By Alec Roberson
It’s the NHL’s offseason and your favorite team has a list of restricted free agents (“RFAs”). They will be unable to play next season without contracts. You then see an announcement: Player ________ Files for Salary Arbitration. Or, in the alternative: Team _________ Files for Salary Arbitration. What does “salary arbitration” mean though? And how does it work?
Salary arbitration is a process where certain RFAs or teams elect to have a neutral third-party arbitrator determine that RFA’s salary and term. The NHL and the NHLPA jointly agree on 8 individuals from the National Academy of Arbitrators to serve as arbitrators. Interestingly, the NHL and the MLB are the only major sports leagues that provide this sort of mechanism.
History and Foundation
The NHL adopted the salary arbitration process in 1994 to provide an amicable way to settle wage disputes. Arbitration also makes it more difficult for RFAs to reach unrestricted free agent status. Even though salary arbitration has existed for some time, Article 12 of the 2013 NHL Collective Bargaining Agreement (“CBA”), outlines the rules and procedures involved in salary arbitration. The 2020 Memorandum of Understanding (“MOU”) that extended the CBA for four years also made some changes to the salary arbitration procedures that we will cover herein.
Eligibility
As you likely gathered from above, salary arbitration is only available to certain RFA’s. Because team’s retain exclusive rights to signing a RFA, salary arbitration’s exclusive applicability to RFAs helps harmonize the balance of power between the team’s rights to the RFA and the player’s interest in obtaining maximum contract value.
Article 12 of the CBA provides a formula for player eligibility that uses the player’s age at the time of signing his first standard player’s contract (“SPC”) and years of “professional experience.” If a player signed his first SPC (i) between the ages of 18 and 20, he must have four years of professional experience; (ii) at age 21, he must have three years of professional experience; (iii) between the ages of 22 and 23, he must have two years of professional experience; and (iv) at age 24 or older, he must have one year of professional experience.
The CBA provides that a player has earned a year of professional experience if he plays ten or more NHL games in a given year if he is 18 or 19, or if he plays ten or more Professional Games under a SPC if he is 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). “Professional Games” include minor league games as well as games in Europe or other professional leagues pursuant to the SPC. “NHL games” are specific to games played at the NHL level.
Election of Arbitration
The timing rules for electing salary arbitration depend on whether the team or the player elects for salary arbitration.
1. Player Elected Arbitration
Normally, if an eligible player has received a Qualifying Offer and wishes to initiate the salary arbitration procedure, he must make a written request before 5:00 p.m. EST on July 5th of the year the player is eligible for salary arbitration to the NHL’s Central Registry, the NHLPA and the team. This initiates the salary arbitration process. See below for MOU’s change in deadlines for the 2020 offseason.
2. Team Elected Arbitration
If the team initiates salary arbitration, known as a “club election” under the CBA, the process is a little different. The team has two different scenarios to which it can elect to take a player to salary arbitration.
a. No Qualifying Offer
The first scenario is when a team doesn’t tender a Qualifying Offer to a Group 2 RFA. A Group 2 RFA is a RFA coming off an entry level deal that did not “defect” and go play out his RFA years in another league. In addition, the RFA must have received a base salary, including bonuses, in excess of $1,750,000 (or the applicable minimum salary requirements as provided in the CBA) during the last year of his most recent contract.
The team makes this arbitration election instead of making a Qualifying Offer to that player. However, the player may still sign an Offer Sheet prior to 5:00 p.m. EST on July 5th (or the modified date under the MOU). Signing an Offer Sheet at that time voids the salary arbitration process. The parties must then follow the CBA’s procedures regarding Offer Sheets. The team must make this election by the later of June 15th or 48 hours after the Stanley Cup final ends. The arbitrator cannot award less than 85% of the player’s aggregate salary including bonuses he received in his final year.
b. Rejected Qualifying Offer
The second scenario is when a Group 2 RFA rejects a Qualifying Offer made by the team. This scenario is more common than the first mentioned above. The team must make this election within 24 hours after the deadline for the player to elect salary arbitration (i.e. July 5). The team’s offer must be equal to or greater than the player’s previous salary including bonuses.
Regardless of the scenario, under the CBA, the team may only make two salary arbitration elections per league year. Likewise, a player may only be taken to arbitration via team election once in their career. This applies whether the hearing actually occurred or not.
