The case concerns what are known as Bird rights, which allow a player to re-sign with his team without regard to the salary cap. The league contends those rights are lost when a player changes teams through waivers. The union is challenging that interpretation.
If the union prevails, the Knicks would be able to re-sign both Jeremy Lin and Steve Novak, their top free agents, despite cap constraints. They would also retain a $5 million salary slot — known as the midlevel exception — for use on another player, possibly J. R. Smith, who can opt out of his deal.
But if the union’s challenge fails, the Knicks will probably lose Novak and possibly Smith when free agency opens in July. And they will have little ability to sign a significant free agent like point guard Steve Nash once they re-sign Lin.
The union, which filed a letter Monday seeking arbitration, hopes to have the matter settled by the time free agency opens July 1. The union and the league must first select an arbitrator.
The case could also affect J. J. Hickson of the Portland Trail Blazers and Chauncey Billups of the Los Angeles Clippers.
At issue is whether a player retains his Bird rights when he changes teams through a waiver claim, as Lin, Novak, Hickson and Billups did this season.
The union contends that a player claimed on waivers should retain all contractual benefits, as he does when he is traded. The league disagrees, citing a specific clause in the labor agreement that indicates Bird rights are lost when a player is waived, even if another team claims him.
“We are confident that our interpretation of the agreement is correct,” said Mike Bass, an N.B.A. spokesman.
The union declined to comment.
Although — named for the former Celtics star Larry Bird — have been in place for years, this specific dispute had not arisen. For one, N.B.A. players are rarely claimed off waivers. And most waived players are not valuable enough for a team to invoke their Bird rights to keep them.
That changed in rather dramatic fashion this season when Lin and Novak — who were both playing on minimum contracts — had breakout seasons for the Knicks after being claimed on waivers in December. Both could receive lucrative multiyear offers this summer.
If Lin and Novak are determined to have so-called early-Bird rights, the Knicks could pay each one a starting salary up to the league average, about $5.3 million.
Without those rights, the Knicks could offer only small raises, unless they used a cap exception, the midlevel ($5 million) or the biannual ($1.9 million).
The Knicks would almost certainly need the entire midlevel exception to sign Lin, which would leave them unable to compete for Novak and Smith.
Lawyers for the league consider the matter cut and dried based on definitions contained in the collective bargaining agreement. But experts across the league believed otherwise when the issue first came up. Three general managers asked in February all said they believed that Lin had retained his early-Bird rights.
The league then clarified its view, and the union began pondering whether to challenge it.
“I think we feel very strongly about the case,” said Novak’s agent, Mark Bartelstein, adding, “I don’t think the players association would go through the exercise if they didn’t feel strongly about the merits.”
A player earns Bird rights by playing for the same team in consecutive years: two years for early-Bird rights and three for full Bird rights. An early-Bird player is eligible for the average player salary, without respect to the cap. A player with full Bird rights can sign for up to the maximum salary.
Novak and Lin were in position to earn their early-Bird rights before they were waived last December, Novak by San Antonio and Lin by Golden State. (Lin was subsequently claimed, and waived again, by Houston, before joining the Knicks.)
Hickson and Billups had full Bird rights before being waived (Hickson by Sacramento and Billups by the Knicks).
In general, a player retains his Bird rights in a trade, because his contract transfers with him. The union contends that the same principle should apply when a player is claimed off waivers, because the contract is still in effect and — similar to a trade — the player did not choose his new team.
In the union’s view, Bird rights should expire only when a player clears waivers, because he is a free agent at that point who can choose a new team and sign a new contract.
The union contends that the entire rationale for allowing Bird rights to transfer was to protect players who changed teams against their will, a principle that could apply to both trades and waiver claims. (The section of the uniform player contract that deals with waiver claims, in fact, cross references the rules governing trades.)
So union officials believe the spirit of the rule favors them. But if the arbitrator goes by the letter of the law, the union will probably lose the case and the Knicks will probably lose some key players.