The submission of a dispute to an unbiased third person designated
by the parties to the controversy, who agree in advance to comply with the
award—a decision to be issued after a hearing at which both parties have an
opportunity to be heard.
Arbitration is a well-established and widely used means to end disputes. It is one of
several kinds of Alternative Dispute Resolution,
which provide parties to a controversy with a choice other than litigation.
Unlike litigation, arbitration takes place out of court: the two sides select
an impartial third party, known as an arbitrator; agree in advance to comply
with the arbitrator's award; and then participate in a hearing at which both
sides can present evidence and testimony. The arbitrator's decision is usually
final, and courts rarely reexamine it.
Traditionally,
labor and commerce were the two largest areas of arbitration. However, since
the mid-1970s, the technique has seen great expansion. Some states have
mandated arbitration for certain disputes such as auto insurance claims, and
court decisions have broadened into areas such as Securities, antitrust,
and even employment discrimination. International business issues are also
frequently resolved using arbitration.
Arbitration
in the United States dates to the eighteenth century. Courts frowned on it,
though, until attitudes started to change in 1920 with the passage of the first
state arbitration law, in New York. This statute served as a model for other
state and federal laws, including, in 1925, the U.S. Arbitration Act, later
known as the Federal Arbitration Act (FAA) (9 U.S.C.A. § 1 et seq.). The FAA
was intended to give arbitration equal status with litigation, and, in effect,
created a body of federal law. After World War II,
arbitration grew increasingly important to labor-management relations. Congress
helped this growth with passage of the Taft-Hartley Act (29 U.S.C.A. § 141 et seq.) in 1947, and over
the next decade, the U.S. Supreme Court firmly cemented arbitration as the
favored means for resolving labor issues, by limiting the judiciary's role. In
the 1970s, arbitration began expanding into a wide range of issues that
eventually included prisoners'
rights, medical malpractice,
and consumer rights. In 2003, all 50 states had modern arbitration statutes.
Arbitration
can be voluntary or required. The traditional model is voluntary, and closely
linked to contract law: parties often stipulate in contracts that they will
arbitrate, rather than litigate, when disputes arise. For example, unions and
employers almost always put an arbitration clause in their formal negotiations,
known as collective bargaining agreements. By doing so, they agree to arbitrate
any future employee grievances over wages, hours, working conditions, or job
security—in essence, they agree not to sue if disagreements occur. Similarly, a
purchaser and a provider of services who disagree over the result of a business
deal may submit the problem to an arbitrator instead of a court. Mandatory
arbitration is a more recent phenomenon. States such as Minnesota, New York,
and New Jersey have enacted statutes that force disputes over automobile insurance
claims into this forum. In addition, courts sometimes order disputants into
arbitration.
In
theory, arbitration has many advantages over litigation. Efficiency is perhaps
the greatest. Proponents say arbitration is easier, cheaper, and faster.
Proponents also point to the greater flexibility with which parties in
arbitration can fashion the terms and rules of the process. Furthermore,
although arbitrators can be lawyers, they do not need to be. They are often
selected for their expertise in a particular area of business, and may be drawn
from private practice or from organizations such as the American Arbitration
Association (AAA), a national non-profit group founded in 1926. Significantly,
arbitrators are freer than judges to make decisions, because they do not have
to abide by the principle of stare decisis (the policy of courts to follow principles
established by legal precedent) and do not have to give reasons to support
their awards (although they are expected to adhere to the Code of Ethics for
Arbitrators in Commercial Disputes, established in 1977 by the AAA and the American Bar Association).
These
theoretical advantages do not always hold up in practice. Even when efficiency
is achieved, some critics argue, the price is a lower quality of justice, and
it can be made worse by the difficulty of appealing an award. The charge is
frequently made that arbitration only results in "splitting the
baby"—dividing awards evenly among the parties. The AAA roundly rejects
this claim. Yet even arbitrators agree that as arbitration has become
increasingly formal, it sometimes resembles litigation in its complexity. This
may not be an inherent problem with the process as much as a result of flawed
use of it. Parties may undermine arbitration by acting as lawyers do in a
lawsuit: excessively demanding discovery (evidence from the other side),
calling witnesses, and filing motions.
