By Christopher R. Deubert, Senior Writer
In February 2024, unions representing junior hockey players in North America sued the NHL and four Canadian junior hockey clubs alleging that agreements among the clubs had unreasonably restricted the labor market for the players’ services in violation of antitrust law. The NHL has filed a motion to dismiss the case, relying largely on a judicially created doctrine that is at the heart of the structure and operations of American sports leagues – the non-statutory labor exemption. While the exemption has been extensively litigated in the past, it is rarely litigated today.
The Lawsuit
The unions bringing the suit – the World Association of Icehockey Players Unions North America Division and World Association of Icehockey Players Unions USA Corporation – represent players in the major junior hockey leagues. Those leagues –the Western Hockey League, the Ontario Hockey League, and the Quebec Maritimes Junior Hockey League – collectively comprise the Canadian Hockey League (CHL) and have long been a prominent path to the NHL, particularly for young Canadians. The leagues, the clubs in those leagues, and the NHL, are the defendants in the lawsuit.
The unions allege that the junior leagues have violated the Sherman Antitrust Act by allocating geographic territory (and the players within that territory) among themselves, conducting involuntary drafts of the players within their territories, and restricting the movement of players from league to league via protected lists. The result, according to the unions, is a stifled market in which junior hockey players are unable to receive the fair value of their services.
The unions further allege that the NHL is the puppet master behind the conspiracy by virtue of its agreement with the CHL. They say that the NHL conditions funding to the junior leagues on their maintenance of the complained of restrictions. The American Hockey League and East Coast Hockey League, both American minor leagues, are also alleged to be co-conspirators but are not defendants in the case.
The Non-Statutory Labor Exemption
The NHL raises a variety of arguments in its motion to dismiss but leads with the non-statutory labor exemption.
To understand the exemption, it is helpful to break it down into its constituent parts. Working backward, the doctrine applies an exemption to liability under antitrust law. Next, it applies in a particularized labor context to be further explained. Finally, the doctrine is “non-statutory,” meaning it does not arise out of a statute, i.e., a written law passed by Congress. On this point, the exemption is importantly different from the statutory labor exemption, which provides that employees do not violate antitrust law by working together to negotiate their terms and conditions of employment and which was written into law via the Clayton Act of 1914.
The Supreme Court established the non-statutory labor exemption in a pair of 1965 decisions involving meat retailers and mine operators and their respective employees. Specifically, the cases analyzed whether agreements between unions and employers governing the employees’ terms and conditions of employment could be attacked under antitrust law as impermissibly restricting the relevant labor market.
The Supreme Court held that such agreements and their related restrictions were exempt from antitrust law. In establishing the exemption, the Court expressed that it was concerned “with harmonizing the Sherman Act with the national policy expressed in the National Labor Relations Act of promoting ‘the peaceful settlement of industrial disputes by subjecting labor-management controversies to the mediatory influence of negotiation[.]” In other words, the Court wanted to promote the resolution of employer-employee disputes through collective bargaining agreements rather than litigation.
The Non-Statutory Labor Exemption and Sports
The application of the exemption to sports percolated in the early 1970s. At the time, the players in the major American professional sports leagues had recently formalized their unions and were becoming more assertive in their demands over pay, benefits, and working conditions, including through litigation.
A particularly important case was brought by Curt Flood, a 14-year veteran and 3-time All-Star with the St. Louis Cardinals who refused a trade to the Philadelphia Phillies in part based on concerns about racism. Flood sued MLB, alleging that its reserve system, through which clubs had a perpetual and unilateral option to renew a player’s contract, violated antitrust law.
Flood ultimately lost his case in 1972 based on baseball’s long-standing and anomalous antitrust exemption, the result of a 1922 Supreme Court decision that held that baseball was not engaged in interstate commerce. Nevertheless, a moot court competition concerning the case at Yale Law School caused student Michael Jacobs to argue that the nascent non-statutory labor exemption should protect MLB’s reserve system because the players were represented by a union that could collectively bargain the issue with the league. With the assistance of professor Ralph Winter, Jacobs turned his arguments into an influential 1971 academic article that would be cited in numerous important cases in the coming years, including twice by the Supreme Court.
The leagues were thinking right alongside Jacobs. The 1970s consisted of multiple lawsuits in which players alleged that restrictions on free agency and player drafts violated antitrust law. The leagues began arguing that these rules were protected by the non-statutory labor exemption because the players were now unionized and collectively bargaining over their terms and conditions of employment, citing Jacobs and Winters in support. Nevertheless, the courts consistently ruled against the leagues, finding that while there might now be a bargaining relationship, the challenged restraints had not been the subject on bona fide arm’s length negotiation and therefore were not entitled to the exemption.
