Reserve Clause - History and Baseball

History and Baseball

In the late 19th century, baseball in America became popular enough that its major teams began to be businesses worth considerable amounts of money, and the players began to be paid sums that were well above the wages earned by common workers. To keep player salary demands in check, team owners promulgated a standardized contract for the players, in which the major variable was salary. In this era, all player contracts were for one year. There were no long-term contracts as there are today, because the reserve clause negated the need for them.

The Reserve Clauses inception was in 1879, when it was proposed as an unofficial rule known as "the Five Man Rule." It would allow teams to reserve players for each season, unless a player opted out of his contract and did not play in the league for a year. While the rule was not secret, teams started to sign other teams' "reserved players," thus encroaching the rule. These controversies caused the MLB to instate the rule officially on December 6, 1879.

Teams realized that if players were free to go from team to team then salaries would escalate dramatically. Therefore, they seldom granted players (at least valuable ones) a release, but retained their rights, or traded them to other teams for the rights to other players, or sold them outright for cash. Players thus had a choice only of signing for what their team offered them, or "holding out" (refusing to play, and therefore, not being paid).

Under the Sherman Antitrust Act of 1890, two or more non-affiliated companies in any other interstate business, were prohibited from colluding with each other to fix prices or establish schedules or rates. Enforcement of the Act reached its apotheosis in 1910 when the Supreme Court affirmed the government's order to dissolve the Standard Oil conglomerate. Yet it was argued that to keep baseball (the only large-scale professional sport in America during the 1920s) prosperous, granting it immunity from the Sherman Act was in the best interests of the game and the nation.

Thus, the United States Supreme Court had held in 1922 in Federal Baseball Club v. National League (259 U.S. 200) that baseball was an "amusement", and that organizing a schedule of games between independently owned and operated clubs operating in various states, and engaging in activities incidental thereto, did not constitute "interstate commerce" and that therefore antitrust laws did not apply to such activity, a ruling that, as of now, has never been overturned, despite efforts to do in Toolson v. New York Yankees and Flood v. Kuhn.

This pass on "trust-busting" essentially codified the reserve clause for many years, and gave what came to be known as Major League Baseball unprecedented power over both players and the independent organizations of the National Association of Professional Baseball Leagues (NAPBL). MLB could dictate not only how and where professional players could move between major league clubs, but as they took the opportunity of the Great Depression to establish systems of farm teams of players wholly owned by the parent clubs placed on 'independent' teams from the NA leagues around the country, they developed a way of expanding control of contracts of virtually the entire pool of professional baseball players.

When other team sports, particularly ice hockey, football, and basketball developed professional leagues, their owners essentially emulated baseball's reserve clause. This system stood almost unchallenged, other than by the occasional holdout, for many years.

In October 1969, St. Louis Cardinals outfielder Curt Flood challenged his trade to the Philadelphia Phillies. Flood sacrificed the remainder of his playing career to pursue this litigation. Flood's case established that the reserve clause was a legitimate basis for negotiation in collective bargaining between players and owners, and that the historic baseball antitrust exemption was valid for baseball only and not applicable to any other sport.

Removing the reserve clause from player contracts became the primary goal of negotiations between the Major League Baseball Players Association and the owners. The reserve clause was struck down in 1975 when arbitrator Peter Seitz ruled that since pitchers Andy Messersmith and Dave McNally played for one season without a contract, they could become free agents. This decision essentially dismantled the reserve clause and opened the door to widespread free agency.

Other sports soon followed suit.