What type of contract would Mike Trout have commanded this offseason had he been a free agent? Coming off an MVP-award-winning campaign in which he compiled 9.4 WAR and about to enter just his age-25 season, Trout would have easily been one of the most sought after players ever to hit the open market. And given the state of this year’s historically weak free-agent class, the bidding for Trout may very likely have ended up in the $400-500 million range over eight to ten years.
Considering that Trout signed a six-year, $144.5 million contract extension back in 2014 – an agreement that runs through 2020 – this is just an interesting, but hypothetical, thought experiment, right?
Not necessarily. A relatively obscure provision under California law — specifically, Section 2855 of the California Labor Code — limits all personal services contracts (i.e., employment contracts) in the state to a maximum length of seven years. In other words, this means that if an individual were to sign an employment contract in California lasting eight or more years, then at the conclusion of the seventh year the employee would be free to choose to either continue to honor the agreement, or else opt out and seek employment elsewhere.
Although the California legislature has previously considered eliminating this protection for certain professional athletes – including Major League Baseball players – no such amendment has passed to date. Consequently, Section 2855 would presumptively apply to any player employed by one of the five major-league teams residing in California.
The most straightforward application of the California law to MLB would be the case of a free-agent player signing a contract lasting more than seven years (think Albert Pujols). Under the law, the player would be legally obligated to honor his contract for the first seven years, but after that would have the right to opt-out at anytime. As long as the player remained happy with the terms of his agreement, he would continue to receive the salary specified in his contract. However, should the player choose to opt-out after seven years, he would once again become a free agent.
Under no circumstances would the player’s team have the right to opt-out of the contract, though; employers remain bound for the entire duration of an employment agreement under the law, so long as the employee continues to honor the contract (sorry Angels fans).
The potential impact of Section 2855 is much broader than just long-term deals signed by free-agent players, however. Perhaps most significantly, California courts have applied the provision to cases in which an employee was bound by a series of one-year renewable option contracts cumulatively extending eight or more years. Put differently, Section 2855 does not just apply to a single contract lasting more than seven years, but applies whenever an employer has a contractual right to its worker’s services for a total of eight or more years, even if transpiring under a series of multiple contracts.
This interpretation could have a significant impact on professional baseball. Under current MLB rules, teams potentially control their players for a total of up to 13 years – seven in the minor leagues, and six in the major leagues – before the player will receive the right to free agency. In theory, then, Section 2855 could allow any player employed by a California franchise to opt-out after spending seven seasons in the organization, across both the major- and minor-league levels.
For instance, take a player drafted by the Oakland A’s in 2016. Under MLB Rule 55, the A’s can potentially keep that player in the minor leagues for seven years, or until 2023, before he would become a minor-league free agent. But if the A’s were to promote the player to the majors in 2023, then the player would then have to wait six additional years – until 2029 – before accruing enough MLB service time to become a major-league free agent under the CBA. Thus, the player would be contractually obligated to work for the A’s for a total of 13 years, six more than would be allowed under Section 2855.
This means that any player who was originally acquired by a California franchise in 2009 or before, and who has subsequently remained with the team, could now potentially opt-out of his contract and declare for free agency, even if he hasn’t yet accrued six years of MLB service time. While this interpretation would not currently appear to affect anyone from the San Diego Padres or San Francisco Giants, it would result in the following players being declared free agents: Garrett Richards and Matt Shoemaker from the Los Angeles Angels, Pedro Baez, Carlos Frias, and Yimi Garcia from the Los Angeles Dodgers; and Sean Doolittle from the Oakland A’s.
The most aggressive interpretation of Section 2855 would go even further, however. At least one California court – in a case involving boxer Oscar De La Hoya – has held that employees may opt-out of a contract under California law even in the middle of a voluntarily signed contract extension.
In other words, under this interpretation of the provision, Section 2855 would allow a player to opt-out of a contract after year four of a six-year contract extension, so long as he has been employed by the team for a total of seven or more years. Because of this precedent, some California companies require their employees to spend at least one day “unemployed” – i.e., not under contract with the company – every seven years in order to avoid the application of Section 2855.