Ultimately,
the decision to use arbitration cannot be made lightly. Most arbitration is
considered binding: parties who agree to arbitration are bound to
that agreement and also bound to satisfy any award determined by the
arbitrator. Courts in most jurisdictions enforce awards. Moreover, they allow
little or no option for appeal, expecting parties who arbitrate to assume the
risks of the process. In addition, arbitration is subject to the legal
doctrines of Res Judicata and Collateral Estoppel,
which together strictly curtail the option of bringing suits based on issues
that were or could have been raised initially.
Res judicata means that a final judgment
on the merits is conclusive as to the rights of the parties and their privies,
and, as to them, operates as an absolute bar to a subsequent action involving
the same claim, demand, or Cause of Action.Collateral
estoppel means that when an issue
of ultimate fact has been determined by a valid judgment, that issue cannot be
relitigated between the same parties in future litigation. Thus, often the end
is truly in sight at the conclusion of an arbitration hearing and the granting
of an award.
The
FAA gives only four grounds on which a court may vacate, or overturn, an award:
(1) where the award is the result of corruption, Fraud, or undue
means; (2) where the arbitrators were evidently partial or corrupt; (3) where
the arbitrators were guilty of misconduct in refusing to postpone the hearing
or hear pertinent evidence, or where their misbehavior prejudiced the rights of
any party; and (4) where the arbitrators exceeded their powers or imperfectly
executed them so that a mutual, final, and definite award was not made. In the
1953 case Wilkov. Swan, 346 U.S. 427, 74 S. Ct. 182, 98 L. Ed. 168,
the U.S. Supreme Court suggested, in passing, that an award may be set aside if
it is in "mani-fest disregard of the law," and federal courts have
sometimes followed this principle. Public policy can also be grounds for
vacating, but this recourse is severely limited to well-defined policy based on
legal precedent, a rule emphasized by the Supreme Court in the 1987 case United Paperworkers International Union v. Misco, 484U.S. 29, 108 S. Ct. 364, 98 L. Ed. 2d 286.
The
growth of arbitration is taken as a healthy sign by many legal commentators. It
eases the load on a constantly overworked judicial system, while providing
disputants with a relatively informal, inexpensive means to solve their
problems. One major boost to arbitration came from the U.S. Supreme Court,
which held in 1991 that Age Discrimination claims in employment are arbitrable (Gilmer
v. Inter-state/Johnson Lane Corp., 500 U.S. 20, 111 S. Ct. 1647, 114 L. Ed.
2d 26). Writing for the majority, Justice byron r. white concluded that arbitration is as effective as a
trial for resolving employment disputes. Gilmer led several major
employers to treat all employment claims through binding arbitration, sometimes
as a condition of employment.
Arbitration
clauses have become a standard feature of many employment contracts. This has
led to conflicts concerning the applicability of these clauses when an employee
seeks to sue an employer for a Civil Rights violation under Title VII of the Civil Rights
Act of 1964, as amended by the civil
rights act of 1991. A provision of
this law addressed, for the first time, the arbitration of Title VII claims.
Section 118 of the act states that the parties could, "where appropriate
and to the extent authorized by law," choose to pursue alternative dispute
resolution, including arbitration, to resolve their Title VII disputes. Since
its enactment, the federal courts have been required to determine what this
clause means in practice. For example, in the securities industry disputes
arose over whether employers could require their employees to waive their right
to bring a Title VII claim in court. The circuit courts of appeal have
uniformly ruled that Congress did not mean to preclude compulsory arbitration
of Title VII claims.
The Equal Employment Opportunity
Commission (EEOC) has contended that
employment arbitration clauses do not prohibit the EEOC from filing an action
against an employer for a civil rights violation. The Supreme Court agreed in Equal Employment Opportunity Commission v.