It is important to remember that both sides commonly use salary arbitration to move negotiations along. Regardless of who made the election, the parties can still settle on a new SPC anytime before the hearing.
The Arbitration Hearing
The actual salary arbitration hearing is the same whether the player or the team initiates it. The parties schedule an in person hearing with an arbitrator. The player and the team are entitled to be present or have representatives represent them at the hearing. The NHLPA and NHL are also parties to the proceeding. Each submits a brief explanation supporting their position prior to 48 hours before the hearing. These briefs must include all of the evidence that each side will present at the hearing as well. Each party bears their own expenses related to the hearing.
1. Evidence
Under Article 12 of the CBA, certain types of evidence are admissible at the hearing and others are not. The evidence may include witnesses, affidavits, documents or any other relevant evidence the parties choose to present at the hearing. The admissible evidence the arbitrator may consider includes looking at “comparable players”, the player’s overall statistical performance, the number of games the player has played in (including injuries and illnesses), the player’s length of service in the NHL and with the team, the contribution of the player to the success or failure of the team in preceding seasons, and any qualities that are more intangible in nature such as leadership or public appeal. Under the MOU, players who played in the 2019-2020 “return to play” games may use their statistics from those games.
Inadmissible evidence includes many specifics surrounding who is a comparable player. The comparable player needs to be a Group 2 RFA coming off of the last year of their contract. The comparable player’s position, age, career games, and average ice time should also be as comparable as possible. In addition, other inadmissible evidence includes the team’s other qualifying offers, prior negotiations between the player and team, newspaper columns, testimonials, videotapes, press reports or similar materials, references to walk away rights or evidence of a team previously exercising its walk away rights, the financial condition of the team or league, the team’s upper or lower limits or player’s share (defined in the CBA), any salary arbitration award from the 2005-2006 season, or any reference to any salary arbitration award or salary compensation that occurred prior to July 22, 2005.
2. Procedure and Decision
Each side generally has 90 minutes to present their case. Hearings involving a “rookie” arbitrator allow for additional time. Whoever initiated the proceeding presents first. The other party then has a chance to respond followed by rebuttals and closing arguments. After the hearing, the arbitrator makes its decision, which is binding and final. The arbitrator must email the decision to all of the parties simultaneously within 48 hours of the hearing’s end. That email must provide the term and salary awarded and the reasoning for such award. The maximum term that can be awarded in salary arbitration is two years.
Walk Away Rights
Even though the arbitrator’s award is binding and final, teams have what is known as a “walk-away right” if the arbitration was initiated by the player. If the arbitrator’s award was for a one-year term and greater than $3.5 million, the team may exercise this walk-away right and the player will become an unrestricted free agent. If the arbitrator’s award was for a two-year term and greater than $3.5 million per year, the team may exercise this walk-away right and the player will be under contract at the salary awarded for one year and become an unrestricted free agent the following year. This $3.5 million gets adjusted each year to match the average league salary.
The team can only exercise this walk-away right a certain amount of times per league year depending on how many salary arbitration awards are granted. If there are one or two awarded the team may only exercise this right once, if there are three or four granted the team may exercise this right twice, and then if there are five granted the team may exercise this right three times and so on.
Notable Changes under the 2020 Memorandum of Understanding
The overall procedure for salary arbitration remains mostly unchanged by the MOU. However, the MOU did change the salary arbitration procedure in a few ways as provided below.
1. Briefs, Settlement, Eligibility, Remote Hearings
- Briefs submitted must be less than 42 pages exclusive of exhibits, glossaries, table of contents etc. and must be in times new roman font.
- Once the salary arbitration hearing has commenced, the parties may not reach a settlement (i.e. the decision is in the hands of the arbitrator).
- Players’ eligibility for salary arbitration will be prorated:
- For 18/19 year olds,10 NHL Games Played threshold shall be prorated based on [70/82] for Roster Freeze Players (players who played in one NHL game during the 2019-2020 season prior to 5:00 PM on March 16, 2020). If a Player was not a Roster Freeze Player, the 10 NHL Games Played threshold shall not be pro-rated.
- For 20+ year olds, 10 Professional Games threshold shall be pro-rated by a factor of [70/82].
