Arbitration:
History, Theory, Rationale, Legal
Status
Definitions
• Arbitration
– A procedure under which a neutral third party or
some other neutral body or entity resolves a
dispute
• Commercial Arbitration
– Used to resolve commercial disputes
• Employment Arbitration
– Resolves individual employment disputes
» Individual employment contracts
» Corporate policies
– Statutory Disputes
• Labor Arbitration
Labor Arbitration
• Two Types
– Interest or Contract Arbitration
• Resolves disputes over the terms and conditions of
employment to be included in a collective bargaining
agreement
– Rights or Grievance Arbitration
• Resolves disputes over the interpretation of an existing
collective bargaining agreement
Other Labor Dispute Resolution
Procedures
• Negotiation
– Public and private sectors
• Mediation
– Public and private sectors
– May be mandated
• Fact-Finding
– Public sector
Digression:
Alternative Dispute Resolution
(ADR)
• Usually discussed in the context of
employment disputes
• Any method of resolving an employment
dispute that does not use the legal system
(administrative agencies and courts)
– Mediation
– Arbitration
History in the U.S.
• 1871
– Pennsylvania anthracite mine dispute settled by a
judge after both parties agreed to submit dispute
to him and be bound by his decision
– Issues
• Worker interference with production
• Owner discharge of workers
• 1874
– Ohio coal dispute, owners refused to abide by
decision
History in the U.S. (cont.)
• 1886
– Southwestern railroad refused to submit to
arbitration of strike
– 1894
• Congress of Industrial Conciliation and Arbitration
– Reps from labor, management and government
– Interest in promoting industrial peace
– 1902-03
• United States Strike Commission appointed by
President T. Roosevelt issued an award than ended a
five-month anthracite strike
• Put in place an arbitration system that continues, in
modified form, today
History in the U.S. (continued)
• Railroads
– Arbitration Act of 1888
• Passed after rail strikes in early 1880’s
– Voluntary submission to arbitration
– Presidential investigation
• Invoked in 1894 for rail car manufacturing strike
– Erdman Act of 1898
– 1898-1905 – did not work because employers refused to abide by award
– 1906-13 – disputes settled without strikes because of growing strength of
railroad brotherhoods
– Newlands Act of 1913
• Enacted when parties disagreed over composition of Erdman boards
• Worked until 1918 when unions refused to submit 8-hour demands to
arbitration
History in the U.S. (cont.)
• Railway Labor Act
– 1926 enactment
– 1934 amendment
– Arbitration provisions
• National Railroad Adjustment Board to resolve
grievances
• National Mediation Board addresses disputes over the
terms and conditions in a collective bargaining
agreement
History (cont.)
• Printing Industry
– Arbitration of wage dispute between publishers
and Typographical Union in 1901
– Local Boards with appeal to a national board
• Apparel Industry
– Protocol of Peace in NYC cloak and suit industry in
1910
• Board of Grievances and Board of Arbitration
• Ended in 1916 with a strike in NYC
History (cont.)
• Apparel Industry (cont.)
– Other branches and cities copied it
– Led to other models later on
• Hart, Schaffner, Marx Board of Arbitration in Chicago in
1911
• Millinery industry in New York in 1915
• Hosiery in the lat 1920’s
– Mediation model
• Entertainment (amusement) industry in 1920’s
– Actors’ Equity
– Director’s Guild
History (cont.)
• Government
– U.S. Department of Labor created Conciliation
Service in 1913
• Mediation
• Arbitrator selection
– Two unsuccessful labor-management conferences
during WWI
Modern CB System
• Wagner Act
– Agreements needed interpretation
• Arbitration to resolve disputes
• In 1941, 62% of 1200 agreements in conciliation service
file included arbitration to settle disputes over the
interpretation of the contract
– GM and UAW created the Office of the Umpire
• (permanent)
Summary through 1941
• Arbitration an acceptable, if not a frequent
manner of resolving labor disputes
– In some industries
• Until Wagner Act and modern U.S CB system,
primarily to resolve disputes over wages and
the outcome of bargaining
• After Wagner Act, to resolve disputes over
existing TCE
World War II and Development of
Modern Labor Arbitration
• Wartime labor relations
– Tripartite (labor, management, public) War Labor
Board (WLB)
– Wage and price controls
• Subject to approval by government
– Strike substitutes
• During negotiations wage controls
• During contract – grievance procedures
– Imposed on parties by WLB
Arbitration and WLB
• WLB required parties to include grievance and
arbitration procedures in collective
agreements as a means of avoiding strikes
over disputes regarding contract
interpretation
– Encouraged development of arbitration
techniques
– Made distinction between
• Interests (writing a contract)
• Rights (interpreting an existing contract)
– Established a cadre of arbitrators
Grievance Arbitration
• A substitute for industrial conflict over
disputes regarding the interpretation of
existing collective agreements
• Final and binding
• Contracts for a fixed term
• The stakes for any individual grievance usually
not that great
• A voluntary process incorporated into
collective bargaining agreements
What Did Arbitration Do?
