• NHL v. NHLPA II: A Contract Is A Contract. Maybe.

    by  • December 18, 2012 • Uncategorized • 8 Comments

    The most talked about aspect of the relief that the NHL is seeking against the NHLPA (I’m using NHL and NHLPA to mean “NHL and teams” and “NHLPA and players”, respectively) is the order nullifying player contracts in the even that the NHL doesn’t get the other relief that it has requested and the NLRB upholds a disclaimer or decertification of the NHLPA. Much has been made of the potential impact of this on players and the extent to which it may make players think twice about disclaiming or decertifying the NHLPA because their contracts will be at risk.

    I have a preliminary objection to this line of thinking: like 30% of the NHL is signed for the 2014-15 NHL season. For most players, there simply isn’t that much at stake here – if their contract was to disappear and this season was wiped out, they could presumably get another contract to play hockey next year. Moreover, the guys who are signed long term, their contracts are most likely perceived as assets by the teams that have them under contract. The Oilers have Shawn Horcoff, Taylor Hall, Nail Yakupov and Jordan Eberle under contract for 2014-15. Yes, paying Horcoff $3MM is no fun but, on balance, you have to think that paying $15.25MM for those four players is likely to be a lot cheaper than paying for them in a free market.

    This move, seeking a declaration striking the contracts, is right out of the NBA litigation. I wonder the extent to which hockey is the same as basketball in terms of where the money on long term deals has gone. I only vaguely follow the NBA but it’s always seemed to me that that’s a game with fewer difference makers than in hockey but an awful lot of long contracts paying a lot of money to average players. I’m not sure that the NHL is structured the same way. If you accept the theory I’ve advanced previously, that the salary cap has resulted in a lot of the stars being relatively underpaid, I’m not sure that wiping out their lengthy contracts is really in the interest of the owners. The question, it seems to me, is what it would cost to get these same players under contract in a truly free market. If anything, wiping out contracts may be in the best interests of the stars, while hurting the rank and file and teams as a whole.

    In brief, I’m not sure that this is that much of a threat or that the NHL is that serious about proceeding with it. If things really blew up and the NHL as a whole declined to proceed with it, it’d be interesting to see if some team or player took a run at individually, thinking that it might be to their benefit. Calgary and Toronto leap out as obvious candidates amongst the teams and virtually any young player who’s signed a long term deal would also be a candidate.

    That aside, let’s look at what the NHL is arguing. The best place to look to figure out what a side is arguing is always the pleadings, so I figured I’d start with the NHL’s Complaint. I’ve copied and pasted the key paragraphs relating to this aspect of the claim so that I can comment on them as I go through them.

    106. Under the CBA, the NHL recognized the Union as the exclusive collective bargaining representative of NHL players; and pursuant to the National Labor Relations Act, 29 U.S.C. § 151 et seq., the Union was certified as the exclusive collective bargaining representative of NHL players.

    107. As a consequence of such recognition and certification, Section 9(a) of the National Labor Relations Act, 29 U.S.C. § 159(a), requires that all terms and conditions of employment of players employed by NHL teams be negotiated on a collective basis between the NHL and the Union, absent an express agreement between those parties authorizing individual negotiations.

    This makes sense to me. I took a quick look at the section of the National Labor Relations Act being referred to and didn’t see anything specific about the ability to make an express agreement authorizing individual negotiations but, given that that’s what’s gone on in the past with players and teams doing their own deals, I assume that there is something that permits this somewhere else in the Act or in a decision or something.

    108. The NHL and the Union have, in numerous prior rounds of collective bargaining, repeatedly agreed to authorize individual negotiations between players and teams within the framework of the CBA and the SPC…

    This part makes sense too. Then we get into the guts of the claim, the NHL’s theory as to why the contracts are void. I’ve bolded the parts of the rest of that paragraph that seem questionable to me.

    …The SPCs are the product of these negotiations, and thus of the collective bargaining process, and include employment terms agreed to by the NHL and Union during that process. Further, the SPCs refer to and incorporate numerous terms and conditions of player employment set forth in the CBA, and rely on the CBA to establish other terms and conditions of player employment that are not expressly set forth in the SPCs. Thus, the SPCs are controlled by, dependent upon and closely intertwined with the CBA.

    In other words, most of that seems uncontroversial to me. I’ve commented before that neither of the two things that seemed to be most widely accepted by fans and media talking about this dispute – that a 50/50 split of revenues is fair and that the owners should honour the contracts that they’ve signed – seemed sensible to me. In the case of the former, it seems like a spectacular coincidence to me if the “fair” split of revenues just happens to be the same that two children sharing a cookie would use. In the case of the latter, it’s inarguable that the SPC indicates that it’s subject to the CBA, including any CBA that might be signed in the future, so I have a hard time seeing the moral case of the players for the dollar value of those contracts to be protected – they always included the possibility of being altered by way of an agreement between the NHL and NHLPA.

    The NHL’s theory finds its roots in a 1998 grievance filed by the NBPA when the NBA locked out the players. The NBPA took the position that players with guaranteed contracts were entitled to be paid during the lockout. The matter was heard by arbitrator John D. Feerick. I can’t find a copy of his complete decision but there is a summary of it here.

    According to that summary, Feerick’s decision rested on a couple of different findings. First, federal labour law permits each side to use certain economic weapons, including strikes and lockouts. There was nothing in the contract to indicate that the teams had waived their right to lockout the players. The summary goes on to say this:

    Feerick then found that the Uniform Player Contracts were controlled by, dependent upon, and closely intertwined with the Collective Bargaining Agreement. The language of the Collective Bargaining Agreement clearly states that the Uniform Player Contracts shall be governed by the Collective Bargaining Agreement. Feerick also stated that the Collective Bargaining Agreement superseded the Player Contract. Therefore, after the Collective Bargaining Agreement was terminated the salary provisions of the Uniform Player Contracts are no longer in effect.

    I would guess that the “controlled by, dependent upon and closely intertwined with” language in the summary comes directly from Feerick’s decision and that it’s not a coincidence that the same language appears in the NHL’s claim against the NHLPA. There seem to be some differences between how the NBA and NHL have historically treated injured players during a lockout though, which suggests that the circumstances are not identical. As I read this summary, I thought about injured players, who are paid by their NHL teams and have access to team facilities. If Feerick is right, the NBA shouldn’t be paying injured players during the lockout, I figured. This article, from NBA.com, suggests that that’s the case:

    The lockout has been an obvious impediment in so many areas, but few are as crucial as the roadblock it presents to injured players trying to rehabilitate their injuries. Players and their agents are forbidden from having any contact with their existing teams, including their teams’ medical and training staffs. A player coming off a serious injury, like West, would normally spend hours at his team’s practice facility, working with physical therapists and trainers that have spent years gaining that player’s confidence and trust. That trust is especially necessary when a player is vulnerable, uncertain if he’ll return to past form.

    But now, players are on their own, paying for doctors and trainers out of their own pockets — one more expense with no paychecks coming in.

    If Feerick’s reasoning is applicable to the NHL, I have some difficulty in understanding why NHL players are being paid during the lockout. This has to be a substantial expense for the league and I would think that it would be worth a grievance if they thought that it was winnable. The fact that they haven’t grieved it seems to me to suggest that they don’t think it’s winnable or that they’ve previously fought a grievance on the point and lost. Either of these possibilities seem to difficult to reconcile with the theory that SPCs are dependent upon the CBA.

    Along the same lines, the fact that the NHL played without a CBA in 1991-92 seems troublesome to me. If the SPC is tied to the existence of a CBA, how did the league function in 1991-92?

    If you look at the SPC, it doesn’t actually mention the CBA that much. Here are the references that it includes to it:

    5(d) …In consideration of payment of such Paragraph 1 Salary, as well as payments made by the Club to fund the Major Medical Plan pursuant to Article 23 of the Collective Bargaining Agreement between the Member Clubs of League and the NHLPA, payments made by the Club to provide Career Ending Disability Insurance pursuant to Article 23 of such Agreement and other consideration…

    5(g) …Such determination shall be conclusive, final and binding upon the Club and the Player, absent a showing of improper interference with the procedures set forth in Sect ion 17.7 of the CBA and Paragraph 5 of the SPC.

    5(i) The independent physician’s determination as to whether the Player is disabled and unable to perform his duties as a hockey Player shall be conclusive, final and binding upon the Club and the Player, absent a showing of improper interference with the procedures set forth in Section 17.7 of the CBA and Paragraph 5 of the SPC.

    8(a) All obligations and rights set forth in this Paragraph 8(a) shall be subject to modification from time to time by the provisions of the CBA.

    18. The Club and the Player severally and mutually promise and agree to be legally bound by the League Rules and by any Collective Bargaining Agreement that has been or may be entered into between the member clubs of the League and the NHLPA, and by all of the terms and provisions thereof, copies of which shall be open and available for inspection by the Club, its directors and officers, and the Player, at the main office of the League, the main office of the Club and the main office of the NHLPA. This SPC is entered into subject to the CBA between the NHL and the NHLPA and any provisions of this SPC inconsistent with such CBA are superseded by the provisions of the CBA.

    The Club and the Player further agree that in case of dispute between them, except as to the compensation to be paid to the Player on a new SPC, the dispute shall be referred within one year from the date it arose to the Commissioner of the League, as an arbitrator and his decision shall be accepted as final by both parties, unless, and to extent that, other arbitration procedures are provided in any Collective Bargaining Agreement between the member Clubs of the League and the NHLPA to cover such dispute.

    20. Capitalized terms shall have the meaning set forth in the CBA, to the extent not otherwise defined in this SPC.

    21. The parties agree that the rights provided herein and in the CBA and in any addendum hereto and the promise of the Player to play hockey only with the Club, or such other club as provided in Paragraphs 2, 11 and 12, and the Club’s right to take pictures of and to televise the Player as provided in Paragraph 8 of this SPC have all been taken into consideration in determining the Paragraph 1 Salary payable to the Player.

    22. It is severally and mutually agreed that this SPC and the CBA contain the entire agreement between the parties and there are no oral or written inducements, promises or agreements except as provided herein.

    In other words, while the CBA establishes a variety of minimums and issues relating to per diem, most of these are ancillary type issues, without which you’d think that this contract could still survive. Similarly, there are ways of reading this contract that could just import whatever the terms of the last CBA were into the contract. On the surface, the contract doesn’t seem utterly incapable of enforcement to me in the absence of a CBA.

    Then it gets a little stranger:

    109. Based upon the foregoing, if the Union’s purported decertification or disclaimer of interest were ultimately not deemed invalid, and the collective bargaining relationship between the parties were not otherwise to continue, the SPCs would be void and unenforceable. Such void and unenforceable contracts cannot give rise to any legally cognizable or compensable damages in the event they are not performed.

    110. Defendants contend to the contrary. There thus exists a substantial, present and justiciable controversy between the NHL and the Defendants as to whether the Union’s purported disclaimer of interest and the termination of the parties’ collective bargaining relationship render the SPCs void and unenforceable.

    111. By reason of the foregoing, the NHL is entitled to a declaration that if the Union’s disclaimer is ultimately not deemed invalid, and the collective bargaining relationship between the parties does not otherwise continue, the SPCs would be void and unenforceable, no player would be entitled to any benefits or other terms and conditions of employment pursuant to such SPCs, and the NHL and Clubs’ failure to perform cannot give rise to legally cognizable or compensable damages.

    Paragraph 109 is the most interesting part of this to me. The theory that’s being asserted here seems sort of contradictory. The NHL is saying that the SPC is uniquely bound to the CBA and cannot exist without the CBA. OK – right or wrong, that seems straightforward enough. Why, then, is the existence of the SPCs tied to the existence of the NHLPA and a collective bargaining relationship rather than the existence of a CBA?

