What’s Baseball Arbitration all About?

It’s not a subject that fans often pay any particular time or attention to, but starting next Monday (Feb. 3) arbitration hearings will begin for those arbitration-eligible players, who were unable to negotiate a contract with their team prior to the date to exchange salary figures.  

The last time the Dodgers went to arbitration was in 2007 with Joe Beimel.  The last time the Dodgers went to arbitration with a player and lost, was in 2001, when relief pitcher, Terry Adams won his arbitration hearing.  

This year, four players were not able to come to an agreement with the Dodgers. Those four are Max Muncy, Joc Pederson, Chris Taylor, and Pedro Baez.  It will be interesting to see whether or not any of these cases are settled prior to a hearing.   The Dodgers and Andrew Friedman typically take a file‑and‑trial approach(more on that below).   It’s also important to remember when looking at salary arbitration, one must do it through the lens of the Collective Bargaining Agreement.   In prepping this post, I was reminded of the Buffalo Springfield song “For What Its Worth” (with apologies to Stephen Stills): 

There’s something happening here

What it is ain’t exactly clear

There’s an owner with a frown over there

Telling me to take less or beware

I think it’s time we stop, children, what’s that sound

Everybody look what’s going down

There’s battle lines being drawn

Nobody’s right if everybody’s wrong

Young players speaking their minds

Getting so much resistance from behind

It’s time we stop, hey, what’s that sound

Everybody look what’s going down

What a field‑day for the attorneys

Rich owners and players struggle through their journeys

Arguing strikes and a salary cap

All the while the MILB takes the rap

It’s time we stop, hey, what’s that sound

Everybody look what’s going down

Paranoia strikes deep

The fans can’t hardly sleep 

They can’t help but being afraid

If there’s a strike, the games will be taken away

So it’s time we stop, hey, what’s that sound

Everybody look what’s going down

Most on this blog are extremely educated of all things baseball and Dodgers, and please forgive me if this is information you already know.  For the few of you that might not be aware of the process, I offer this primer on Salary Arbitration.  Also, even though I am an attorney, I confess that I have little to no knowledge of Labor law or Anti-Trust law.   And, I will also readily admit to a having decidedly anti-union bias.   That does not mean of necessity That I favor the owners over the players, I do not.   I’m just not in favor of forced participation in unions.  I recognize their place in the history of labor/management relations, both positive and negative.   I ran away from home when I was 15, and got a job working at a Marshburn Farms processing plant in Norwalk, California.  I was forced to join the union and pay the dues.  Although my time at Marshburn was short-lived, it was long enough for me to develop the conviction that unions were not for me and I have not belonged to one since.  That said I do not cluck my tongue at those that belong to unions.   

To begin with, the salary arbitration procedure is governed by the MLB Collective Bargaining Agreement (CBA), Article VI(E)(1), (2), (3) and (4).  The CBA is a contract between the 30 MLB clubs and the MLB Players Association, the collective bargaining agent or union of current and future Major League ballplayers. The CBA memorializes the terms and conditions of employment of all players wearing big league uniforms.

Some might ask, what is arbitration?   Arbitration is a form of alternative dispute resolution. In theory, it is designed to avoid time-consuming and costly litigation.  That theory does not work in the civil litigation realm, as I always advise my clients not to sign or agree to arbitration provisions in their agreements.  Mediation yes, arbitration no.  Why, because in reality it is much more expensive and the outcomes are far riskier.  Certainly for the consumer.  The parties must agree to have the dispute resolved privately by an arbitrator(done through the CBA).   Arbitration decisions are confidential and legally enforceable; and both parties agree in advance to abide by the award, or decision, rendered by the arbitrator, which eliminates the cost of an appeal.

Who is Eligible for Salary Arbitration?

MLB utilizes a salary arbitration system known as final‑offer arbitration. Under the current CBA, players are separated into three categories: (1) pre‑arbitration players; (2) players eligible for salary arbitration; and (3) free agents. These categories are based on the player’s service time (i.e., the number of years and days of major league service a player has in their career). A team has the contractual rights to a player until that player has six years of service time and becomes a free agent.