- Just For 2020, in the event a team exercises their Walk-Away Right relating to a one-year Salary Arbitration award, the player may within four (4) days of receipt of notice from the team that they are exercising their Walk-Away Right, elect to enter into an SPC with the team on the same terms as the team had offered in the team’s Salary Arbitration Brief.
- The arbitrator, in his or her sole discretion, may elect to have remote hearings for the offseason following the 2019-2020 season.
2. Scheduling Changes for 2020
| Oct-04 (For Clubs that are playing after Oct-02, this deadline shall be two (2) days following the last game played in the final Playoff round they play) | Deadline for First Club-Elected Salary Arbitration Notification (5:00 p.m. ET) |
| Oct-06 (For Clubs that are playing after Oct-02, this deadline shall be four (4) days following the last game played in the final Playoff round they play) | Deadline for Qualifying Offers (5:00 p.m. ET), which are not open for acceptance prior to the “Qualifying Offers Open for Acceptance (12:00 p.m. ET)” date |
| Oct-10 (For Clubs that are playing after Oct-02, this deadline shall be eight (8) days following the last game played in the final Playoff round they play) | Deadline for Player-Elected Salary Arbitration Notification (5:00 p.m. ET) Deadline for RFA Offer Sheets for Players for whom Clubs have elected Salary Arbitration pursuant to First Club-Elected Salary Arbitration (5:00 p.m. ET). Note: Offer Sheets cannot be made prior to the “RFA/UFA Signing Period Begins” date. Commencement of Second Club-Elected Salary Arbitration Notification (5:01 p.m. ET) |
| Oct-11 (For Clubs that are playing after Oct-02, this deadline shall be nine (9) days following the last game played in the final Playoff round they play) | Deadline for Second Club-Elected Salary Arbitration Notification (5:00 p.m. ET) |
| Oct-12* | Scheduling of Salary Arbitration Hearings* (See 2020 Salary Arbitration Scheduling Procedures Below) |
| Oct-20 | First Day of Salary Arbitration Hearings (20 days)* |
| Nov-08* | Last Day of Salary Arbitration Hearings* |
| 48 hours following the last Salary Arbitration Hearing | Last Day for Issuance of Salary Arbitration Awards |
| 48 hours after Club’s last Salary Arbitration Award/Settlement | Deadline to Exercise Walk-Away Right |
*Salary Arbitration Scheduling Procedures
- The parties will select eight (8) Hearing dates from each Salary Arbitrator (if possible) evenly spaced throughout the Oct-20 to Nov08 Salary Arbitration Period.
- The parties will schedule all Salary Arbitration elections that have been confirmed received by Oct-11 (5:00 p.m. ET). If necessary and possible, the parties will set aside one Hearing slot per day from Nov-06 to Nov-08 (“held slots”) for each Club that is playing after Oct-02. (e.g. if there are two Clubs playing after Oct-02, then the parties shall set aside a total of six Hearing slots (if necessary and possible) from Nov-06 and Nov-08 for these purposes). Prior to the commencement of the Oct-12 Scheduling call, the parties shall select such held slots, utilizing the procedure set out in S. 12.7 of the CBA, except that the party that is to select second on the Scheduling call will make the first selection of a held slot and, where possible, a Salary Arbitrator will not be selected for a second held slot until all Salary Arbitrators have been selected for at least one held slot.
- All Salary Arbitration elections occurring after Oct-11 (5:00 p.m. ET) are to be scheduled as a continuation of the preceding scheduling process (e.g. if the NHLPA made the last selection on Oct-12 then the NHL makes the first selection to place new elections). Scheduling done after Oct-12 will be completed within 24 hours of each successive deadline for each Playoff Round with all new elections following that Round being scheduled in one Scheduling call. The parties agree that no Player-Elected/Club-Elected Salary Arbitration Hearing will be scheduled within ten (10) days of its corresponding Player-Elected/Club-Elected Salary Arbitration Notification deadline applicable to a Player/Club, unless otherwise acceptable to both Player and Club. As soon as it becomes known that a Hearing date would fall outside the period of Oct-20 to Nov-08 on account hereof, the Parties will immediately seek additional dates and schedule these Hearings with the Salary Arbitrators who have the earliest availability after Nov-08, unless both Player and Club agree to have the Hearing during the Oct-20 to Nov-08 period. Notwithstanding the foregoing, no Player-Elected/Club-Elected Salary Arbitration Hearing will be scheduled following the later of (i) Nov-08 and (ii) twenty (20) days following its corresponding Player-Elected/Club-Elected Salary Arbitration Notification deadline applicable to a Player/Club.
