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Knuckler - the example you gave is of an extreme circumstance where the player has broken one or more rules and/or laws. In that case, Hernandez was also placed on the Restricted List for rules violations. The Indians had every right to terminate his contract because he falsely represented himself.
Restructuring is possible, but that involves guaranteed deferred payments which makes things far more complicated from a budgetary perspective. However, MLBPA rules state that you cannot restructure a contract so that a player makes less than they currently do.
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