A pre‑arbitration player will generally be a player who has less than three years of service time while a player who has at least three, but less than six years of service time will be eligible to enter the salary arbitration process.

There is also a special class of players, called “Super 2s”.   A Super 2 is a player who has between two and three years of service time, with at least 86 days of service time during his second year and ranks in the top 22 percent of players who fall into that classification. A Super 2 player will have three years as a pre‑arbitration eligible player and four arbitration years while a player who doesn’t earn Super 2 status will have three years of salary arbitration following their four pre‑arbitration years.

These time frames have become increasingly more important in recent years.   As more and more clubs have become centered on analytics, it has been shown that they get better performance with less risk around club or salary arbitration control players, than those players available through free agency or trade. 

Benefits of the Salary Arbitration Process to Players and Teams

Of course with the good, comes the bad as more and more clubs “manipulate” a players service time.  A slick interpretation of the MLB’s free‑agency rules has given owners an incentive to keep their best prospects in the minors until late April, in order to gain an extra year of arbitration control.  Always looking to get more for less.   According to league rules, an MLB regular season lasts 187 days; if a player spends 172 of those days on a major league roster or injured list, he earns a year of service time.  This also means that if a player finishes his rookie year with 171 days of service time, the club retains control over him for another full season.  There have been several instances of service time manipulation, Kris Bryant, Vlad Guerrero, Ronald Acuna, Bryce Harper, Evan Longoria.   Service‑time manipulation is against the spirit of the CBA, however, because it’s so hard to prove wrongdoing, most teams have adopted the practice anyway.  The union has filed a grievance on behalf of Kris Bryant (whose manipulation was obvious and egregious).   The hearing has been held, but no decision has been rendered.   Don’t expect, however, Bryant to receive a favorable ruling.  

During the first three years of service, a pre‑arbitration eligible player will typically make somewhere around the major league minimum salary. However, once the player accrues enough service time to be eligible for salary arbitration. This benefits the player because that player now has some leverage to earn a salary that has at least some basis in that player’s performance. The team benefits because while the player will receive a salary increase, the player will still likely earn a salary lower than their true value on the free-agent market. Obviously, this is important for a team because, in theory it could utilize the savings on other players.  Though that does not always happen.  It should be noted, that arbitration‑eligible years represent a substantial discount over what a similar player would earn in free agency: the rules of thumb for arbitration‑eligible compensation are 25 percent, 40 percent, and 60 percent of free-agent market value for a similar player for players eligible for three arbitration years and 20 percent, 33 percent, 50 percent, and 70 percent of free-agent market value for a similar player for players eligible for four arbitration years.  I’m not very good at math, but that represents a substantial savings for the owners.  

Filing for Salary Arbitration

Teams were required to offer their pre‑arbitration and arbitration‑eligible players a contract for 2020, by December 4, 2019.  These contracts do not have to be signed, only offered.  A Player not offered a contract (Yimi Garcia) is “non-tendered and becomes a free agent. All others with the required service time become eligible for arbitration.

In order to file for arbitration, an eligible player must first communicate the intent to file to the MLB Players Association.  Once the player has notified the Players Association of the election of submission to arbitration, the Players Association then writes to the MLB Labor Relations Department by the designated filing date or deadline.  Once the player has notified the Labor relations Department, the player and team were required to exchange salary offers by January 10^th.  It is the responsibility of the Players Association prior to the Exchange Date to obtain the salary figure from the Player, and the Labor Relations Department shall have a similar responsibility to obtain the Club’s figure.   Of course, the team and an arbitration-eligible player can agree to a contract prior to the exchange of salary figures (most do).   In theory, a player and team can to come to an agreement on a contract any time prior to the hearing, or even before the hearing has concluded.  If a player and team are unable to come to an agreement prior to the scheduled hearing, the player’s salary will be determined by the arbitration panel. These hearings occur between February 3 and February 24 and are held in either The hearing location is agreed to by the parties, “with preference being given to either Los Angeles, Tampa/Orlando, or Phoenix,” according to the CBA(conveniently, all warm-weather locations).  All hearings are held in the designated city, and as far as I know, they rotate.   

