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My previous blog posts here on the A-Rod affair contained some free advice, specifically that A-Rod had no chance convincing the federal district court to overturn the arbitration award against him. Maybe A-Rod reads my blog posts, because late last week he gave up the ghost and withdrew his lawsuit. While this matter has drawn attention to the arbitration system used my Major League Baseball (“MLB”) and the Major League Baseball Players Association (“MLBPA”) to resolve disputes, it’s only half the story.

 

Two Types of Arbitration

The A-Rod matter showcased grievance arbitration. This is a system whereby a union and management use an arbitrator to resolve disputes between them. As I pointed out in a previous blog post, labor arbitration is a bit different than consumer or business arbitration. Whereas the latter arises out of an arbitration agreement between the parties, labor arbitrations typically arise out of a collective bargaining agreement between a union and management. So, in a typical labor arbitration, the case is union vs. management, with the union grieving on behalf of a union member (in this case the MLBPA vs. MLB).

 

But baseball also uses arbitration to resolve salary disputes between players and their team. Given that pitchers and catchers are now reporting to spring training, this is a good time to review how the system works. The formal name for the arbitration system is “last best offer” (“LBO”) or “final offer” arbitration. Believe it or not, this is an arbitration system designed not to have arbitrators decide cases. How’s that? Here’s how it works: the team and an eligible player whose contract is expiring do their best to negotiate a new contract. If they can’t, they go to LBO. These cases typically are heard in a short window of time that happens around this time of year. The arbitrator is limited to selecting either the team’s last offer or the player’s last demand – nothing more or less or in between. There’s no opinion accompanying the award.

 

An Arbitration System Designed to Avoid the Arbitrator?

Why then do I say the baseball LBO arbitration is designed to avoid the arbitrator? In my view, the system’s purpose is to encourage settlement, not to foster arbitration cases and hearings. Because the arbitrator must select one figure or the other, the parties have a very strong incentive to bargain in good faith. If not, the arbitrator’s hands are tied and he or she may end up selecting the least ridiculous offer (a term some derisively ascribe to this form of arbitration). And indeed, history shows us that most baseball salary arbitrations are settled. Sports Illustrated reported in January that within days of filing their arbitration cases, all but 39 out of 146 players (73%) had already reached settlements with their team. More followed, and according to the MLBPA, “Although the number of players filing for salary arbitration varies per year, the majority of cases are settled before the arbitration hearing date. Approximately 90 percent of the players filing for arbitration typically reach new agreements before a hearing.”

 

What is the Purpose?

If the purpose of this system of arbitration is to avoid the arbitrator, what is its purpose? This one’s a hanging curveball…. The purpose of the baseball arbitration system is to quickly, fairly, and inexpensively resolve disputes so players can get back on the field where they belong. Or, stated succinctly, “Play ball!”

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