The Legal Issues Behind the Looming NBA Lockout

The NBA may be following in the footsteps of the NFL and leading us down a path of litigation and lockout.The basics are the same, but there are some key differences that could take the NBA down a different road.
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With the NBA finals behind us, it's time to start looking towards next season. And as we get closer to the June 30 expiration of the NBA collective bargaining agreement, it becomes increasingly likely that next season might be at risk. Sound familiar? Yes, the NBA may be following in the footsteps of the NFL and leading us down a path of litigation and lockout. The basics are the same as in the NFL, but there are some key differences that could take the NBA down a different road if, or when, the CBA expires without a new agreement.

At this point, we all know about the major business issues -- moving from a soft salary cap to a hard one; scaling back salaries; reducing the length of contracts, etc. Rather than rehash those issues, I want to focus on what might happen if the two sides can't reach an agreement by June 30. What are the legal options for each side? Here are the short answers: the owners can lock the players out or impose their "last, best offer" upon reaching a bargaining impasse. The players can strike, or dissolve their union and bring an antitrust suit. But, what does all that mean? Below, I answer a series of questions about the legal issues and options that might arise over the next several weeks. This will be Part I in a series that will provide a "user-friendly" explanation of the complicated road the NBA and its players might be facing. I start with some of the basic issues and then progress to the more complex ones. If you have a background in labor law or if you read my primer on the NFL labor situation (here and here) you can skim the first few questions.

Here we go...

What is a lockout?

Essentially it's a form of leverage for the owners designed to put pressure on workers so they will negotiate or give in at the bargaining table. Legally defined, a lockout is the "withholding of employment by an employer from its employees for the purpose of either resisting their demands or gaining a concession from them." In other words, in a lockout, employers are allowed to refuse to let the employees work, and therefore get paid. A lockout is prohibited if it is motivated primarily as an attempt to discourage union membership or interfere with employees' organizational rights. Lockouts can occur before or after a bargaining impasse has been reached.

Would the NBA owners be permitted to lock the players out?

Yes, as long as the lockout is used for the purpose of increasing bargaining power, not to discourage union membership or to interfere with the players' organizational rights.

In the event of a lockout, can the owners hire replacement players?

Yes, employers may hire temporary employees during a lockout where the harm to the locked out employees is "comparatively slight" and the decision to hire is motivated by a legitimate business reason. The NBA has not used replacement players in the past and are unlikely to do so this time around, because sponsors, fans, and networks simply do not want to see (or pay to see) Shane Falco playing for the Lakers instead of Kobe Bryant.

Have NBA owners locked out players in the past?

Yes. On July 1, 1995, the owners locked out the players for 74 days during the offseason. The parties agreed to a new CBA in time to play a full regular season. In 1998, after opting out of the 1995 CBA, the NBA owners locked out the players again. The 1998 lockout lasted 204 days and led to the cancellation of 464 regular season games and the NBA All-Star Game. When the lockout finally ended in January 1999, the regular season was shortened to 50 games.

The owners' second option is to wait for impasse to impose their "last, best offer" rather than locking the players out. What does that mean?

After bargaining to impasse, labor law permits employers unilaterally to implement changes to the terms of the previous collective bargaining agreement. These changes must be "reasonably comprehended" within the employer's pre-impasse proposals -- in essence, this means that, after impasse, the owners can implement their "last, best offer" as the new set of rules to govern the NBA and its relationship with the players.

Why would the owners implement their last, best offer?

As an alternative to a lockout. By implementing their last, best offer, the owners would essentially be saying to the players, "take it or leave it (or dissolve)." By implementing their "last best offer" instead of locking the players out, it would force the players to either accept the terms while continuing to negotiate or strike (or dissolve their union). In any of those events, the owners would not be the ones responsible for a work stoppage.

If it comes to it, will the owners implement a lockout or their last, best offer?

Based on statements from David Stern, it appears that the owners will choose to lock out the players if no deal is reached by the expiration of the CBA. So, why not just impose the last, best offer and avoid a work stoppage? Because a lockout puts maximum economic pressure on the players -- the theory is, if the players are not getting paid, they are more likely to cave and give in to more of the owners' negotiating demands. And, the owners fear that the players will bring an antitrust attack against whatever rules they put in place as part of their last, best offer. That is close to the worst-case scenario for the owners -- they are paying the players while the players are suing them.

Is June 30 truly "D-Day" for a new agreement?

No, if the two sides are making significant progress, which looks unlikely at the moment, they can agree to extend the deadline for the expiration of the CBA to buy them more time to reach a deal.

What is the fastest land animal?

The cheetah.

What can the Players do if there is no agreement?

The players have their own economic weapons. Labor law encourages collective bargaining by providing a proper balance of power between employees and employers. To ensure this balance, labor law gives employees a few options of their own with which to wage labor combat. The principle moved that the NBA players could make in their upcoming labor discussions are the threat of a strike and the threat to dissolve their union.

What is a strike?

