How Baseball Arbitration Found its Way into Resolving Commercial Disputes

In 1973, Major League Baseball ("MLB") established baseball arbitration, or BBA as a unique process for resolving salary disputes between teams and players within their first six years in the league.  BBA involves a fast, equitable solution proposed by the parties, rather than a solution imposed by a third-party arbitrator.  Some lawyers counseling parties to commercial disputes have taken notice how BBA can be both highly effective and economical when compared to traditional arbitration. 

The BBA process is very appealing with respect to both simplicity and speed.  If an MLB player and MLB team cannot agree upon the amount of the players salary, the dispute is subject to mandatory arbitration.  The BBA process begins with the  player and team exchanging offers to execute a contract for a proposed salary amount.  If the parties agree to execute a contract based upon an amount following the exchange of proposals then arbitration is avoided.  If not, the parties proceed to arbitration before a panel of three arbitrators, with BBA hearings conducted on an expedited basis.  

The resulting BBA hearing is both efficient and fast.  Prior to the BBA hearing, the arbitrators are notified of the salary proposals made by both the player and the team.  The player and team are each given 60 minutes to argue why their offer is appropriate, followed by 30 minutes for each side to argue why the other sides offer is inappropriate.  At the close of the expedited BBA hearing, the arbitrators rule in favor of either the player or the team, and enforce the salary offer of the party for whom they ruled in favor.  Under BBA the arbitrators must award either the offer made by the player or the salary offer made by the team, and are prohibited from a compromise between the two offers.  BBA  is resolved in a matter of hours as opposed to days or weeks of traditional arbitration, and empowers the parties to have control over the outcome.

When used to resolve commercial disputes, lawyers maintain the requirement of BBA that the arbitrators must award the amount offered by one party or the other.  However, beyond that requirement, lawyers have modified other aspects of BBA with respect to the resolution of commercial transactions.  First, while some lawyers require an exchange of settlement offers prior to the start of the hearing upon which the award must be based, the parties do not disclose the offers to the arbitrators until after the close of the hearings.  Under this variant of BBA,  called “night time BBA”, the arbitrators determine a proposed award amount, and then revise that amount to reflect the offer form either party that is closest in value.  

Second, most lawyers are uncomfortable with the 90-minute limit upon the presentation of their case, and insist upon multiple days of hearings.  Under this variant of BBA, the parties either place no restriction upon the hearing time, or agree upon a predetermined amount of hours to present their cases. If the hearing time is predetermined, parties are “on the clock” to present their cases through arguments, direct testimony, and cross examination, and must use their time wisely.  It is not uncommon for parties “on the clock” to mismanage their allotted time and literally run out the clock before they have introduced all desired evidence and completed their case.

Finally, some lawyers create a hybrid hearing, with parts of the case decided through traditional arbitration and other parts decided through BBA.  For example, entitlement or liability could be determined by one methodology, while damages or other relief could be determined by the other methodology. Hybrid hearings are generally used where one part of the case is very complicated, while the other part is simple and easily understood.

BBA offers multiple advantages when applied to commercial disputes that are typically not available under traditional arbitration.  

• BBA forces the parties to focus upon a realistic amount of their claimed damages, or else face a loss.  
• BBA rewards parties with realistic expectations, and penalizes parties who maintain unreasonable demands.
• BBA tends to promote negotiated settlements either prior to or during the hearing.
• BBA can be far faster and economical than both traditional arbitration and litigation.  

Both lawyers and parties should consider BBA as a viable alternative to traditional arbitration, especially where efficiency and economy are valued.