• It resolved the dispute through a voluntary
procedure
– No work stoppage
– Production continued
– “throw it over the wall”
Labor Arbitration Infrastructure
• Appointing Agencies
– American Arbitration Association, www.adr.org
– Federal Mediation and Conciliation Service,
http://www.fmcs.gov/internet/
– State Agencies
• Michigan – Bureau of Employment Relations,
http://www.michigan.gov/dleg/0,1607,7-15410576_17485---,00.html
• Maintain
– Arbitrator lists or rosters
– Rules for Cases
How Voluntary?
• Section 301(a) of LMRA. "Suits for violation of
contracts between an employer and a labor
organization representing employees in an
industry affecting commerce as defined in
this chapter, or between any such labor
organizations, may be brought in any district
court of the United States having jurisdiction
of the parties, without respect to the amount
in controversy or without regard to the
citizenship of the parties."
Textile Workers Union v. Lincoln
Mills (1957)
• Section 301 may be used to create a federal
arbitration law
– It is not simply a provision that permits federal
courts to decide cases under other laws
Steelworkers v. American Mfg., 363 U.S.
564, 46 LRRM 2414 (1960);
Steelworkers v. Warrior & Gulf Nav. Co.,
363 U.S. 574, 46 LRRM 2416 (1960)
• Courts must not determine the merits of a grievance
– to be done by arbitrator (per parties’ agreement)
– courts may not go beyond “arbitrability” by deciding on merits
– one question for court: is this a dispute over a matter that the
parties have agreed to arbitrate? (is the case arbitrable?; see
AT&T Technologies v. Comm. Workers, U.S. Supreme Court, 1986)
• What did the parties agree to arbitrate?
– resolve doubts in favor of arbitrability
• Is it absolutely clear that this is a matter that the parties have agreed
will not be subject to the grievance procedure and arbitrated? If not,
must arbitrate.
– In general, matters of arbitrability left to the arbitrator by
voluntary action of parties
22
Grievance arbitration is always
voluntary
• There is no law that requires the private sector
parties to
– Include grievance procedure in their collective bargaining
agreement
– Arbitrate a grievance.
• Statutory Policy, Section 203 (d) of LMRA
– “Final adjustment by a method agreed upon by the parties
is declared to be the desirable method for settlement of
grievance disputes arising over the application or
interpretation of an existing collective-bargaining
agreement.”
Compare Commercial and Labor
Arbitration
• Commercial Arbitration
– a substitute for litigation
– associated with a
breakdown of a
relationship
• Labor Arbitration
– a substitute for a strike
or a lockout
– part of a CB process
– implies the relationship
is working
• Part of a “continuing
relationship”
24
Concept of a Collective Agreement
• Creates a governance system
– “system of industrial self-government”
– “ a generalized code to cover a myriad of cases
which the draftsmen cannot anticipate”
• More than a system of rights and
obligations
25
Enterprise Wheel and Car., 363 U.S.
593, 46 LRRM 2423 (1960)
• Courts have a narrow scope of review of
arbitration awards
– did the arbitrator interpret and apply the collective
agreement?
– award must draw its “essence” from the agreement
• Ambiguity does not warrant vacating an award
– arbitrators have no authority to provide reasons for
their awards
– ambiguity may necessitate a remand
26
Paperworkers v. Misco, 484 U.S. 29,
126 LRRM 2313 (1987)
• Courts not authorized to reconsider the merits of an
arbitration award
– parties’ bargained for arbitrator’s judgment and remedy (even if it
is “wrong”)
– decision must be based on the CBA
– pref. for private resolution of labor disputes (Sec. 203)
– affirmation of Enterprise Wheel & Car
• Public Policy Issues
– awards against public policy may be vacated
– “public policy” must be based on legal precedents and decisions
– no “general considerations of supposed public interest”
Collyer Insulated Wire , 192 NLRB
837, 77 LRRM 1931 (1971)
• Board does not abandon its statutory authority by
deferring to grievance procedure and arbitration
where
– dispute arises from contract
– there is machinery in contract to resolve dispute
• Furthers statutory policy of encouraging parties to
resolve own disputes
– Sec. 203(d) of LMRA
28
Collyer (cont.)