Conclusion
Players and teams commonly elect to utilize salary arbitration (when eligible) each offseason. It can expedite the process of reaching an agreement on an SPC or push the decision to an arbitrator. We see it used by both “higher profile” players as well as lesser known ones. Even with the changes under the MOU, the 2020 offseason is no different.
While the MOU mostly modifies 2020 arbitration deadlines, the parties’ inability to settle after the hearing’s commencement is noteworthy. The fact that the parties can no longer settle after the hearing has commenced should further incentivize teams and players to reach an agreement prior to arbitration. We will see if this prediction holds true in the next few years.
Except as modified by the MOU, Article 12 of the CBA still governs the salary arbitration process. While those arbitration hearings can be expensive and sometimes nasty (for example Tommy Salo v. the NY Islanders with GM Mike Milbury), salary arbitration is frequently used and can help to at least temporarily achieve agreements on SPCs quickly. If interested, CapFriendly.com provides good information related to current players electing arbitration and their eligibility.
**2022 SALARY ARBITRATION PROCEDURES UPDATE**
In most ways, the salary arbitration procedures remain largely unchanged for 2022 from the previous two years. Most of the changes include updated dates and adjusted monetary figures. A good source of the up-to-date rules and figures, and a list of players electing salary arbitration, is at capfriendly.com.
One other change involves the hearings themselves. Switching somewhat back to “pre-pandemic” norms, salary arbitration hearings in 2022 will be in person with attendance being limited to persons who are fully vaccinated against COVID-19. For anyone who prefers to participate remotely via Zoom, accommodations will be made. In addition, the parties (i.e. the team and the player) could have reasonably agreed otherwise on or before June 1, 2022.
For any remote hearings, the rules and procedures applicable during the 2020 and 2021 salary arbitration periods are to be followed.
Key dates for the 2022 salary arbitration period are as follows:
July 1 ▪ First Buy-Out Period Begins
July 2 ▪ Deadline for First Club-Elected Salary Arbitration Notification
(5:00 p.m. New York Time)
July 7 ▪ 2022 NHL Draft – Round 1
July 8 ▪ 2022 NHL Draft – Rounds 2-7
July 11 ▪ Deadline for Qualifying Offers, which are not open for
acceptance prior to July 13
July 12 ▪ Restricted Free Agents may make contact with Clubs (including
their own) regarding potential interest, but may not sign new
SPCs or Offer Sheets until the opening of RFA/UFA Signing
Period
▪ First Buy-Out Period Ends (5:00 p.m. New York Time)
▪ Club’s ability to offer own potential UFA an eight (8) year SPC
expires (11:59 p.m. New York Time)
July 13 ▪ RFA/UFA Signing Period Begins (12:00 p.m. New York Time)
▪ Qualifying Offers open for acceptance (12:00 p.m. New York
Time)
July 17 ▪ Deadline for Player-Elected Salary Arbitration Notification
(5:00 p.m. New York Time)
▪ Deadline for RFA Offer Sheets for First Club-Elected Salary
Arbitration (5:00 p.m. New York Time)
▪ Commencement of Second Club-Elected Salary Arbitration
Notification (5:01 p.m. New York Time)
July 18 ▪ Deadline for Club-Elected Salary Arbitration Notification (5:00
p.m. New York Time)
July 22 ▪ Qualifying Offers Expire Automatically (5:00 p.m. New York
Time)
July 27 ▪ First Day of Salary Arbitration Hearings
August 11 ▪ Last Day of Salary Arbitration Hearings
August 13 ▪ Last Day for Issuance of Salary Arbitration Awards
48 hours after Club’s last
Salary Arbitration
Award/Settlement ▪ Deadline to Exercise Salary Arbitration Walkaway Right
48-hour period
beginning at 5:00 p.m.
New York Time on the
3rd Day after Club’s last
Salary Arbitration
Award/Settlement ▪ Deadline for Such Club’s Second Buy-Out Period
