Why These Economic Times Call for Outsourcing the Administration of Labor Arbitration Cases

By Beyea, Linda; Zaino, Jeffrey | Dispute Resolution Journal, February-April 2010 | Go to article overview
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Why These Economic Times Call for Outsourcing the Administration of Labor Arbitration Cases


Beyea, Linda, Zaino, Jeffrey, Dispute Resolution Journal


Seven Reasons Why Administered Arbitration Is Superior to Self-Administration

Cost savings is essential in these hard economic times for both labor and management. The labor-management community has historically used arbitration in lieu of litigation to save money. This article explains how additional cost savings can be achieved by using administered rather than self-administered arbitration.

The current economic crisis in this country has required many industries to rethink their objectives and how to accomplish them. This crisis has dramatically affected working people as hundreds of thousands of jobs have disappeared in recent months. The country's economic woes began with the subprime mortgage crisis. That led to the collapse of some historic U.S. investment banks, threats to the survival of some major commercial banks, the credit crisis, and a stock market that lost millions of dollars in capital.

Union members, protected somewhat from layoffs by collective bargaining agreements, are not unaffected by the downturn. For example, unions in Detroit were asked to make concessions in order to help keep the sinking auto industry alive.

Yet, for the first time in 25 years, union membership in the United States has increased. In 2008, over 400,000 new members joined unions. Labor experts predict that union membership will continue to grow under President Barack Obama's administration, which is expected to be more union-friendly than past administrations. But with labor union growth comes the prospect of more labor disputes ending up in arbitration. In many collective bargaining agreements, all disputes between employees in the union and the employer, whether the disputes involve the denial of a promotion, suspension, or discipline or termination of employment, to name a few, must be arbitrated.

A pro-labor bill before Congress (originally introduced in the 110th Congress) would add a new arbitration obligation to private employers, requiring them to arbitrate an impasse in negotiations of the first collective bargaining agreement (this type of arbitration is called "interest arbitration"). The bill, called the Employee Free Choice Act, was reintroduced in both the House and the Senate on March 10, 2009, and is currently pending.

Administered versus Self-Administered Arbitration?

Labor arbitration can be administered or self-administered. Some employers and unions selfadminister all or some of their arbitration cases. This means that they do not use an independent neutral arbitration organization, such as the American Arbitration Association (AAA), to organize the proceeding, facilitate selection of the arbitrator or panel, schedule the hearing, and serve as a liaison between the parties and the arbitrator with respect to all matters, including arbitrator compensation. Arbitration organizations charge a fee for their administration services. The AAA's administrative fee for labor arbitration is currently $200 for each party.

With self-administered arbitration (sometimes called ad hoc arbitration), there is no intermediary to perform organizational or other functions. The parties must appoint the arbitrator, who then performs the organizational, scheduling and other functions. There is no intermediary between the parties and the arbitrator, so ex parte communications (i.e., communications between a party and the arbitrator outside the presence of another party to the arbitration) are inevitable.

Some employers and unions self-administer all or some of their arbitration cases, possibly because they think it will be less expensive. But that kind of thinking fails to take account of the fact that unions and employers pay more to self-administer. One reason for the additional cost is that their staff needs are higher. They each have to appoint a staff person to see that an arbitrator is appointed (often from an employer-created permanent panel of arbitrators), and then schedule the hearing with the parties and counsel, and arrange for a hearing room, and carry out other responsibilities.

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