Waffle House, Inc., 534 U.S. 279, 122
S.Ct. 754, 151 L.Ed.2d 755 (2002), holding that the EEOC could seek damages on
behalf of an employee. The commission could also seek injunctive relief to
change a company's discriminatory methods. In so ruling, the Court resolved an
issue that had divided the circuit courts of appeal.
The
employee in question was fired from his job at the Waffle House after he
suffered a seizure. He filed a claim with the EEOC, arguing that his rights
under Title I of the Americans with Disabilities Act (ADA) had been violated.
Under this act, the EEOC has the authority to bring its own enforcement actions
against employers and to seek reinstatement, backpay, and compensatory and Punitive Damages on behalf of an employee. Moreover, the ADA
makes no exception for arbitration agreements, nor does it even mention
arbitration. Therefore, the EEOC, which had not signed an arbitration agreement
with the employer, was free to pursue its claims in court. The Court also concluded
that the general policies surrounding the ADA, and the EEOC's enforcement arm,
justified the pursuit by the EEOC of victim-specific relief. It stated that
punitive damages "may often have a greater impact on the behavior of other
employers than the threat of an injunction."
The
Supreme Court also has validated the enforceability of arbitration awards
relating to Collective Bargaining agreements. In Eastern Associated Coal Corporation v. United Mine Workers of
American, District 17, 531 U.S. 57, 121S.Ct.
462, 148 L.Ed.2d 354 (2000), the issue involved a labor arbitrator who ordered
an employer to reinstate an employee who had twice tested positive for
marijuana use. The employer filed a lawsuit in federal court seeking to have
the arbitrator's decision vacated, arguing that the award went against a public
policy against the operation of dangerous machinery by workers who test
positive for drugs.
The
Court unanimously agreed that the employee should be reinstated. The Court made
it clear that the question was not whether the employee's drug use itself
violated public policy, but whether the agreement to reinstate him did so.
However, the Court also pointed out that the public policy exception is a
narrow one. Based on these principles, the Court ruled that the reinstatement
did not violate public policy, as the award did not condone drug use or its
impact on public safety. In addition, the arbitrator placed conditions on the
employee's reinstatement, which included suspension of work for three months
without pay, participation in a substance abuse program, and continued random
drug testing. The fact that the employee was a recidivist did not tip the balance
in favor of discharge.
Further readings
Crowley,
Thomas. 1994. "The Art of Arbitration Advocacy." Hawaii Bar Journal (September).
Culiner,
Helen. 1994. "Practical Guidelines for Lawyers Representing Clients in
Arbitration Proceedings Today." Dispute Resolution Journal (September).
Deye,
James, and Lesly Britton. 1994. "Arbitration by the American Arbitration
Association." North Dakota Law Review (spring).
Nolan-Haley,
Jacqueline M. 2001. Alternative Dispute
Resolution in a Nutshell. 2d ed. St. Paul, Minn.:
West Wadsworth.
Ware,
Stephen J. 2001. Alternative Dispute
Resolution. St. Paul, Minn.: West
Wadsworth.
Cross-references
West's Encyclopedia of
American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights
reserved.
arbitration n. a mini-trial, which
may be for a lawsuit ready to go to trial, held in an attempt to avoid a court
trial and conducted by a person or a panel of people who are not judges. The
arbitration may be agreed to by the parties, may be required by a provision in
a contract for settling disputes, or may be provided for under statute. To
avoid clogged court calendars the parties often agree to have the matter
determined by a panel such as one provided by the American Arbitration
Association (which has a specific set of rules), a retired judge, some other
respected lawyer, or some organization that provides these services. Usually
contract-required arbitration may be converted into a legal judgment on
petition to the court, unless some party has protested that there has been a
gross injustice, collusion or fraud. Many states provide for mandatory
arbitration of cases on a non-binding basis in the hope that these
"mini-trials" by experienced attorneys will give the parties a
clearer picture of the probable result and lead to acceptance of the
arbitrator's decision. (See: arbitrator)
arbitration noun adjudgment, adjustment, appraisal, arbitrage, arbitrium, assessment, decision, decree, determining of a controversy, finding, intercession, interjacence, intermediation, intervention, judgment, rapprochement, resolution,settlement
Associated concepts: advisory arbitration, arbiiration agreement, arbitration and award, arbitration award, arbitration clause, arbitration provision, arbitrators, binding arbitration, compulsory arbitration, grievance arbitration, innerest arbitration, proceeding to confirm arbitration award, voluntary arbitration
Associated concepts: advisory arbitration, arbiiration agreement, arbitration and award, arbitration award, arbitration clause, arbitration provision, arbitrators, binding arbitration, compulsory arbitration, grievance arbitration, innerest arbitration, proceeding to confirm arbitration award, voluntary arbitration
Burton's Legal Thesaurus, 4E. Copyright © 2007
by William C. Burton. Used with permission of The McGraw-Hill Companies, Inc.