    Part of the answer is probably that arguing that the SPCs are tied to the existence of a CBA raises all sorts of awkward questions. Why has Nikolai Khabibulin been getting paid while he’s injured during the lockout? Why don’t all contracts cease to exist when a CBA expires, rendering all players free agents or, at the very least, why isn’t there a term in a new CBA that all existing contracts which were terminated as of the expiry of the previous CBA are reinstated? Why, when the NHL played the 1991-92 season without a CBA, did both sides treat existing contracts as if they were still in force?

    You can avoid these questions by taking the position that the SPCs continue to exist so long as there’s a collective bargaining relationship between the parties. It just seems awfully inconsistent to me with the theory that the contracts are tied to the existence of a CBA rather than being contracts that exist independently of the CBA, even though they are subject to and supplemented by those terms.

    The NHL undoubtedly has a full answer to this that includes all sorts of points that I haven’t considered. While pleadings are great for seeing the surface of the argument and considering it kind of abstractly, a written argument will add considerable flesh to it. Unfortunately, we probably won’t get to see that until some time in 2013 at the earliest. I’ll be very interested to see their argument with respect to this point in full.

    Email Tyler Dellow at tyler@mc79hockey.com

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    8 Responses to NHL v. NHLPA II: A Contract Is A Contract. Maybe.

    1. OkotoksLawyer
      December 18, 2012 at

      Maybe I am being overly simplistic, but I read paras 109-111 as lawyer talk for “if the PA is allowed to disclaim/decertify, we want a ruling that failure to pay salaries under a SPC does not make us liable for damages. ”

      As for the rest, I know we went around the horn on the specifics for awhile, but from a broad perspective I don’t see how those contracts can be enforceable on their face salary amounts. They were agreed to when their face amounts were not truly what was promised to be paid. Rather, the teams promised the portion of the player’s share of HRR that salary represented in each year of the contract. If the CBA and those provisions die, what is left of the fundamental terms of the contract?

      • Tyler Dellow
        December 18, 2012 at

        I agree that that’s the ruling that they’re seeking. The basis of the ruling though is that the contract is tied to the existence of a union, not the existence of a CBA. I have difficulty with that, for the reasons expressed.

        As to your second paragraph, that’s not what the SPC says. The SPC has a dollar value and then says it’s subject to the CBA. The CBA is where all other language and escrow comes in. Nobody thought it was a problem in 2005 when the new system got imposed on pre-existing contracts.

        • TigerUnderGlass
          December 20, 2012 at

          I haven’t looked into this at all, (I count on you to do it for me) but my sense of this is that it has to do with the fact that collective bargaining cannot exist at all without a union.

          By this I mean that as long as the union exists, the previous agreement can be applied, in terms of keeping contracts valid, until a new agreement is in place. With no union no CBA can apply to the contracts and thus they are invalid.

          I’m not sure I expressed that well, and I certainly have nothing to back it up, but that is how I see their claim given no other information.

    2. KeithT
      December 18, 2012 at

      OL, I agree, 109-111 don’t make a lot of sense but you can smell the fear of treble damages.

    3. December 19, 2012 at

      My experience, having just done negotiations (from the union side) on a CBA that included a spot of job action, was that first, absent other agreements, the “expired” agreement remained as the working rules for both sides until a new contract was negotiated. If this isn’t already law (I’m in BC), then I gather it is standard contract language that almost every CBA in the real world uses.*

      As for the sick rules, our employer similarly made a point of excluding anyone on long-term disability from any pay docking due to a strike. Again, I suspect this is very normal, and perhaps even mandatory, in a typical CBA that you would see.

      *One notable counter-example (not quite) is the Independent Canadian Transit Union, who have historically had a policy of “no contract, no work,” meaning they default to going on strike when a contract expires. This is extreme, but compare to my union, who had been working without a contract for two years (and managed to collect no retroactive pay settlement).

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    6. Trevor B
      December 19, 2012 at

      I wonder if the players are paid more out of the agreement with the insurance agencies that are likely covering a large portion of their contracts than out of a binding CBA.

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