ARBITRATION

ARBITRATION is the use of an impartial third party to resolve a dispute. Unlike mediation or conciliation, in which a third party facilitates the end of a dispute by helping the negotiators find common ground, an arbitrator ends a dispute by issuing a binding settlement. Before submitting their dispute to arbitration, the parties to a dispute agree to abide by the arbitrator's ruling.

Arbitration has been used to resolve disputes for centuries. Examples from as far back as the sixth century b.c.e. affirm the use of arbitration to resolve disputes between individuals and between city-states in ancient Greece. In the Old Testament, King Solomon acted as an arbitrator to resolve a conflict between two women over the identity of a child (1 Kings 3:16–28). George Washington in 1799 provided for the use of arbitration should any disputes arise over his will.

In U.S. history, labor arbitration, to settle industrial disputes between labor unions and employers, and commercial arbitration, to settle disputes involving business and consumer transactions, have been the most extensive uses of arbitration. The development of labor arbitration stems from the government's desire to avoid strikes that threaten the public interest, while commercial arbitration results from a desire to avoid the court system.

Commercial arbitration has expanded to include international commercial arbitration and has become more widespread as participants in the legal system have explored the use of alternative dispute resolution (ADR) to reduce the costs and delays of court cases. ADR includes arbitration, mediation, and other forms of dispute resolution. A significant example is the growing trend to use arbitration instead of the courts to resolve employment disputes involving allegations of discrimination and other violations of federal and state employment laws.

The Arbitration Process

The central features of the arbitration process are generally similar regardless of the topic of the dispute. Except in some cases in which arbitration is required by law, the parties agree ahead of time, usually when drafting a contract, to submit any disputes to binding arbitration. Nearly every union contract between labor unions and employers specifies arbitration as the final step of the grievance procedure to resolve employee grievances. A typical clause in contracts between builders, architects, and owners in the construction industry might read as follows: "Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof."

Once arbitration is initiated by one of the parties, an arbitrator must be selected. If the parties have not selected an arbitrator, agencies such as the American Arbitration Association and the Federal Mediation and Conciliation Service can provide a short list of qualified arbitrators. The parties then select an arbitrator from this list, for example, by alternately striking out names. Some arbitration processes may involve a panel of arbitrators, especially in complex commercial cases. When labor arbitration involves a panel, it is common to have an impartial chairperson, one member selected by labor, and one member selected by management.

Each party to the dispute then presents its case and argues its position at a hearing. It is of utmost importance that each party receives a full and fair hearing. Witnesses and exhibits often are presented to support a case, though the strict rules of evidence used by judges are not followed. The arbitrator decides the relevance and importance of the evidence. As with a traditional court case, opening and closing statements are made, and witnesses can be cross-examined. The parties frequently are represented by attorneys.

After the hearing, the arbitrator considers all of the material and issues a ruling. In commercial arbitration, it is common for the decision to simply provide the arbitrator's resolution to the disputed issues without providing details about the arbitrator's reasoning. In labor arbitration, however, it is common for the decision to be accompanied by an opinion indicating the reasons for the decision. The opinions are often used as precedents in subsequent cases.

The parties agree ahead of time to abide by the arbitrator's ruling or award. Laws such as the Federal Arbitration Act and judicial precedent have established the authority of arbitration awards, and the scope for challenging an award in court is limited to alleged problems in the process, such as arbitrator misconduct or disregard for the contract or law. The merits of an arbitrator's decision are not subject to judicial review, and awards can be enforced by the courts.

Labor Arbitration

Labor arbitration usually resolves disputes involving labor unions, employees, and employers. It is commonly divided into two distinct categories: interest arbitration and rights arbitration.

Interest arbitration resolves conflicts of interest over the establishment of the terms and conditions of employment, for example, the wage rate, working hours, and number of vacation days for each employee. In labor relations, these terms and conditions are negotiated through collective bargaining, and agreements are formalized in collective bargaining agreements or union contracts. A breakdown in these negotiations typically results in a strike. Interest arbitration avoids or ends strikes. In the United States the development of interest arbitration can be attributed to the government's desire to protect the public interest by preventing or ending strikes in key industries during the first part of the twentieth century. In 1902, President Theodore Roosevelt ended a five-month coal strike via arbitration, and several laws provided for voluntary arbitration in the railroad industry and the appointment of boards of inquiry if interstate commerce was affected.

Interest arbitration in the private sector is voluntary, and the parties can choose arbitration as an alternative to a strike if desired. Examples have involved the apparel and steel industries as well as Major League Baseball. Congress, however, has prevented railroad strikes through arbitration, and President Bill Clinton ended a flight attendants strike at American Airlines in 1993 by persuading the parties to submit their dispute to arbitration.

In the public sector, interest arbitration is often compulsory, that is, required by law, which echoes the rationale of preventing strikes that harm the public interest. At least twenty states and the federal government deny government employees the right to strike and instead require interest arbitration. These compulsory arbitration laws are especially prevalent among occupations deemed essential, such as police officers, firefighters, and prison guards. Most interest arbitration in the United States occurs in the public sector under these compulsory statutes; private sector negotiators are generally reluctant to give up their right to strike and to turn over their decision making authority to a third party.

