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The reserve clause is a term formerly employed in North American professional sports contracts. The reserve clause, contained in all standard player contracts, stated that, upon the contract's expiration the rights to the player were to be retained by the team to which he had been signed. Practically, this meant that although both the player's obligation to play for the team as well as the team's obligation to pay the player were terminated, the player was not free to enter into another contract with another team. The player was bound to either (A) negotiate a new contract to play another year for the same team or (B) ask to be released or traded.
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. The players unsuccessfully tried to fight the growing reserve system by forming a union, the Brotherhood, and founding their own Players League in 1890, but the PL lasted just one season. For the next 80 years, the reserve system ruled the game. 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 Clause's 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 National League 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 unsuccessfully 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. Curt Flood unsuccessfully challenged the reserve clause in 1970, but Marvin Miller helped overturn it five years later in 1975.
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.
On June 18, 1921, the NFL ratified its first constitution. The reserve clause ratified in the constitution was similar to that of baseball's at the time. The reserve clause stipulated that a team had the first opportunity to sign a player after the length of the contract had expired. If the team chose not to offer a contract, then the player could try to sign with a team of his choosing. Theoretically, the reserve clause bound the player "...to his employer in perpetuity". The reserve clause had been abolished in the NFL constitution in 1948 when the option clause was created.  The option clause stated that a team may choose to automatically keep a player on their team for another year, at the same pay, after his contract had expired. The term, option clause, was not used by the print media and it was instead referred to as the reserve clause. Nevertheless in the NFL's attempt to gain antitrust exemption from Congress in 1957, Bert Bell still referred to the clause as the option clause (and also as the "option and reserve clause").
Decades later, NFL players' mobility was limited by the so-called "Rozelle Rule", named for the commissioner who first implemented it, which allowed the commissioner to "compensate" any team who lost a free agent to another team by taking something of equivalent value, usually draft picks, from the team that had signed the free agent and giving it to the team the player had left. Fear of losing several future high draft picks greatly limited free agency as no team wanted to sign a veteran player only to learn that it would lose, for example, its next two first-round draft picks. The Rozelle Rule was eventually replaced by "Plan B", which allowed a team to name a thirty-seven man roster the reserve clause would apply to, and all players not included on this list were free agents. Obviously, few top-echelon players were left off this thirty-seven man roster unless they happened to be injured. Courts eventually ruled this plan to be an antitrust violation, and something resembling true free agency came to pro football. Now, exclusive rights to a player are only for the first three years after his selection in the college draft. At the end of the first three years, a player can be a "restricted free agent", allowing his former team to match any offer made to him by another. After four years in the NFL all contracts end with the player becoming an unrestricted free agent without reserve.
There is a Franchise tag option that is similar to the reserve clause; however, teams can only tag one player each year, although they can tag the same player for consecutive years. Franchised players are eligible to receive at least 120% of their previous year's salary, and players tagged "non-exclusive" can accept offers from other teams; if the original team does not match the offer, they receive draft picks as compensation. In recent years, many teams have opted not to exercise their right to designate the Franchise tag.
The National Basketball Association went through several phases of compensation and other arcane provisions before reaching almost unrestricted free agency.
The reserve clause was the basis for the NHL's injunction against the large number of players who had signed with the rival World Hockey Association in 1972, with all but one—against Chicago Black Hawks star Bobby Hull -- ultimately thrown out by lower courts. The appellate court, however, sided strongly with the WHA and Hull, calling the NHL's business practices monopolistic, conspiratorial, and illegal. While the reserve clause was not explicitly struck down, the court did effectively block any further injunctions based on the reserve clause, rendering it useless. (The WHA, meanwhile, voted at its founding to abolish the reserve clause.) The end of the reserve clause in hockey remains a significant part of the WHA's legacy, as it ultimately resulted in the evolution of the NHL's modern free agency system.
The highly contentious negotiations between National Hockey League owners and players that led to a lockout, wiping out the entire 2004–05 NHL season, were in part about free agency; the previous system precluded unrestricted free agency before the player reached 31 years of age. Most younger hockey free agents were restricted free agents whose teams could retain them by matching an offer from another club or making a "qualifying offer," which usually consisted of a ten percent raise above the pay in the former contract. Following the 2004-05 lockout, owners eventually agreed to phase in a much lower age for unrestricted free agency (27 years of age or 7 years in the NHL, whichever comes first) in exchange for the players meeting owners' principal demand in the new NHL Collective Bargaining Agreement—an overall salary cap.
See also 
- Seitz decision, which ended the reserve clause in baseball
- Bosman ruling, a European Court of Justice decision that ended a similar system in European football (soccer)
- NHL Collective Bargaining Agreement
- Morris, Peter (2010). "The Reserve Clause". A Game of Inches: the Stories behind the Innovations That Shaped Baseball. Chicago: Ivan R. Dee. ISBN 1-56663705-8.
- Flynn, Neal (2006). Baseball's Reserve System: The Case and Trial of Curt Flood Vs. Major League Baseball. Walnut Park Group Inc. ISBN 0-97765780-9.
- Willis, 2010, p. 136.
- Willis, 2010, p. 137.
- Algeo, 2006, p. 150.
- Lyons, 2010, p. 186.
- Ruck; Paterson and Weber, 2010, p. 293.
- Lyons, 2010, p. 176.
- Lyons, 2010, p. 261.
- Algeo, Matthew (2006), Last Team Standing. Philadelphia:Da Capo Press. ISBN ISBN 978-0-306-81472-3
- Lyons, Robert S. (2010). On Any Given Sunday, A Life of Bert Bell. Philadelphia:Temple University Press. ISBN 978-1-59213-731-2
- Ruck, Rob; with Paterson, Maggie Jones and Weber, Michael P. (2010) Rooney:a Sporting Life. Lincoln:University of Nebraska Press. ISBN 978-0-8032-2283-0
- Willis, Chris (2010). The Man Who Built the National Football League:Joe F. Carr. Lanham, MD:Scarecrow Press, Inc. ISBN 978-0-8108-7669-9