December 16, 2016 By: Andrew Reinholdt
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All hockey fans should remember the NHL lockout in 2005. We missed a full NHL season while the NHL and the NHLPA (National Hockey League Players’ Association) renegotiated the terms of their collective agreement. In 2012 we lost half a season to a second lockout. During both lockouts, the NHL and NHLPA added terms to its collective agreement that arguably were discriminatory towards older players.

Background

In 2005, one of the items the NHL made a priority in bargaining was eliminating long-length contracts for veteran players that circumvented the NHL salary cap. For those not familiar with the NHL, each team has a maximum salary that it can pay its players, collectively, each season. A player’s contribution to the salary cap space is their average annual salary over the life of their contract. For example, a player who made $25 million, paid over five years, would have a salary cap hit of $5 million per season.

The NHL was concerned that teams would abuse this formula to try to reduce a players’ salary cap, by extending the contracts into years where the player would be retired.

For example, in 2009 the New Jersey Devils signed Ilya Kovalchuck to a 17-year deal worth $102,000,000, which would pay him until he was 44. As many people are aware, most people not named Jaromir Jagr are highly unlikely to play to that age, which was the point of this deal. The contract was front-loaded so that once he reached the last six years of the deal he would make less than $750,000 each season. This, however, reduced his annual salary cap hit from over $9 million per season to $6 million per season. If Kovalchuck retired before his deal expired (which everyone assumed he would) the Devils would not have been required to pay him anything beyond his date of retirement, nor would they be required to account for his salary cap from that date forward.

The 35-plus rule

The NHL was worried about this type of deal; therefore, in bargaining, they stepped in to create a rule that states when a team signs a player 35 years of age or older, the team retains the player’s salary cap hit even if the player retires during the life of the deal (the “35-plus rule”). This deters contracts like the Kovalchuk deal because, if a player signed that deal today but retired before the contract expired, the NHL team is still stuck with the player’s salary cap hit, despite not having to pay the player.

The team cannot buy out or send a 35-plus contract player to the minors to avoid the salary cap hit, and even retains a portion of the salary cap hit if it trades the player. The only way of avoiding the salary cap hit is to place the player on Long Term Injury Reserve if the player is injured.

Cap Recapture

In 2012 the NHL introduced a cap recapture penalty, again meant to penalize teams for front-loaded deals if the player retires early. The 35-plus rule was not cutting it on its own, as the Kovulchuk contract demonstrated. The Cap Recapture Rule is a little too complicated to explain; but, in short, it penalizes a team with a penalty cap hit for any player who has a front-loaded deal and retires early. It deters teams from signing players for contracts that extend into years where the player is likely to retire.

Are these rules discriminatory?

These rules always seemed discriminatory and I have wondered whether they would be subject to scrutiny by a Human Rights Tribunal. They adversely impact older NHL players. The 35-plus rule limits the types of contracts older players can sign, only on the basis of age.

Both rules also deter teams from signing veterans to longer-term contracts out of fear the player will retire, leaving the team stuck with the cap hit or a cap recapture penalty. Instead, older players are generally only signed to 1-2 year deals, to mitigate any risk that the team is stuck with the salary cap hit if the player retires early. Similarly, if they do sign longer deals, they are often for less salary, again to reduce the team’s salary cap exposure if the player retires.

On its face, this seems like a case of prima facie discrimination, such that the burden would fall to the NHL to justify this is a bona fide occupational requirement. The NHL would likely argue that this rule is necessary in order to avoid teams circumventing the salary cap with older players. Otherwise, a team could sign a 35-plus player to a Kovulchuk-esque contract to evade the salary cap.

While this may be true, there are less discriminatory ways the NHL could have prevented this evil. For example, it could create a rule preventing front-loaded deals by limiting the amount that a player’s salary could vary each year to a certain amount. It could prevent teams and players from agreeing to contracts that vary by more than $500,000 per season. This would prevent the deals that skew a player’s salary cap, while still allowing teams to sign veteran players to longer and more lucrative deals.

One might wonder whether or not the fact that the NHL and NHLPA bargained for the 35-plus rule impacts whether or not it could be discriminatory. It does not. The Supreme Court of Canada has unequivocally stated that employers and unions cannot bargain discriminatory clauses into collective agreements.

One might also question whether provincial human rights legislation even applies to the NHL collective bargaining agreement. These do. For example, the Ontario Human Rights Code applies to all employees in Ontario, which would include NHL players. In any event, the NHL Collective Agreement contains a no-discrimination clause, which the 35-plus rule arguably violates.

Going forward

Currently, it seems there is a trend of older players having difficulty signing and maintaining their positions on NHL teams. For example, many people have speculated that the Leafs have used the Long Term Injury Reserve (“LTIR”) as a way of circumventing the 35-plus rule with defenceman, Stephan Robidas. The Leafs signed him to a three-year 35-plus contract, he did not play as well as they expected, and after a year the team placed him on LTIR with an undisclosed injury, despite him being seemingly healthy. If a player is on the LTIR, their salary does not count towards the team’s salary cap, but the player is still paid.

At a certain point the NHLPA and older players may grow frustrated with the difficulty of maintaining roster spots, as well as the difficulty in negotiating longer term deals. Perhaps a human rights challenge to the 35-plus rule and cap recapture penalty may be their way out of this.

For more information about collective bargaining, contact our Labour Law Group.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.