A strike is when a group of employees ceases work in order to gain leverage in bargaining negotiations. To be protected under the labor laws, a strike must be associated with a labor dispute between the striking employees and an employer. Striking employees are not paid during a strike and can be replaced by replacement workers.

What is decertification? Disclaimer of interest?

Decertification occurs when employees formally revoke the authority of their union to engage in collective bargaining on their behalf. A related concept is the "disclaimer of interest," where the union formally terminates its right to represent the players. Both procedures effectively dissolve the union.

What is the process for decertification? What is the process for disclaimer of interest?

There are multiple steps to decertification. First, at least 30 percent of the players must sign a petition stating that they no longer want the NBPA to represent them as a union (this process began several months ago). Second, the petition must be filed with the NLRB. The NLRB must verify the petition and then schedule an election. The union is decertified if at least 50 percent of the voting players opt for decertification. Disclaimer is a less complicated process -- the union must simply disclaim interest in representing the employees.

Why would the players break up their own union?

The players would use decertification or disclaimer of interest as a means to end. The end is the ability to bring an antitrust lawsuit against the NBA challenging a potential lockout or any of the rules that the league might put in place that restrict a player's ability to make money or otherwise impact the players working conditions. For example, the players could challenge the NBA's salary cap, the player draft, and other player and free agency restrictions.

Why do the players have to break up their union to bring an antitrust suit?

Here's the short version (for the even shorter version, skip to the next paragraph): Because of a doctrine known as the "non-statutory labor exemption." This exemption protects the product of collective bargaining from attack under antitrust law. Thus, any terms of the collective bargaining agreement are immunized from attack under antitrust law. But, the exemption extends beyond just the terms of an actual agreement -- the Supreme Court has held that the exemption applies, even in the absence of a current collective bargaining agreement, as long as a bargaining relationship still exists.

Essentially, players are required to make a choice between labor law (and collective bargaining) and antitrust law (and individual bargaining and litigation). If the players choose labor law, an antitrust shield is raised that prevents them from attacking NBA rules under the antitrust laws. To lower the shield and choose antitrust law, the players must end the collective bargaining relationship. The players would dissolve their union -- either through decertification or disclaimer of interest -- to surrender their collective bargaining rights and choose antitrust law instead of labor law. The players would then use antitrust law to challenge any restrictions imposed by the league and to ask a court to enjoin (block) the owners from locking them out.

Has the NBPA ever dissolved its union?

No. There was a decertification movement in 1995, led by star players like Michael Jordan and Patrick Ewing, but the players voted 226-134 to accept a new six-year agreement rather than decertify their union. There were also reports that the players were considering decertification in 1998, but the players remained in the union.

Is it common practice for professional athletes to dissolve their unions?

It's not common. In fact, it has only happened twice. The NFLPA dissolved its union in March 2011 by disclaiming interest and voting (informally) to decertify. Prior to that, the NFLPA dissolved its union in 1989, which led to a legal battle that eventually helped the NFL players achieve real free agency. For more on that, click here.

In 338 words or less, can you tell me what happened after the NFLPA dissolved its union in March?

Following the dissolution of the NFLPA, a group of players filed a class action antitrust suit in federal district court in Minnesota, challenging the NFL lockout (which was implemented the next day) and a variety of player restraints. The players claimed that the lockout was an illegal "group boycott" under the antitrust laws and asked for a preliminary injunction to block the lockout, and for treble (ie, three-times) damages for any harm caused by the player restraints imposed by the owners.

As of now, we have only had proceedings on the preliminary injunction. In court, the owners raised three defenses in response to the players' attempt to enjoin the lockout. First, the owners argued that the Norris-LaGuardia Act (one of the key federal labor laws in this dispute) precludes federal courts from enjoining lockouts. Second, the owners contended that the dissolution of the players' union was a "sham" and that the collective bargaining relationship still exists. Therefore, the owners argued the non-statutory labor exemption is still in effect and immunizes the owners from antitrust attack. Third, the owners claimed that the pursuant to the doctrine of "primary jurisdiction," the court should defer to the National Labor Relations Board's ruling on the validity of the NFLPA's disclaimer of interest before proceeding with the case.

Judge Nelson rejected all of the owners' arguments and enjoined (ie, lifted) the lockout on April 25, 2011. Four days later, an Eighth Circuit panel voted 2-1 to issue an emergency, temporary stay of Judge Nelson's order (ie, they put it on hold) and reinstituted the lockout. The same divided panel then granted a longer stay pending resolution of the appeal on the preliminary injunction, concluding that, based on their interpretation of the Norris-LaGuardia Act, they "have serious doubts that the district court had jurisdiction to enjoin the League's lockout." Oral arguments were heard by the Eighth Circuit on June 3, 2011, and a decision is pending. So, for now, the lockout is still in place because 2 of the 3 judges on the Eighth Circuit panel believe that courts do not have the power to enjoin lockouts.

The Players are alleging that the lockout is an illegal "group boycott." What does that mean?

