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Arbitration

By
Chris Honeyman

Updated April 2013

 

Definition:

Arbitration includes any process in which parties agree to refer a dispute to a third person or group for a decision.

Users:

Users of arbitration may include anyone involved in a small claim against a store or other business, as well as attorneys, business and labor officials, and other "repeat players."

Description:

Arbitration is often used to obtain a quicker, less expensive, and more expert decision than the courts are thought to provide. Sometimes the decision is advisory (that is, not binding), but more often, both parties agree in advance to follow the arbitrator's decision (called an "award"). Generally when there has been such an agreement, the courts will enforce an arbitration decision, unless it obviously violates the law.

Because the purpose of arbitration is to get a relatively quick and expert decision, and because there is usually no appeal, the selection of the arbitrator matters greatly. Systems of selecting arbitrators vary. In thousands of labor-management disputes, arbitrators are typically selected on a case-by-case basis from an established list, with each party striking the names least acceptable to it until only one name remains. In international or large commercial cases, the process of defining a mutually- acceptable arbitrator may be much more involved, while in "small claims" court cases and non-union employment disputes, the customer or employee may have little direct influence over who the arbitrator might be. Arbitrators are typically lawyers or other experienced professionals with a specific background in the type of case involved. In consumer and other small-scale disputes, they may simply be local citizens who are willing to serve in this capacity.

In labor-management cases and some other disputes, the arbitrator normally writes a decision explained in almost as much detail as a full written opinion by a court. But in other settings, awards are delivered with no written or oral explanation. In general, full-length written awards are used where parties expect that the case may be a guide for future similar problems between them; the no-explanation approach is generally used where parties either are more interested in speed and economy, or where they are concerned that a losing party might use any arguable error in the decision to challenge the result in court. Thus both small claims and some quite large disputes, such as those over future rents for the land underlying a large office building, may follow this pattern.

Example:

Joe Smith is late for work four times in two months; his employer says this is unacceptable and fires him. Smith's union complains that this is unfair because he was not properly warned that being late was seen as so serious that it could get him discharged. In three successively higher-level meetings, union and management representatives argue over the case, but are unable to reach an agreement. Under the parties' three-year contract covering hundreds of workers, arbitration is the final step of the grievance procedure, so the union requests arbitration. The union then submits a form requesting a "panel" of five arbitrators to the Federal Mediation and Conciliation Service, one of a number of government and private agencies which maintain rosters of professional arbitrators. The agency sends each party a short list of five arbitrators and their biographies, chosen at random from the hundreds on file with the agency (the computer selecting the random list is set to select only from arbitrators in the same part of the country as the parties.) The parties then strike names alternately until one name is left; this becomes the selected arbitrator. The parties then arrange a date for a hearing with the arbitrator. As is usual, the hearing takes less than a day, although in this instance, the parties agree that they will file briefs afterward, and they give themselves thirty days to do so. A month or two after that, the arbitrator issues her decision, which is binding on all concerned. (Small disputes are often resolved much more quickly than this; big commercial cases can take much longer. The only general rule is that for any given type of case, the same case would probably take longer if submitted to court decision rather than arbitration. But even this is not always true because arbitration varies so much from one setting to another.)

Application:

Arbitration is useful whenever parties know that they will be unable to resolve a dispute by negotiation or mediation, and want a decision that is likely to be faster and more expert than they think they will get in court. It is also useful as a "last resort" built into a standardized grievance procedure between parties who are in a continuing relationship. If arbitration is the last step after negotiation and mediation are tried, the prospect of an imminent arbitration hearing may help both parties concentrate on settlement possibilities that are not ideal, but are seen as better for both parties than the risk of arbitration, which takes the decision out of the parties' hands. Arbitration is not useful when parties want to maintain control of the decision-making process and of the decision itself (as is true in negotiation and, to some extent, in mediation), or where the parties must have a definitive answer that will stand as a public precedent for similar cases in the future. However, cases which appear to fit that last profile should be examined closely, because there is evidence that there are fewer of them than parties tend to believe in the heat of the moment.

Links to Related Articles:

Arbitrator Certification, Credentialing, and Rosters
Alternative Dispute Resolution (ADR)
Mediation
How to Find a Mediator
When to Arbitrate

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