Insights from free agency season

By Stuart Rudner

Over the last few days, hockey fans have been treated to the annual insanity known as the NHL free agency season. Over the course of two days, NHL teams commit themselves to paying, collectively, hundreds of millions of dollars to a relatively small number of players.

If much of your professional life revolves around HR, it may cause you to wonder what things would be like if our workplaces operated in a similar manner.

Of course, it is always open to employers to hire someone on a fixed-term contract, but we know that, in reality, very few contracts of employment have an end date. If businesses operated like professional sports team (yes, I know, professional sports teams are businesses), there would be no such thing as a "permanent" or "indefinite" employee. Every employee would have a fixed-term contract, likely somewhere between one and five years.

At the end of the contractual term, the employee would be free to look elsewhere and join a competitor. She would have no guarantee of employment beyond the term of the contract though, of course, the parties could always negotiate an extension or a renewal.

Likewise, the employer would have no long-term obligation to continue employing the individual. If her skills or value had decreased in any way, the employer could simply allow the contract to come to an end and choose not to make an offer of renewal. At that time, there would be no obligation to provide notice of termination, termination pay or severance pay.

Poor performance

Of course, in the world of professional sport, it is usually not difficult for a player, even one who has not performed well, to find a new employer. In the real world, particularly in today's economy, an employee who has seen his contract of employment come to an end faces a more daunting task as he sets out to find a new job.

For those at the upper echelons of the C-suite, it may be possible to move to a new employer and command an exorbitant salary; for most of us, we will be happy to find new work at comparable compensation.

With respect to performance, I have commented in a past blog post that managers are not very good at providing negative feedback. As a result, many employees feel they are performing well when, in fact, the employer is entirely unhappy with his work.

In the world of professional sport, even if the employer is silent, the fans/customers will not be. Justified or otherwise, the players/employees will be very much aware of their perceived shortcomings and this will impact their ability to obtain future employment, as well as the salary that they can command.

Negotiations

Speaking of compensation, that is another dramatic difference between “real life" and what we observe in professional sport. Athletes have agents who will negotiate the best possible contract for them, whereas regular employees "negotiate" for themselves and, in many cases, the extent of the negotiation will be a "take it or leave it" offer from the employer.

Of course, some employees are highly sought after and will have sufficient negotiating power to obtain the best deal. That is particularly true where the individual is being courted by more than one employer.

The comparison between real life and professional sport can be further complicated if we consider teams’ rights to buy out a contract or assign a player to a minor league affiliate, sometimes at a lower salary. However, I will not get into that here. One point that is worth making is that for employers, there can be some benefit to using fixed-term contracts in order to avoid long-term obligations and the requirement of notice or severance if you must terminate the contract.

That being said, making such an offer may make it difficult to attract top talent, and will open the employer up to the possibility its best talent will be poached away by an employer willing to make more of a commitment.

For employees, it is wise to be wary of fixed-term offers, unless there is a genuine business reason for it, such as the fact that the employee is being hired to facilitate a particular project. Otherwise, such an offer may not be as valuable as others and may signal a hesitance to commit.

In any event, individuals should fully understand the repercussions of any offer that is presented to them. Unfortunately, I see many individuals who come to our firm thoroughly convinced they have been mistreated by their employer, only to find that they agreed to those specific terms when they accepted the offer of employment presented to them years earlier. Employees should never sign any contract without getting proper advice from an employment lawyer.

Coincidentally, in the middle of the free agent season, as I heard about all of the mediocre players who signed multi-year contracts for millions of dollars each season, I was also reading Bobby Orr’s autobiography. In it, he mentions signing his first NHL contract, for a salary of $25,000 per year.

Back then, the teams/employers held all the power. Now, things are a little different. Which brings me back to the point about negotiating power: As I often advise individuals in the course of negotiating a contract of employment, your ability to improve an offer will depend very much on how badly they want you.