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Stephan F. Miller

Sunday, June 27, 2004


In knots about binding
arbitration? Get out ...


There was much talk during the legislative session about binding arbitration. We heard from the governor how unfair it is to force the state (management) and state workers (labor) to come to terms. That usually guarantees a wage hike, says the state. Meanwhile, labor unions applaud the stability that arbitration provides by eliminating labor strikes.

I was curious to know more about binding arbitration, so I did a little digging into its origins.

Arbitration probably goes back to the days when cavemen argued over who should get the credit for a successful hunt. At some point, instead of killing each other, they decided to bring their dispute to a third person, a wise and trusted individual. This person would take eyewitness accounts of the hunt and make a judgment based on evidence.

Some form of arbitration has always existed. In the United States, the first form of arbitration (also known as Alternative Dispute Resolution, or ADR) was a law passed in 1887, the Interstate Commerce Act. It set out the concept of arbitration and its positive contribution to promoting economic growth.

In 1925, Congress passed the Federal Arbitration Act. It defined the rules and laws affecting arbitration. The 1935 National Labor Relations Act guaranteed labor the explicit right to collective bargaining.

Today, businesses and governmental institutions usually prefer arbitration over lawsuits. The time and expense of lawsuits have caused a tremendous growth in modern ADRs. The American Arbitration Association -- one of many such organizations -- administered more than 218,000 cases in 2001, a 10 percent increase from 2000. Arbitration has become a big business.

Arbitration is based on contract law or, in international situations, the law of treaties. All forms of contract law -- from disputes between business entities or between a business and an individual, to family law, particularly child custody cases -- are examples of ADR. More recently, employment disputes, civil rights violations, securities fraud and anti-trust claims are being resolved via ADR.

Those who favor an expansion of arbitration are those who see its merit: It's much speedier than the traditional legal system and a degree of control exists within the arbitration system itself. The arbitration agreements written into the contracts you sign (read the small print in your cell phone agreement, for instance) are written by those who want you to sign it. Many health management organizations include binding arbitration in their contracts.

Consumer groups fear that arbitration will limit civil rights; attorneys fear it will reduce adjudicated compensation.

That's a look at ADRs in general. But specifically, how and when did binding arbitration come about in the labor arena? In 1926, the U.S. government passed the Railway Labor Act, which monitored labor-management relations in both the railways and the airlines. The act allows the National Mediation Board to intervene in a dispute and require mediation. If that fails, the board will "ask" the parties to submit to binding arbitration.

In 1963, the U.S. government required mandatory arbitration of a railway labor-management dispute. More recently, President Clinton intervened in the American Airlines flight attendant strike in 1993, asking both parties to go to binding arbitration.

As mentioned earlier, the National Labor Relations Act was enacted to guarantee labor the right to bargain with the employer on a collective basis. But collective bargaining as it's referred to must offer some form of finality. This is best exemplified by what happened in Bridgeport, Conn., in 1978.

The Connecticut legislature had passed a law authorizing binding arbitration. Unfortunately, the law did not include teachers. Teachers were allowed to bargain collectively with their employer, but were not allowed to strike. For more than a year negotiations with the school board stalled; the process had no closure rules (no binding feature). The board continued stalling.

Finally, frustrated teachers walked out. Two hundred sixty-five Bridgeport teachers were arrested and jailed for 18 days.

After this debacle, the legislature altered the Teachers Negotiation Act, adding binding arbitration.

Arbitration is not a new concept and certainly is not unique to Hawaii. Currently, 49 U.S. jurisdictions have statutes addressing ADR. They represent an exceptional method to cope with a variety of disputes, including management-labor disputes between the state of Hawaii and the employees who work for the state.


Stephan F. Miller is the state tax collector for West Hawaii.

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