ARBITRATION,
practice. A reference and submission of a matter in dispute concerning
property, or of a personal wrong, to the decision of one or more persons as
arbitrators.
2. They are voluntary or compulsory. The voluntary are, 1. Those made by mutual consent, in which the parties select arbitrators, and bind themselves by bond abide by their decision; these are made without any rule of court. 3 Bl. Com. 16.
3.-2. Those which are made in a cause depending in court, by a rule of court, before trial; these are arbitrators at common law, and the award is enforced by attachment. Kyd on Awards, 21.
4.-3. Those which are made by virtue of the statute, 9 & l0 Will. III., c. 15, by which it is agreed to refer a matter in dispute not then in court, to arbitrators, and agree that the submission be made a rule of court, which is enforced as if it had been made a rule of court; Kyd on Aw. 22; there are two other voluntary arbitrations which are peculiar to Pennsylvania.
5.-4. The first of these is the arbitration under the act of June 16, 1836, which provides that the parties to, any suit may consent to a rule of court for referring all matters of fact in controversy to referees, reserving all matters of law for the decision of the court, and the report of the referees shall have the effect of a special verdict, which is to be proceeded upon by the court as a special verdict, and either party may have a writ of error to the judgment entered thereupon
6.-5. Those by virtue of the act of 1806, which authorizes "any person or persons desirous of settling any dispute or controversy, by themselves, their agents or attorneys, to enter into an agreement in writing, or refer such dispute or controversy to certain persons to be by them mutually chosen; and it shall be the duty of the referees to make out an award and deliver it to the party in whose favor it shall be made, together with the written agreement entered into by the parties; and it shall be the duty of the prothonotary, on the affidavit of a subscribing witness to the agreement, that it was duly executed by the parties, to file the same in his office; and on the agreement being so filed as aforesaid, he shall enter the award on record, which shall be as available in law as an award made under a reference issued by the court, or entered on the docket by the parties."
7. Compulsory arbitrations are perhaps confined to Pennsylvania. Either party in a civil suit or action,, or his attorney, may enter at the prothonotary's office a rule of reference, wherein be shall declare his determination to have arbitrators chosen, on a day certain to be mentioned therein, not exceeding thirty days, for the trial of all matters in variance in the suit between the parties. A copy of this rule is served on the opposite party. On the day. appointed they meet at the prothonotary's, and endeavor to agree upon arbitrators; if they cannot, the prothonotary makes out a list on which are inscribed the names of a number of citizens, and the parties alternately strike each one of them from the list, beginning with the plaintiff, until there are but the number agreed upon or fixed by the prothonotary left, who are to be the arbitrators; a time of meeting is then agreed upon or appointed by the prothonotary, when the parties cannot agree, at which time the arbitrators, after being sworn or affirm and equitably to try all matters in variance submitted to them, proceed to bear and decide the case; their award is filed in the office of the prothonotary, and has the effect of a judgment, subject, however, to appeal, which may be entered at any time within twenty days after the filing of such award. Act of 16th June, 1836, Pamphl. p. 715.
