On the morning before a scheduled record breaking salary arbitration hearing last week, designated hitter, David Ortiz, 36, and the Boston Red Sox agreed to a one-year contract worth $14,575,000. The deal was midway between the $16.5 million he asked for last month and the $12.65 million submitted by the Red Sox, which matched his 2011 earnings.
“Baseball” Arbitration is a methodology that can be used in many different contexts in addition to baseball players’salary disputes, and is particularly effective when parties have a long-term relationship. The procedure involves each party submitting their final monetary offer or demand to the arbitrator(s) and serving the number on his or her adversary. Following a hearing where each side submits evidence in support of their case, the arbitrator(s) will pick one of the submitted numbers and that figure becomes the binding award of the arbitrator(s). This differs from the more common high low arbitration, where the monetary figure found by the arbitrator is binding so long as it is not lower than or higher than the agreed high-low parameters.
An important aspect of “Baseball” arbitration is that there is incentive for a party to submit a highly reasonable number, since this increases the likelihood that the arbitrator(s) will select that number. In many instances, the process of submitting the numbers moves the parties so close together that the dispute is settled without a hearing. An effect of this so called “final offer arbitration” is to encourage the parties to arrive at a settlement by introducing uncertainty into the arbitration procedure. Parties who fail to compromise during negotiations have a greater risk of loss at this type of arbitration. This process also leads parties to adopt reasonable positions during the arbitration, because an unreasonable position will almost certainly be rejected in favor of a more reasonable competing proposal.
There are two types of “baseball” arbitration. In the first, called by some “Day Baseball” the arbitrator(s) is informed of the offer and demand made by the parties. Sample language providing for a “day baseball” arbitration is below:
Each party shall submit to the arbitrator and exchange with each other in advance of the hearing their last, best offer and demand. The arbitrator shall be limited to awarding only one or the other of the two figures submitted.
In the second type, called by the some “Night Baseball” the arbitrator is not told of the offer and demand made by the parties, and determines the value of the claim in the usual manner and the parties agree to accept and be bound by the offer or demand figure which is closest to the arbitrator’s award. Sample language providing for a “Night Baseball” arbitration is below:
The parties acknowledge that in a separate confidential document they have exchanged with each other in advance of the hearing their last, best offer and demand, and that these figures shall not be disclosed to the arbitrator(s). The arbitrator(s) shall determine the value of the claim in the usual manner and the parties agree to accept and be bound by the offer or demand figure which is closest to the arbitrator’s award.
For baseball aficionados, here is how Ortiz would have stacked up at the hearing.
For others who may have more questions about baseball arbitration or other MDRS Services please call us at 800 536-5520 or see our website www.mdrs.com.