This is where we return to Mike Trout. Trout was drafted and signed by the Angels in 2009. The 2016 season thus marked his seventh full season in the Angels organization. Even though Trout signed a six-year extension in 2014, under the De La Hoya precedent he could now potentially elect to opt-out of his contract at any time. As could Clayton Kershaw, Madison Bumgarner, Buster Posey, Brandon Crawford, or any other player who has been in a California team’s organization for seven or more years and has signed an intervening contract extension.
So why hasn’t anyone exploited this potential loophole yet? Well, for one thing, the provision only applies to players who have spent at least seven years employed by a California team, significantly limiting the pool of players who could opt-out under the law. Considering the number of players involved in trades, waiver-wire pickups, etc., relatively few players will remain with a single organization for a sufficient period of time to take advantage of Section 2855.
Even for those players who have met the durational requirement of the law, however, in some cases it is possible that their agents – especially those not licensed to practice law in California – may simply have been unaware of how broadly this relatively obscure legal provision has been applied by the courts.
In other cases, even those agents familiar with Section 2855 may have advised their players against opting out. Any attempt by a player to opt-out of his contract under the provision would almost certainly be vigorously contested by the player’s team, either via arbitration or in court, a process that could potentially take years – and substantial legal fees – to resolve.
The outcome of such a challenge would be uncertain. Because Section 2855 does not appear to have ever been applied in a case involving a unionized employee, teams could argue that the terms of MLB’s collective bargaining agreement – including the potential 13 years of control it grants teams over their players – should trump the California law.
At the same time, however, the United States Supreme Court has ruled that the provisions of a CBA generally do not supersede basic protections afforded to workers under state employment law. So a player would have a strong argument that Section 2855 should apply despite MLB’s CBA. Nevertheless, some agents may have concluded that testing the applicability of the provision wasn’t worth the hassle for their clients, especially in cases where the likely financial benefits of opting out were unlikely to justify the cost.
Finally, it is also possible that some players have privately threatened to opt-out of their contracts under Section 2855 in order to obtain the leverage necessary to negotiate a contract extension with their current team. During their famous joint holdout in 1966, for example, Don Drysdale and Sandy Koufax were reportedly planning to file a test case under Section 2855 to seek their release from the Los Angeles Dodgers (nearly a decade before MLB players would obtain the right to free agency). Within a week of learning of the plan, however, the Dodgers agreed to terms on new contracts with both players. Others may have made similar, yet unpublicized, threats over the years, perhaps prompting their clubs to negotiate a contract extension or else trade the player to a non-California-based team.
So what could MLB do if this strategy were to be sanctioned by a court or arbitrator and become commonplace? One possibility would be to ask the California legislature to amend Section 2855 to prevent professional baseball players from relying on the provision in the future. As noted above, such an amendment was proposed in 2007, but ultimately never passed. Should reliance on Section 2855 become more common in the sports industry in the future, it’s possible that the state’s legislators would give such an amendment more serious consideration.
Alternatively, MLB could, of course, modify its rules governing free agency. Although the Section 2855 loophole would affect less than 15% of players, such a development would risk placing the five California franchises at a significant competitive disadvantage. These teams would then be forced either to aggressively promote their prospects in order to maximize the number of years of major-league service time they can extract from their young talent, or else trade the players to a non-California-based team within the first seven years of their employment with the club. Otherwise, the California teams would risk seeing their homegrown players opt-out of their contracts early in their major-league careers in order to sign more lucrative contracts elsewhere.
Therefore, MLB and the union could adjust the existing rules to limit all teams to a total of seven years of control over players, across both the major and minor leagues, before players become eligible for free agency. Such a change would obviously have far-reaching effects on the baseball industry, however, and thus would be something that MLB would presumably consider only as a last resort.
Until an enterprising player successfully pursues such a challenge, however, the potential applicability of Section 2855 to MLB will remain uncertain. Given the potential benefits of opting out, though, it wouldn’t be surprising if a player does eventually decide to test whether a court or arbitrator would be willing to apply the California law to the baseball industry.
Nathaniel Grow is an Associate Professor of Business Law and Ethics at Indiana University's Kelley School of Business. He is the author of Baseball on Trial: The Origin of Baseball's Antitrust Exemption, as well as a number of sports-related law review articles. You can follow him on Twitter @NathanielGrow. The views expressed are solely those of the author and do not express the views or opinions of Indiana University.