With the offseason in full swing and pitchers and catchers reporting right around the corner, here is a down and dirty look at how the Major League Baseball arbitration system works. If you are a sports fan, you have probably seen many of these disputes being settled over the past few days. Each year only a small percentage of these disputes actually go to arbitration. For those that do, here is how it works:
MLB, via collective bargaining, has adopted Final Offer Arbitration (“FOA”) as the exclusive dispute resolution method for disputes among players and owners. This system limits the arbitrator to choose the final offer made by one of the parties over the other. Arbitrators are restricted to choosing the offer that is the most realistic. It is designed to motivate each party to negotiate in good faith and genuinely attempt to compromise in order to create a final offer that an arbitrator will select as most reasonable. The theory is that since players and teams know that an arbitrator must select one option or the other, that both sides will submit their most reasonable offers.
FOA differs from conventional binding arbitration because in the latter, an arbitrator has many more options (i.e. they may select either party’s position, compromise somewhere in the middle, or create a unique solution on their own). Conventional arbitration is often criticized for turning into more of a litigation process. Attorneys often get involved by conducting discovery and filing motions with the arbitrator and later filing motions with the court. This not only makes things much most complicated, but also much more costly. Conventional arbitration may also have a “chilling effect” on the parties’ incentive to bargain in good faith because they may believe a better outcome with arise out of an arbitration as opposed to a negotiation.
MLB’s collective bargaining agreement sets out the terms of the final offer arbitration process. The CBA allows for arbitration for “any player with a total of three or more years of Major League service, however accumulated, but with less than six years of Major League service.” Either the team or the player may file for arbitration without consent of the other party. After the arbitration grievance is filed, the player and the team have three days submit final salary offers to a three-member panel of impartial arbitrators. At the hearing, each party has one hour to present its case to the panel, and then has an additional 30 minutes for rebuttal. The player is usually represented by his agent at the hearing. Either a club executive or an attorney usually represents the team.
The panel may only use certain criteria to determine a winner. The criteria includes the quality of the player’s contributions to the team during the immediately preceding season, the player’s quality of leadership, the player’s public appeal, the length and consistency of the player’s career performance, the record of the player’s past compensation, comparative baseball salaries throughout the league, any existing mental or physical defects of the player, the clubs recent performance, and the clubs recent attendance. After the evidence is presented and a decision has been made, the panel’s voicing of “opinions, explanations, findings, or statements of reason… regarding [the] decision,” are disallowed. Furthermore, after the final determination has been made, parties are precluded from appealing and must accept the decision.
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