A group boycott occurs when separate entities agree to refuse to do something. To use a non-antitrust example, you might recall the classic college football group boycott, when all of the Notre Dame players agreed to refuse to play in the big game against Georgia Tech (but Georgia Tech is one of the best offensive teams in the country!) unless their 5-feet nothing, 100 and nothing teammate got to suit up. In the NFL litigation, the allegation is that the owners have agreed to refuse to sign and pay their players.

Why is the NFL players' class-action lawsuit called Brady v. NFL?

The NFL players named several high profile players, including Tom Brady, Drew Brees, and Peyton Manning, as plaintiffs to represent the class. The case was shortened to Brady v. NFL because Brady's name comes first, alphabetically. So, if Ikaika Alama-Francis had been one of the named plaintiffs, the case would have been Alama-Francis v. NFL.

What impact will the NFL litigation have on the NBA and NBPA?

Great question (thanks). As of now, it looks like the NFL and the NFL players may settle and reach a new CBA before the Eighth Circuit makes a final decision. If that happens (that's still a big "if"), we will be left with a narrow, preliminary ruling from the court, indicating that a lockout cannot be enjoined by a federal court. That ruling obviously strongly favors the NBA, but it still would not prevent the NBA players from dissolving their union and seeking treble damages for harm caused by the lockout. And, that ruling will only be binding on the NBA and NBPA if they end up in the Eighth Circuit.

If the NBA and NBPA end up in litigation like the NFL and the NFLPA, can the case be brought somewhere other than the Eighth Circuit?

Yes, and where the case gets filed is key. It is the legal equivalent of home-court advantage. We're not just talking crowd noise, we're talking about refs actually giving your team the calls. (Think Hoosiers: "It's bad enough we have to play in this cage you call a gym, your players are playing like a bunch of animals."). If you can get the case filed in a jurisdiction that is more sympathetic to your legal positions, you stand a greater chance of winning the case.

The now-expired NFL CBA gave a federal judge in Minnesota jurisdiction over disputes arising under the CBA. The NBA CBA has no such provision, so the suit could be filed in any state that has an NBA team. If the NBA players dissolve their union and bring an antitrust suit, it is highly likely they will avoid the Eighth Circuit and look to file in a jurisdiction that has suggested that the Norris-LaGuardia Act does not prevent courts from enjoining lockouts. Based on the NFL players' briefs in Brady, they believe that the First, Seventh, and Ninth Circuits would be more favorable to the players on that issue. The First (Massachusetts), Seventh (Illinois, Indiana, Wisconsin), and Ninth (Arizona, California, Oregon) Circuits are all home to at least one state with an NBA team.

Do the players have any other moves?

Yes, the NBPA has already filed an unfair labor practice charge against the NBA, alleging, among other things, that the league was dealing directly with the players instead of the union and that the league had refused to provide relevant financial data. Through that charge, the NBPA has asked the National Labor Relations Board to enjoin the owners from locking out the players.

Can the owners make the first move in court?

Yes, and there is precedent for this in NBA labor history. During the negotiations for a new NBA CBA in 1995, the NBA players informed the owners that they believed the college draft, salary cap, and certain free agency restrictions would be subject to successful challenge under the antitrust laws after the expiration of the CBA. Six days prior to the expiration of the CBA, the NBA filed a "declaratory action" in federal district court in New York asking the court to declare that continued implementation of those rules did not violate antitrust law. The district court --and the Second Circuit on appeal -- ruled in favor of the owners, holding that the non-statutory labor exemption protected terms contained in a CBA from antitrust attack even after the CBA had expired.

Why would the owners move first?

To get the home-court advantage I discussed above. By filing first, the owners can dictate where the case is heard, and can choose a jurisdiction that has ruled more favorably on the owners' legal positions. Thus, the owners may want to file in the Eighth Circuit to take advantage of the preliminary pro-owner ruling in Brady, or they may want to file the case in NY so that they can end up back in the Second Circuit.

Most NBA players have guaranteed contracts. Doesn't that mean they will get paid during a lockout?

No. During the 1998 NBA lockout, players with guaranteed contracts filed a grievance before an independent arbitrator claiming that they were entitled to be paid during the lockout. More than 200 players under guaranteed contracts claimed they were collectively due more than $800 million. The arbitrator ruled against the players, holding that the guarantee language in their contracts did not override the default rule that employers may withhold payment during a lockout. So, unless a player negotiated a guarantee in the event of a lockout, he will likely not be paid. For more on this, click here.

If the owners lock out the players, can the players play in professional basketball leagues overseas?

From a legal perspective, that's a tough question that gets us into uncharted territory. For more on that, click here. But, from a practical perspective, we appear to have our answer -- in February, David Stern said that players will be free to play elsewhere if there is a lockout. That said, recent reports suggest that playing overseas will not be a viable option for most players.

What's your prediction for the NBA labor fight?

Prediction? Pain.

Stay tuned for Part II....

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