In contrast, rights arbitration is widely used in both private-and public-sector labor relations. Rights arbitration resolves conflicts of rights, more commonly referred to as grievances, which are disagreements over the application or implementation of an existing union contract. In other words, has a right that was granted by the contract to a specific party been violated? A common example involves the discipline and discharge of employees. Most union contracts specify that employees can only be disciplined and discharged with just cause, so grievances are frequently filed over whether or not a specific instance of discipline or discharge was consistent with the requirements of just cause. An arbitrator might rule that the discharge was consistent with just cause and therefore stands or that management violated a principle of just cause and therefore the grievant is entitled to be reinstated to his or her job, perhaps with back pay. Other examples include questions of whether or not the contractual provisions were followed in layoffs or promotions, whether or not a specific employee was eligible for vacation pay, or whether or not management has the right to subcontract work.

The widespread adoption of rights or grievance arbitration in the United States originated during World War II. This period was marked by significant growth in union membership and an obvious public interest in avoiding strikes that interrupted war production. The U.S. government, through the National War Labor Board, prompted organized labor to give up the right to strike over grievances in return for binding grievance arbitration as the final step of the grievance procedure. At the conclusion of the war, the only thing that labor and management could agree on was that grievances were best settled through a grievance procedure ending in binding arbitration rather than a strike.

Grievance arbitration was further institutionalized by the important Supreme Court decisions in Textile Workers v. Lincoln Mills (1957) and the Steelworkers Trilogy Cases (1960). In short, these decisions prohibit labor and management from ignoring an arbitration clause in their contract, provide significant legitimacy to the arbitration process, and restrict the scope of judicial review.

No-strike clauses are in 95 percent of union contracts, and clauses providing for binding arbitration to settle unresolved grievances are in nearly all contracts. Note carefully that these no-strike clauses pertain to grievances, rights disputes during the term of a collective bargaining agreement, not to interest disputes at the expiration of the agreement. This system of grievance arbitration, with its established body of precedents on just cause and other important issues, is widely recognized as a positive contribution to labor-management relations in the workplace.

However, the application of arbitration to employment disputes in the nonunion arena is contentious. A number of employment laws provide employees with rights pertaining to nondiscrimination, safety and health, family and medical leave, and other subjects. To avoid costly litigation, some employers require employees, as a condition of employment, to agree to arbitrate any future employment law disputes rather than take the employer to court.

The Supreme Court, in Gilmer v. Interstate/Johnson Lane Corporation (1991), upheld forcing an employee who agreed to binding arbitration in advance to submit his or her dispute to arbitration, but numerous legal and policy questions remained. In particular, it is central to the legitimacy of arbitration as a dispute resolution process that all parties receive due process. In light of the differences in resources between corporations and individual employees, it is debatable whether or not employees are provided with due process in this nonunion context, especially if they must waive their right to litigation as a condition of employment in advance of any dispute. This issue impacts significantly arbitration in the United States.

Commercial Arbitration

Commercial arbitration resolves disputes involving business transactions. Merchants and traders have used arbitration for centuries. The chambers of commerce of New York and other eastern cities used arbitration before 1800, though perhaps not frequently. Widespread acceptance of commercial arbitration, however, did not start until the 1920s. New York State passed a law in 1920 and Congress passed the Federal Arbitration Act in 1925, making contract clauses containing an agreement to arbitrate disputes legally binding. Also significant was the founding in 1926 of the American Arbitration Association, a not-for-profit organization that provides guidelines and assistance in using arbitration.

As a result, contracts in the United States between builders, architects, and owners in the construction industry or between cloth mills and garment manufacturers in the textile and apparel industry often have a clause specifying that disputes will be resolved through arbitration. Transactions in the real estate, financial securities, and publishing industries often include arbitration as the dispute resolution procedure. One of the largest commercial arbitration applications involves uninsured motorist claims, in which liability and damages are determined through arbitration.

While labor arbitration developed as a means for avoiding strikes, the rationale for commercial arbitration is to avoid the court system. Relative to court action, arbitration can be faster, less expensive, and more private. Moreover, arbitrators are experts in the subject matter of the dispute. Increased economic globalization and complex international business relationships combined with a reluctance to litigate disputes in a foreign court have increased adoption of arbitration to resolve international business disputes.

BIBLIOGRAPHY

Bales, Richard A. Compulsory Arbitration: The Grand Experiment in Employment. Ithaca, N.Y.: ILR Press, 1997. Overview of arbitration to settle employment law disputes. Includes historical and contemporary developments.

Bühring-Uhle, Christian. Arbitration and Mediation in International Business: Designing Procedures for Effective Conflict Management. The Hague and Boston: Kluwer Law International, 1996.

Devinatz, Victor G., and John W. Budd. "Third Party Dispute Resolution—Interest Disputes." In The Human Resource Management Handbook, part 2. Edited by David Lewin, Daniel J. B. Mitchell, and Mahmood A. Zaidi. Greenwich, Conn.: JAI Press, 1997. Reviews the extensive research literature on interest arbitration.

Dunlop, John T., and Arnold M. Zack. Mediation and Arbitration of Employment Disputes. San Francisco: Jossey-Bass, 1997.

Elkouri, Frank, and Edna Asper Elkouri. How Arbitration Works. 5th ed. Edited by Marlin M. Volz and Edward P. Goggin. Washington, D.C.: Bureau of National Affairs, 1997. The classic treatment of grievance arbitration.

Kheel, Theodore W. The Keys to Conflict Resolution: Proven Methods of Settling Disputes Voluntarily. New York: Four Walls Eight Windows, 1999. Wisdom and examples from an experienced arbitrator and mediator.

Ponte, Lucille M., and Thomas D. Cavenagh. Alternative Dispute Resolution in Business. Cincinnati, Ohio: West Educational, 1999.

JohnBudd

See alsoCollective Bargaining ; Labor Legislation and Administration ; Strikes .