What the New York Islanders decide to do with Tim Thomas after this season might provoke a legal challenge under the new CBA. Circumvention anyone?
As we explored in Part 1 of this series, Thomas has been suspended without pay for failing to report to the team. By rule, the $5 million cap hit on Thomas’ contract counts towards the calculation of the Islanders compliance with the Lower Level. Technically, the cap hit does not count towards the team’s Upper Limit.
If Thomas stays home for the entire season the Islanders will have the right to ‘slide’ the remaining year on the contract to 2013. If he refuses to report next season, he will once again be suspended and the Islanders’ Lower Level will be credited with $5 million.
In a vacuum, there is nothing wrong with this conduct. Extending the contract of a player who was suspended for failing to report is neither new nor offensive in and of itself. However, the precedent set by the Kovalchuk case tells us that circumvention matters aren’t analyzed outside of their full context.
The anti-circumvention rules of the CBA are contained in Article 26. Article 26.3(a) describes the elements of a circumvention offence. It reads:
“No Club or Club Actor, directly or indirectly, may: (i) enter into any agreements, promises, undertakings, representations, commitments, inducements, assurances of intent, or understandings of any kind, whether express, implied, oral or written, including without limitation, any SPC, Qualifying Offer, Offer Sheet or other transaction or (ii) take or fail to take any action whatsoever, if either (i) or (ii) is intended or has the effect of defeating or Circumventing the provisions of this Agreement or the intention of the parties as reflected by this Agreement...”
This was the provision at issue in the Kovalchuk case. In that case, arbitrator Richard Bloch determined that the 17-year $104 million back-diving contract between Ilya Kovalchuk and the New Jersey Devils amounted to cap circumvention. Eric has a nice summary of the decision on this site.
Bloch’s decision contains a high level analysis of the purpose of the Upper Limit of the salary range system. He concludes that the purpose is to promote ‘competitive balance’ amongst NHL clubs by ensuring a degree of payroll parity within the league.
Circumvention, then, can arise due to conduct that defeats the principle of competitive balance. Following this reasoning, Bloch concluded that Article 26 is wide enough to capture conduct that is not explicitly prohibited by the CBA but nevertheless offends competitive balance. As a result, Article 26 necessitates for a deep contextual inquiry into all the relevant factors surrounding the transaction.
This reasoning trumped the NHLPA’s argument. The union had argued that none of the terms of Kovalchuk’s contract actually broke any explicit rules in the CBA and that by extension, the CBA and the salary range system were not circumvented. However, since Bloch determined that a contextual approach was the most appropriate method for analysis for Article 26 issues, the context of the transaction became the determinative issue in the case.
The relevant contextual factors were the combination of a substantial drop in salary over the last 6 years of the contract, the fact that only one NHL player has played past his 43rd birthday (the contract would have paid Kovalchuk until he was 44) and the switch from a ‘no-move’ clause to a ‘no-trade’ clause. Together, this proved that it was “reasonably unlikely” that Kovalchuk would or was intended to fulfill the full extent of his contract.
Note how the standard of proof was reasonableness. The evidence doesn’t have to be unequivocal. In other words, the evidence must form an intelligent and logical basis for the facts its trying to prove.
In sum, the Kovalchuk decision determined that a wide range of conduct may be caught by Article 26. Regardless of intent, Article 26 prevents otherwise permissible transactions that, when examined in their full context, have the effect of offending competitive balance.
Using the template provided by the Kovalchuk decision, would the Islanders violate Article 26 were they to extend his contract with the knowledge that he will not play next season?
To make a persuasive argument, the NHLPA would first have to establish that the purpose of the Lower Level is the same as the Upper Limit: to ensure competitive balance within the league. This would not be a difficult hurdle to clear as the Upper and Lower Levels create a fixed player salary range within which every team must operate. In other words, they promote salary parity together.
The more difficult aspect of the union’s case would be its ability to prove that the Islanders extended Thomas’ contract despite knowing that it was “reasonably unlikely” that he would play in 2013-2014. As was the case with Kovalchuk, none of the conduct that would be undertaken by the Islanders would violate a specific provision of the CBA. As a result, the NHLPA would have to show that the sliding of Thomas’ contract constitutes circumvention in the specific context.
The NHLPA would likely discharge this burden if Thomas is publicly adamant about his intention to not play next season or simply tells the Islanders that he will not report to the Club. However, the NHL would point to Thomas’ has public statements of his intent to compete for the United States at the 2014 Olympics as evidence that it was reasonable for the Islanders to believe that he intended to fulfill the remaining year of his contract.
It will be interesting to monitor how Thomas’ age (39) factors into the arguments. The NHLPA would argue that his advanced age adds to the unlikelihood of him playing in the NHL. However, the NHL could argue that his age doesn’t help the NHLPA given the number of goaltenders of his age or older who have recently played in the NHL. I’m not sure how this factor would be interpreted, but it is clear that the relevance of age would be more contentious that it was in the Kovalchuk case.
Another contextual factor might be the upcoming changes to the calculation of a team’s compliance with the Lower Level. As we explored recently, the new rules will prevent performance bonuses from counting towards the Lower Level. We also showed that the Islanders will be seriously impacted next season by this change.
Might the NHLPA argue that the acquisition of Thomas is an attempt by the Islanders to mitigate the changes to the Lower Level that take effect next season? It’s a circumstantial but plausible argument and Article 26 allows the consideration of circumstantial evidence. It’s clear that Thomas’ $5 million cap hit would significantly help the Islanders reach the floor without actually having to spend the money.
In any event, the Islanders are definitely a team to monitor over the next few months. The new CBA appears to close some of the loopholes he has exploited. I’m looking forward to how he will react to the new rules.