who possessed a deep-seated curiosity about the salary arbitration process and what is it, exactly, what goes on inside the hearing room. While the hearings holds the fascination of many, there are many steps along the way that are important to understanding this unique process.
First, only certain players are eligible for salary arbitration. Generally, players with three or more years of service, but less than six, are eligible for arbitration. There is a subset of players between two and three years of service who are also eligible. A player will fall into this second group if he has between two and three years of service, including 86 days of service in the immediately preceding season, and he ranks in the top 22 percent of all such players. These players are called “Super 2s.”
Players who become eligible for arbitration have the benefit of having their salary determined against the backdrop of a marketplace for the first time in their career. Prior to becoming arbitration eligible players are subject to the clubs’ right to unilaterally renew their contract at whatever salary the club deems fit, within certain limitations imposed by the collective bargaining agreement.
Once in the arbitration process, the player and club enter negotiations over the player’s salary. These negotiations will typically commence in early January and pick up steam as the parties approach the “exchange date,’ which is the date both sides exchange salary submissions if no agreement has been reached. Typically, the exchange date is the third Friday in January.
The exchange of salary submissions is done blindly. The club does not know what salary the player will submit and vice versa. Once salary submissions are exchanged, the parties can continue to negotiate right up to their scheduled hearing date. Cases may settle any time after exchange. Many cases have settled once all of the parties are in the hearing room. A few have even settled after the hearing has commenced.
While most clubs will continue to negotiate after the exchange date, an increasing number of clubs have adopted a policy called “file-and-trial,” which means, if the parties exchange salaries, all negotiations will cease, and the parties are headed to a hearing. Such a policy runs contrary to the purpose of salary arbitration, which is a process designed to foster settlements. From the blind exchange, to the limitation on the arbitration panel to pick either the club’s or the player’s submission (“splitting the baby” is not allowed), the process creates sufficient risk designed to encourage the parties to reach a peaceful resolution. A “file-and-trial” policy, which prematurely cuts off negotiations, runs directly counter to this design.
If clubs that are not “file-and-trial” fail to reach an agreement with the player before their scheduled hearing (which could take place anywhere from February 1st through the 20th), the case then proceeds to arbitration. Before getting into the hearing room, however, both sides will dig in, putting in well over 100 hours preparing their respective cases. This is when the fun begins.
Catch the Part Two of this series next week.