This exception is officially known as a Veteran Free Agent exception. A player who qualifies for the exception is known as a qualifying veteran free agent. This exception allows teams to re-sign their own free agents without being penalized for going over the salary cap. It also allows the team to offer a contract with a longer term.
A player qualifies for the Larry Bird Exception, or simply Bird Exception, if they have played on the same team for 3 seasons without being waived or changing teams as a free agent. Such a player may be re-signed by their own team for an amount up to the maximum salary set in the Collective Bargaining Agreement for up to 5 years. A player may also qualify for Bird Rights, as they are known, if the player is amnestied; the player's Bird Rights would transfer to the team that claims him. Players can also retain their Bird Rights if they play under 3 one-year contracts or if the player is traded. These final two qualifications were allowed based on a determination by an arbitrator in June 2011.