Even though not always seen as fair, alternative dispute resolution can save litigants money. Because of the money saving potential Cheeseman notes, “approximately 90% of all lawsuits are settled prior to trial” (2004, p. 4). Another consideration when deciding whether or not to go to trial is the potential financial return from any litigation. Court costs may be higher than any monetary award, and may damage the good-will or reputation of the organization.
The four day musicians strike on Broadway in 2003 has been estimated to cost $4.8 million in box-office receipts and $7 million to the city of New York (Taylor, 2003). This strike was quickly negotiated by all parties through the use of one form of alternative dispute resolution, arbitration. Alternative dispute resolution is an attractive option for all litigants in most business lawsuits.
Many contracts, including union contracts, require arbitration clauses specifying arbitration as the first means of dispute resolution. Arbitration uses a neutral third party, usually a member of the American Arbitration Association (AAA), to hear the complaints and make a decision (Cheeseman, 2004, p.41). Arbitration can be either binding or non-binding, depending on the contract language, and can be requested through the use of a submission agreement if no arbitration clause exists in the contract.
Arbitrators themselves can also be looked at in two different ways. First, the arbitrator can be seen as a private judge who simply looks for facts and applys the rule of law. Second, an arbitrator can be thought of as a “contract reader,” serving as the parties’ agent and focusing on the relationships and interests of the parties as opposed to facts and rules of law (Kirgis, 2007). The former definition of an arbitrator has been in use for the longest time, but has lost favor in the United States in the 20th century. The contract reader definition is more modern and is preferred by most businesses as contract arbitration takes cultural and mutual interests into account. Since arbitrators simply clarify agreements, no way to overturn the arbitration exists. The only review this type of arbitration has is to ensure the arbitrator was neutral and interpreted the agreement (Kirgis, 2007).
Arbitration was codified by the Federal Arbitration Act (FAA) in 1925 as a means to counter judicial hostility towards arbitration clauses existing in English common law as well as American courts (Cheeseman, 2004, p. 42). Courts have always considered labor arbitration as distinct from individual employment contracts, but paradoxically since the 1980s courts now see no fundamental differences between them (Gould, 2006). Since around 1960 labor arbitration has held a contract view as opposed to the earlier quasi-judicial interpretation.
Besides labor and employment contracts, arbitration clauses are present in many consumer contracts including banking relationships such as credit cards and loans. Many consumer advocates question the use of arbitration clauses, especially in consumer contracts. The Federal Reserve Board is actively investigating arbitration clauses in consumer credit agreements such as automobile loans and mortgages (Fahmy, 2006). Fahmy (2006) goes on to suggest consumers who do business with companies requiring mandatory arbitration will lose their right to sue. Fahmy (2006) also points out this trend towards arbitration clauses is unlikely to change as the price to file for arbitration is much higher than filing a lawsuit and many arbitration clauses include fee recovery for the winning party. This further discourages challenging of non-negotiated arbitration clauses in contracts.
Other Forms of Alternate Dispute Resolution
Mediation is another popular form of dispute resolution. Mediation, unlike arbitration, does not involve a decision. The mediator simply guides the parties in reaching an amicable settlement. Mediators generally meet separately with all the interested parties and relay any pertinent information to the other parties (Cheeseman, 2004, p. 43). Conciliation occurs when an interested third party is involved, instead of a neutral party. Neither mediation nor conciliation has any legal standing, and the third party has no authority to gather any evidence or witnesses.
Judicial referee, minitrials, and fact-finding are also used as alternative dispute resolutions. A judicial referee can be appointed by a judge with the consent of all parties. The judicial referee has legal standing and the decision can be appealed by the losing side. Minitrials, are similar to judicial referees, but have no legal standing. Arguments are presented and a negotiated settlement is the desired outcome. Minitrials have the advantage of gently forcing settlement talks as both sides can see weaknesses and strengths in the case. Finally, fact-finders are neutral parties who investigate a dispute, report on the findings, and sometimes make settlement recommendations.
The quick resolution of the musicians strike could not have been possible without the use of arbitration. Both parties would have been tied up in lengthy litigation. Commerce would have been directly and indirectly affected. The public relations fallout may well have proven disastrous for either or both sides, possibly closing theaters and causing layoffs due to lack of revenues. Arbitration, besides being called for in the union contract, is the most expedient way of settling labor differences. Both sides saved money and time, and prevented a possible public relations fiasco with the ancillary businesses which were affected.
Cheeseman, H. R. (2004). Business law: Legal, e-commerce, ethical and international environments (5th ed.). New York: Prentice-Hall.
Fahmy, H. (2006). Arbitration – wiping out consumer’s rights, State Bar of Texas. Retrieved February 28, 2008, from http://www.texasbar.com/customsource/wrapper/globals/tbj/2001/oct01/fahmy.asp.
Gould IV, W. B. (2006). Kissing cousins?: the federal arbitration act and modern labor arbitration., Emory Law Journal, 55(4), 609-689. doi: Article.
Kirgis, P. F. (2007). Judicial review and the limits of arbitral authority: lessons from the law of contract., St. John’s Law Review, 81(1), 99-121. doi: Article.
Taylor, C. (2003). Four-day musician strike costs ny dearly., Billboard, 115(12), 8. doi: Article.