• Collyer criteria for pre-arbitral deferral (under what
circumstances will the Board defer a case to arbitration?)
– non-repudiation of CBK
– willingness to arbitrate/dispute must arbitrable
– dispute must center on CBK
• Spielberg (1955)/Olin (1984) criteria for post-arbitral
deference to award (what will the Board consider in
deciding to defer to the arbitrator’s decision after it is
issued?)
–
–
–
–
–
UFLP and contractual issues basically the same
UFLP issue presented to and considered by arbitrator
procedures fair and regular
all parties agreed to be bound
result not “clearly repugnant” to Act (Spielberg)/not “palpably
wrong” (Olin)
29
Collyer (cont.)
• Scope of Deferral
– 8(a)(5)/8(b)(3) cases
• Collyer
• involves interpretation of parties’ rights
– 8(a)(3)/8(b)(1) cases
•
•
•
•
deferral - National Radio (1972)
no deferral - General American Transportation (1977)
deferral - United Technologies (1984)
Involves interpretation of individual rights
30
Interest Arbitration
• Widely used in the public sector as a strike
substitute
• 23 states and DC use arbitration as a
substitute for a strike to resolve public sector
disputes over terms and conditions for at least
some public employee groups
Private Sector
• Always voluntary
– Basic steel industry
• Employee Free Choice Act
Current Bill
• Advocated by unions, opposed by employers
– Employee Free Choice Act
• Certification without elections if a majority of employees sign
authorization
• First contract mediation and arbitration
• Priority handling to discharge cases
– EFCA Link
33
Opposition to Interest Arbitration
• Employers generally do not want to cede
contract writing authority to arbitrators who
are not responsible for the business
– “Randel Johnson, vice president of labor policy for
the Chamber, said he thinks unions proposed an
‘outrageous’ bill in order to win a lesser
compromise that would still be a big victory for
labor. But he added, ‘any combination that still
leaves the binding-arbitration in there would still
be unacceptable to the business community.’“
Wall Street Journal, November 6, 2008.
Other Comments
• “Congress should also protect the right of workers
and employers to bargain freely. Binding arbitration
means that unaccountable and unknowledgeable
government bureaucrats would impose employment
contracts on newly organized companies. Workers
would not have the option of voting down the
contract, and companies would have no recourse if
an arbitrator imposed uncompetitive terms that
would drive it into bankruptcy. Congress should not
let the government impose wage controls
throughout the economy.” Heritage Foundation,
Heritage Foundation Weblink. See also EFCA
Arbitration Comments
Basic Theory of Labor Arbitration and
Arbitration in Collective Bargaining
• A substitute for the right to strike or lockout
– Over grievances – rights/grievance arbitration
– Over establishing TCE – interest/contract
arbitration
Factors in Acceptability/Success of
Labor Arbitration in U.S.
• Neutrality
– The system is fair
• Arbitrators chosen by parties
• Informal and relatively (compared to courts) inexpensive
• Limitation in Scope
– Arbitrators limited to narrow issues and CBA interpretation
– Minimal chance of “harm” to parties
– “Functus Officio” – authority generally ends with issuance of award
• Finality
– Scope of judicial review narrow
• Infrastructure
– Appointing agencies
– National Academy of Arbitrators
– Rules
Employment Arbitration
• A substitute for litigation
• Two important Supreme Court cases
– Gilmer v. Interstate/Johnson Lane Corp. (1991)
• An employee who signs an agreement to arbitrate an
claims arising out of employment may be required to
arbitrate a claim of age discrimination
– Agreement to arbitrate voluntary
– No evidence that arbitration panel would have been biased or
incompetent to consider the ADEA claim
– Nothing in ADEA precludes considering the statutory claim
through voluntary arbitration
Employment Arbitration (cont.)
• Circuit City Stores v. Adams (2001)
– FAA enforceability applies to most contracts of
employment
• Federal Arbitration Act exclusion from coverage of “contracts
of employment of seamen, railroad employees, or any other
class of workers engaged in foreign or interstate commerce”
is limited to only such transportation workers
• Court relies on statutory construction rule of ejusdem
generis: “[w]here general words follow specific words in a
statutory enumeration, the general words are construed to
embrace only objects similar in nature to those objects
enumerated by the preceding specific words.”