In 1979, the NHL became the first league to win on the argument. Dale McCourt, a promising young player for the Detroit Red Wings, had been assigned to the Los Angeles Kings as compensation for the Red Wings having signed Rogatien Vachon, the Kings’ star goalie. The compensation was in accordance with NHL By-Law Section 9A, which the Sixth Circuit Court of Appeals held to be protected by the exemption based on its inclusion in the 1976 collective bargaining agreement between the NHL and the players union, the NHL Players Association (NHLPA).
By the 1980s, the bargaining relationships between the leagues and unions was well-established, including robust negotiation over pay and free agency. No one disputed the existence of the exemption, but instead the parties turned their attention toward its expiration. A series of lawsuits involving the NFL concerned whether the exemption applied to the clubs’ activities after the expiration of a collective bargaining agreement, after an impasse had been reached in negotiations, and after the players had decertified the NFLPA as their union.
In 1996, the Supreme Court weighed in concerning a case about NFL practice squad salaries, holding that the exemption survived impasse and laid out a loose four-part test, holding that it applies where the challenged conduct (1) took place during and immediately after a collective bargaining negotiation; (2) grew out of, and was directly related to, the lawful operation of the bargaining process; (3) involved a matter that the parties were required to negotiate collectively; and (4) concerned only the parties to the collective bargaining relationship. Since then, outside of an unsuccessful 2004 challenge to the NFL Draft by Maurice Clarett, there has generally been no major litigation concerning the application of the non-statutory labor exemption to the major professional sports leagues.
Indeed, the non-statutory labor exemption is the backbone of professional sports today. The leagues, for competitive balance purposes, want to restrain player labor markets in a variety of ways, including through maximum salaries, salary caps, free agency restrictions, player drafts, and more. These restrictions are only legal if they are negotiated with the players. This tension between antitrust law and labor law is what compels both parties to negotiate comprehensive collective bargaining agreements governing the sports’ operations and which create a partnership between teams and players to grow the revenue pie they have agreed to share. As a result, the leagues have generally settled into a productive cadence with their respective union counterparts.
The NHL’s Motion
Unlike the decades of prior litigation, the present dispute does not concern a league’s relationship with its players. The case instead concerns prospective players. Nevertheless, the NHL contends that the restrictions complained of in the complaint are protected by the non-statutory labor exemption because its agreement with the CHL is incorporated into the NHL’s collective bargaining agreement with the NHLPA. The NHLPA represents all current and future NHL players and is empowered to agree to employment terms for employees not yet in the league, such as those represented by the union plaintiffs.
Of additional help, in 2005, the OHL won a lawsuit brought by the NHLPA challenging its rule effectively barring 20-year-old college hockey players from America. The Sixth Circuit Court of Appeals held that because the OHL only paid fixed stipends to its players, there was no economic injury within a relevant market. Instead, the Court articulated that the union was indirectly attacking the NHL’s free agency rules, which it explained would be protected by the non-statutory labor exemption.
The Union’s Opposition
In response, the unions make three arguments. First, the unions argue that the NHL-NHLPA CBA cannot be considered on a motion to dismiss because the plaintiffs “did not cite, attach, or otherwise incorporate the CBA into their Complaint.” Second, they argue that the CBA does not incorporate the NHL-CHL agreement, but instead merely “requires the NHL to bargain with [the NHLPA] before implementing certain prospective changes to the NHL-CHL Agreement.”
Third, and most interestingly, the unions argue that the exemption does not meet what they argue is the relevant test for the exemption, specifically, that the challenged provision (1) be intimately related to the wages, hours, and working conditions of NHLPA members, and (2) not impose a direct restraint on a different market outside of that related to NHLPA members. Essentially, the unions are arguing that the restraints imposed by the NHL-CHL agreement affect athletes not covered by the NHL-NHLPA CBA and therefore the exemption does not apply. In making this argument, the unions seek to differentiate a line of cases holding that player drafts are protected by the non-statutory labor exemption because they concern the conditions under which employees enter into the bargaining unit represented by the union.
The Puck Drop
The non-statutory labor exemption is a well-established legal doctrine that acts as a legal invisible hand, encouraging the leagues and the unions to negotiate in good faith over the terms and conditions of employment of the players in those leagues. The degree to which it can affect players outside those leagues was generally considered a resolved or non-issue. The World Association of Icehockey Players Unions North America Division and World Association of Icehockey Players Unions USA Corporation challenge that status quo. The outcome should help clarify the scope of the most important concept in sports and the law.
Deubert is Senior Counsel at Constangy, Brooks, Smith & Prophete LLP