As mentioned above, the Dodgers and AF have adopted a file and trial policy in dealing with salary arbitration.  In fairness to them, most other teams adopt that policy as well.  Remember, the CBA expires in 2021, and there is much more at stake here than simply the difference in salary requested by Max Muncy and offered by the Dodgers(which in baseball money is chump change). 

When asked about the policy, Friedman said,  “There are a lot of reasons behind the policy, but the aspect that is most beneficial is that it keeps the discussions leading up to the deadline reasonable and grounded in the overarching point of the process,” he said. “At its heart, the process is meant to pay players fairly for what they’ve accomplished. No more, no less. When both sides are held to numbers that they’ve been artificially forced to swap, it adds a level of gamesmanship to the process that distracts from the real purpose of the whole exercise.  Our goal is always to get to a fair settlement that rewards the player for what he’s done. Adding this extra layer only complicates that.”   He also added, “Simply put, we think that our policy gives both sides the best chance of getting to a number that each of them can feel good about,” Friedman said. “In essence, it adds a level of rationality to a process that, on occasion, can get emotional. It helps keep us grounded.”

Per Jeff Passan:

“While MLB works diligently and impressively to coordinate the arbitration targets of its 30 teams — this behavior is sanctioned under the collective bargaining agreement and not considered collusive — agents occasionally make far‑under‑target settlements. The effect, in a comparison‑based system, is devastating: A bad settlement can linger and depress prices at a particular position for years.”

Players union executive director Michael Weiner has a different view of the policy.   “With respect to the file‑to‑go strategy, or the file‑and‑trial strategy, the union has long believed, and has expressed to the commissioner’s office, that that strategy stands the purpose of salary arbitration on its head,” Weiner told Marc Topkin of the Tampa Bay Times. “Years ago, many clubs took the view that it didn’t make sense to talk until after we exchanged numbers, and to say that we won’t talk if you exchange numbers in our view is not consistent with the way the system was designed to operate. But clubs are entitled to negotiate as they see fit.’’

And, As Marc Carig explains:

“Those versed in arbitration describe efforts that encourage teams to hold the line in negotiations, even when differences are relatively small because the results will eventually have a larger impact in setting future comparables. In essence, it is worth fighting for pennies, because even pennies pile up over time. The labor relations department positioned itself as a central resource. It made data available for teams to more easily find comps to be used in negotiations. It staged mock arbitration sessions. It encouraged frequent discussions about the process. As a result, teams as a group have improved their approach to arbitration.”

It should be noted, there is nothing wrong with Labor Relations Department being involved in the salary arbitration process.  Major League Baseball has hired attorneys to assist teams in preparing for and presenting arbitration cases.  Holding mock arbitrations?  Providing data?  Facilitating communication?  All fine. The CBA bars none of those things.  What the CBA does prohibit is the Labor Relations Department stepping out of its role as a helper and into the team’s role as a party.   Trust me, it comes very, very close to doing that on a regular basis.  

How is the Arbitration Panel Selected?

A panel of three arbitrators decides each major league arbitration case. The Players Association and Labor Relations Department annually select arbitrators to decide the salary arbitration cases. If the Players Association and Labor Relations Department are unable to agree, the arbitrators are selected from a list provided by the American Arbitration Association. The list is pared down to three by the Players Association and Labor Relations Department, who then designate one arbitrator to serve as the panel chair.  More often than not, the arbitrators are “not baseball people”, but rather they are retired or currently sitting Judges.   

How is the Arbitration Conducted? 

Arbitration hearings are private and confidential. Each party is afforded one hour to make an initial presentation of arguments, then half an hour for rebuttal and summation, with the player’s representative presenting first. Despite the presenting order, neither party carries the burden of proof. The parties divide the hearing costs equally. The parties independently incur costs for representation and witnesses.

