For those following the National Football League’s 2022 free agency, there has been a flurry of activity. Players like Aaron Rodgers, Deshaun Watson, Davante Adams and Tyreek Hill have been resetting the value at their respective positions on league-leading deals. Rodgers’s $50 million per season is the most that will be paid to any player in NFL history. Watson’s $230 million of guaranteed money is by far the most guaranteed money ever pledged to a football player. Adams’s $141 million, five-year deal was the most per year ever paid to a non-quarterback… until Hill signed a $120 million, four-year extension with the Miami Dolphins earlier this week.
If you think this sort of flagrant one-upmanship is limited to professional sports, think again. Despite the battering the global economy took due to the COVID-19 pandemic (and now Russia’s invasion of Ukraine), chief executives continue to make more and more money. In the public sector, unions’ demands have increased, not decreased. In high-turnover positions like retail and fast food, the Great Resignation has seen frontline workers, doomed to high virus risk and low compensation, simply refuse employers’ increasingly generous offers.
Welcome to the world of ratcheting.
In litigation, plaintiff-side clients often hear what other plaintiffs have received in settlements, whether legitimately or otherwise. This sets their expectations: regardless of the merits of their particular case, they want a settlement amount greater than what the last plaintiff received. On the defence side, a series of low settlements can empower a client to think the dreaded “mushroom effect” is defeated once and for all. In bargaining, a union will inevitably discuss its best comparator, whereas management will seek to emphasize a situation in which a nominal wage freeze is somehow doing the workers a favour.
Whether you are advising a client who is ratcheting, the opposing party is ratcheting, or you are in the middle as a mediator or med-arbitrator, here are some tips to ensure the numbers don’t spiral out of control: