Library Worklife

Volume 3, No. 7 • July 2006

HR Practice

Arbitration: The Final Frontier or The New Horizon?

By Julius Rhodes

In all of our lives it is certain that whether we are dealing with personal or professional matters we will encounter disputes. As a result if we are to rectify these situations amicably both parties must agree upon a process that they see as mutually beneficial. In recent years in both organized and non-organized environments this has meant an increase in the use of arbitration. However, with this increased use comes questions like, “Is arbitration right for my organization? How do you know when to use arbitration and what is arbitration?” I do not represent myself as having all the answers (to assert such widespread knowledge on my own would be vain so I will leave any such conclusions up to you the reader); however, I will provide a window that will allow us to look into the appropriate uses of arbitration, as well as how it differs from litigation, mediation and fact-finding.

It has become somewhat axiomatic that in the United States of America, we live in a litigious society. As a result of our penchant for addressing disputes, either real or perceived, the number of lawyers in our country and the schools that produce them is at an all time high and those numbers continue to rise. Now as it relates to litigation there are a number of issues that really make it a system under siege. First of all, due to the sheer volume of cases that are being contested, the principle of being afforded the opportunity for a speedy trial is not readily available. Second, our system of justice is often bogged down in technicalities, which makes it all but impossible for anyone other than attorneys or other trained legal professionals to understand the proceedings. Third, there is an enormous expense borne by the public in general and employers specifically that, while it can be measured in actual dollars, has a far more expansive cost in non-monetary terms.

When you consider all of the factors I have just mentioned and many others that have been suggested by individuals much more learned than myself, it becomes apparent that we need to utilize an alternative dispute resolution model. This model addresses individual and organizational matters by allowing all concerned parties to feel as though they have been heard, as well as respected for their integrity.

Mediation, fact-finding and arbitration are the three major types of third party intervention aimed at resolving disputes. In virtually all employer/employee situations that I can think of the opportunity to engage in third party intervention has to be voluntarily agreed upon before such intervention can be used. In unionized environments third party dispute resolution is often a major piece of the negotiation process and is codified in the collective bargaining agreement.

In non-unionized environments I have often witnessed where even the process leading to the agreement on the utilization of third party intervention requires a great deal of give and take. In some instances, a third party was called in to decide if there would be any ongoing utilization of a third party to help adjudicate disputes.

So let's take a quick look at how mediation, fact-finding and arbitration differ and why an organization might decide to use arbitration to assist with resolving disputes.

Mediation employs the use of mediators who are often called upon, as is the case in the other third party interventions, when the parties cannot agree upon a course of action leading to a resolution and the dialogue has ceased. Mediators, as is the case with fact-finders and arbitrators, are a neutral third party and are typically provided by the Federal Mediation and Conciliation Service (FMCS).

It becomes the responsibility of the mediator to get the parties back together by attempting to ‘make a deal' that both parties will find appealing. This can be a delicate, lengthy and cumbersome process as typically the mediator's attempt to broker a solution is not legally enforceable. When you think about mediation and the use of mediators it is akin to an art form. In this regard, ‘beauty is in the eye of the beholder.' A mediator has no formal authority but, rather, acts as a facilitator and go-between in negotiations. Successful mediators must have a blend of skills that shows versatility, intensity and the ability to orchestrate between parties in a way that will allow them to settle on their own terms where it appeared that there was no common ground.

Fact-finding is the use of a neutral third party, who in many cases may have no connection with the parties in dispute, any knowledge of the particular institution or overall industry. It is their responsibility to analyze the issues in the dispute and render a recommendation as to what a reasonable settlement ought to be. Now there are two concerns with their role as I see it. The first is what constitutes ‘reasonable'? Second, what is meant by ‘ought'? We have seen with the recent Americans with Disabilities Act that when we talk about ‘reasonable accommodations', proponents, opponents and even the courts cannot decide on what is reasonable. Additionally, the word ‘ought' allows ‘wiggle room' for either party to the dispute such that if they disagree with the recommendation of the fact-finder they are free to return to transacting business and addressing the possible resolution of the issue under dispute as they see fit. Neither fact-finding nor mediation obligates the parties to the offered resolution.

In contrast, arbitration is a quasi-judicial process in which the parties agree to submit their dispute to a neutral third party for binding settlement. Arbitration does not rise to the level of complexity of formal legal proceedings in that it does not embrace the typical rules of evidence ascribed to by the courts. However, it does bind the parties to the decision of the arbitrator. In the rare situations where that decision has been contested, the courts have overwhelmingly sided with the arbitrator's award.

Arbitration as a field of dispute resolution has a long history in the United States dating back to the 1860s when the Knights of Labor (one of our country's first labor unions) called for its usage as a method preferable to strikes for the resolution of interest disputes. While there is no legislation that mandates arbitration as a means of dispute resolution, a series of cases involving both the Supreme Court and the National Labor Relations Board since the 1950s have established the role of arbitration. Most arbitrators are either attorneys who practice labor arbitration or academics that teach in the field of labor law, industrial relations or economics.

Procedures for selecting an arbitrator are usually written into the established contract. However, where no contract exists the parties in a dispute may seek to identify an arbitrator by utilization of either of the following agencies the Federal Mediation and Conciliation Service (FMCS), the American Arbitration Association (AAA) or the National Academy of Arbitrators (NAA).

The FMCS maintains a roster of arbitrators from which it can select and it also screens persons who seek to be listed as arbitrators. The AAA acts as a clearinghouse to administer matters between the parties and the arbitrators. Typically if an existing contract specifies AAA as the assisting agency, once they have been contacted, they will provide a list of arbitrators for review by the parties. The parties alternately reject the submitted names (always an odd number) until one remains. Once a single name has been agreed upon the AAA will notify the selected individual who has the right to either accept or decline the appointment. If needed the AAA will provide hearing facilities and court reporters. They will also follow-up to see if a decision has been rendered.

The NAA does not offer arbitration panels but its organization consists of the most highly qualified and regarded arbitrators in the country and its directory provides a source that the parties can contact directly.

Without going into too much detail there are two types of arbitration: interests and rights. Interest arbitration looks at the acquisition of future rights versus claimed rights vested in the past. Rights arbitration addresses the enforcement or interpretation of existing contract terms.

In either situation it is the responsibility of the arbitrator to decide who ‘wins' and who ‘loses' based upon a consideration and review of the evidence presented by the parties in dispute. Although arbitration is not as formal as traditional courtroom proceedings, the parties involved may choose to be represented by lawyers. Unlike situations involving fact-finding, the arbitrator generally has either general or specific knowledge of the industry under consideration and the parties will generally work to ensure that they have a list of individuals to select with the requisite knowledge needed to make an informed decision.

The cost savings and efficiency of the arbitration process vis-à-vis traditional court processes is undeniable and provides a powerful motivator for its utilization. However, I would like to suggest another even more powerful reason to seek recourse to the arbitration process. That is or should be because of the opportunity it provides for the parties to put forth whatever pertinent information they deem relevant to their concerns and to be assured it will be considered in the final outcome. Additionally, it provides for a more expedient resolution of the dispute and the resumption of normal business operations. Finally, unlike mediation and fact-finding it is binding upon the parties because the parties agreed to stipulation when they agreed upon the use of third party intervention.

It is bound to occur that one of the parties in the dispute will not be satisfied when a decision is made. However, that event should not take away from the fact that arbitration, if set-up and used appropriately, provides for a greater level of customization, efficiency, simplicity, cost avoidance, finality and increased confidence on the part of the parties who utilize this method of dispute resolution.

Julius E. Rhodes, SPHR is founder and principal of the mpr group, a broad-based Human Resources (HR), organizational development and leadership consulting practice. He provides assistance in training program development and delivery, project management, motivational and keynote addresses, needs assessments, executive coaching, organizational and leadership development, ethics consultation and other HR areas. He has also completed the arbitrator development program through Cornell University and the New York State Employment Relations Board. You can contact him at 773-548-8037, e-mail at j-rhodes1@neiu.edu or visit his web site at www.bossnetworks.com/mprgroup/index.htm.

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