8. This is somewhat similar to the arbitrations of the Romans; there the praetor selected from a list Of citizens made for the purpose, one or more persons, who were authorized to decide all suits submitted to them, and which had been brought before him; the authority which the proctor gave them conferred on them a public character and their judgments were without appeal Toull. Dr. Civ. Fr. liv. 3, t. 3, ch. 4, n. 820. See generally, Kyd on Awards; Caldwel on Arbitrations; Bac. Ab. h.t.; 1 Salk. R. 69, 70-75; 2 Saund. R. 133, n 7; 2 Sell. Pr. 241; Doct. Pl. 96; 3 Vin. Ab. 40; 3 Bouv. Inst. n. 2482.
2. They are voluntary or compulsory. The voluntary are, 1. Those made by mutual consent, in which the parties select arbitrators, and bind themselves by bond abide by their decision; these are made without any rule of court. 3 Bl. Com. 16.
3.-2. Those which are made in a cause depending in court, by a rule of court, before trial; these are arbitrators at common law, and the award is enforced by attachment. Kyd on Awards, 21.
4.-3. Those which are made by virtue of the statute, 9 & l0 Will. III., c. 15, by which it is agreed to refer a matter in dispute not then in court, to arbitrators, and agree that the submission be made a rule of court, which is enforced as if it had been made a rule of court; Kyd on Aw. 22; there are two other voluntary arbitrations which are peculiar to Pennsylvania.
5.-4. The first of these is the arbitration under the act of June 16, 1836, which provides that the parties to, any suit may consent to a rule of court for referring all matters of fact in controversy to referees, reserving all matters of law for the decision of the court, and the report of the referees shall have the effect of a special verdict, which is to be proceeded upon by the court as a special verdict, and either party may have a writ of error to the judgment entered thereupon
6.-5. Those by virtue of the act of 1806, which authorizes "any person or persons desirous of settling any dispute or controversy, by themselves, their agents or attorneys, to enter into an agreement in writing, or refer such dispute or controversy to certain persons to be by them mutually chosen; and it shall be the duty of the referees to make out an award and deliver it to the party in whose favor it shall be made, together with the written agreement entered into by the parties; and it shall be the duty of the prothonotary, on the affidavit of a subscribing witness to the agreement, that it was duly executed by the parties, to file the same in his office; and on the agreement being so filed as aforesaid, he shall enter the award on record, which shall be as available in law as an award made under a reference issued by the court, or entered on the docket by the parties."
7. Compulsory arbitrations are perhaps confined to Pennsylvania. Either party in a civil suit or action,, or his attorney, may enter at the prothonotary's office a rule of reference, wherein be shall declare his determination to have arbitrators chosen, on a day certain to be mentioned therein, not exceeding thirty days, for the trial of all matters in variance in the suit between the parties. A copy of this rule is served on the opposite party. On the day. appointed they meet at the prothonotary's, and endeavor to agree upon arbitrators; if they cannot, the prothonotary makes out a list on which are inscribed the names of a number of citizens, and the parties alternately strike each one of them from the list, beginning with the plaintiff, until there are but the number agreed upon or fixed by the prothonotary left, who are to be the arbitrators; a time of meeting is then agreed upon or appointed by the prothonotary, when the parties cannot agree, at which time the arbitrators, after being sworn or affirm and equitably to try all matters in variance submitted to them, proceed to bear and decide the case; their award is filed in the office of the prothonotary, and has the effect of a judgment, subject, however, to appeal, which may be entered at any time within twenty days after the filing of such award. Act of 16th June, 1836, Pamphl. p. 715.
8. This is somewhat similar to the arbitrations of the Romans; there the praetor selected from a list Of citizens made for the purpose, one or more persons, who were authorized to decide all suits submitted to them, and which had been brought before him; the authority which the proctor gave them conferred on them a public character and their judgments were without appeal Toull. Dr. Civ. Fr. liv. 3, t. 3, ch. 4, n. 820. See generally, Kyd on Awards; Caldwel on Arbitrations; Bac. Ab. h.t.; 1 Salk. R. 69, 70-75; 2 Saund. R. 133, n 7; 2 Sell. Pr. 241; Doct. Pl. 96; 3 Vin. Ab. 40; 3 Bouv. Inst. n. 2482.
A Law Dictionary, Adapted to the Constitution
and Laws of the United States. By John Bouvier. Published 1856.
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