At the hearing, the player and the club present the panel with a signed Uniform Player’s Contract (contract). All sections of the contract must be complete, except Paragraph 2 for Payment. The delivery of the signed contract to the panel effectively means the player is signed. By submitting to arbitration, the player agrees to abide by the terms and conditions in the contract and submits the issue of salary to the panel and play for the salary awarded by the panel.

During the salary arbitration hearing, both the player and the team will present their case before the arbitration panel.   Following the hearing, the panel will choose between the player’s and the team’s salary offer.   Because the panel has to choose between one of the two offers, the player and team are both forced to present reasonable offers as the panel will choose the offer that is closer to what they believe is the player’s true arbitration value.

The information the player and team can use during the hearing to present their case is governed by Article VI, Section E, Part 10 (a) & (b) of the CBA. This information includes the player’s contribution to the team during the past season (e.g., the player’s on‑field performance and other qualities such as leadership and fan appeal), the length and consistency of the player’s career contributions, the player’s past compensation, the existence of any physical or mental defects, the team’s recent performance (e.g., the team’s record, improvement, and attendance) and comparative baseball salaries.   The panel considers the following factors when evaluating the quality of the player’s contribution:   Overall performance — statistical analysis;  Length and consistency of career;   Record of past compensation;   Existence of any physical or mental deficiencies;   Leadership qualities and public attraction;   Recent performance of the club — league standing and attendance;  *Comparative baseball salaries; and **Evidence of special accomplishment. 

* The panel is provided with a confidential document tabulating the salaries of all major league players from the prior season. The player salary figures are categorized by years of major league service. The panel considers not merely the salary of a single player or group of players, but the salaries of all comparable players.

** This would include any awards the player received that would show him to be above the comparable players. 

Information the panel cannot consider during the hearing includes the financial position of the team or player, testimonials or press comments regarding the team’s or player’s performance, prior contractual negotiations between the team and player, any costs associated with the salary arbitration process (i.e., attorney’s fees), and salaries in other sports or occupations.

Witnesses can be called and the panel will consider all sorts of documentary evidence.  Because of the expedited nature of the hearing, I would think the rules of evidence are relaxed to allow for hearsay, whether through testimony or documents.   

Getting all the salary arbitration cases settled before they reach a hearing clears out several issues, not the least of which is that participating in arbitration can cause hurt feelings.  More than one player has come from a hearing expressing great disdain for what he heard during the hearing.  This, in turn, can impact the relationship between the player and the team.  The old adage that a happy cow produces more milk is certainly true in this context.  I read a comment from Max Muncy Twitter wherein he expressed the opinion that he would have to prove himself again this year.  I would imagine that he feels that way, at least in part, because he and the Dodgers were unable to agree to a contract.  

The arbitration panel may render its decision on the day of the hearing and shall make every effort to do so not later than 24 hours following the close of the hearing.  As stated above, the arbitrators are limited to picking one salary or the other.   They write the figure chosen into Paragraph 2 of the contract and forward it to the Commissioner’s office.   The arbitrators to not render an opinion or statement of decision on why they ruled as they did.   Initially, they notify the Players Association and Labor Relations Department of their decision, however, they do not let them know what the vote was.  

Let’s hope the Dodgers and Joc, CT3, Baez, and Muncy can get these settled before they actually go their hearing.   From my perspective, this is not the year to have disgruntled players.   While I’m a litigation attorney, my passion is mediation.   I do a lot of mediation for our local court.  Why, because settlements are good.   I expect though that the hearings will be conducted because Manfred and the owners have their eye on the expiration of the CBA in 2021.  I fear a strike is on the horizon, as the players are becoming more and more aware of the inequities of the system.

I’ll finish this off with another Buffalo Springfield song that I have not thought of in a long, long, time:   “Who should be sleeping, but is writing this blog, wishing and a‑hoping he wasn’t so damned wrong and who’s saying baby, that don’t mean a thing ’cause nowadays Clancy can’t even sing.”   That probably has nothing to do with nothing, but I sure liked that song when it first came out.