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This year’s baseball salary arbitrations illustrate how the process works

I’m a fan of baseball-style arbitration as a tool for resolving disputes, for example using the Common Draft baseball arbitration clause.  The name is adapted from, surprise, baseball salary arbitration. The Associated Press reported that this year 156 major-league baseball players went to salary arbitration, with Houston Astros pitcher Dallas Keuchel (winner of the 2015 American League Cy Young Award) getting a raise from $524,500 to $7.25 million.*

It’s been said that baseball arbitration “is designed to produce a settlement, not a verdict.” Thomas Gorman, The Arbitration Process – the Basics, in Baseball Prospectus (Jan. 31, 2005) (emphasis added). Here’s how that can work:

  • When baseball-style dispute resolution is used, the decision maker must choose from among the proposed resolutions submitted by the parties — the decision maker has no discretion to make any other determination about the issue.
  • That constraint forces each party, in submitting its proposed resolution(s) for the issue, to think hard about how the decision maker sees the case, and thus the risk that the decision maker might regard the other party’s proposed resolution as being closer to the “correct” one and therefore be forced to adopt that other proposed resolution.
  • That in turn improves the odds that the parties will reach an agreed settlement.

In my own practice, in the space of about one year, three different lawsuits, for three different clients, were settled not long after the parties had agreed to baseball arbitration. I had the impression that, after seeing each other’s proposed awards, the business people on each side looked at each other and said, in effect, wait a minute — we’re not that far apart; we don’t need to pay the lawyers and the arbitrator for this.

Another story: a lawyer friend in Silicon Valley recounted how a client of hers once got into a dispute concerning a contract that she had drafted for the client. She told the client’s CEO that the contract required baseball arbitration, and explained what that entailed. The CEO responded: “[Expletive], that means I have to be reasonable.” (The parties settled the dispute.)

* For my contract-drafting students: Note how the latter figure is partially in numbers and partially spelled out as “million” instead of using zeros.

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