Arbitration

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Arbitration is a form of Alternative Dispute Resolution in which the parties work out the disputed issue without going to court. An impartial third party, known as an Arbitrator, is chosen by the parties to listen to their case and make a decision. The meeting takes place outside court, but is much like a hearing, in that both sides present testimony and evidence. As arbitration has been set as a method of relieving the congestion of court calendars, the decision the arbitrator makes is almost always final, and the courts will only rarely reconsider the matter. To explore this concept, consider the following arbitration definition.

Definition of Arbitration

Noun

  1. The hearing and settling of a dispute by a third party agreed to by them.

Origin

1350 – 1400 Middle English arbitration

What is Arbitration?

The process of arbitration is overseen by a professional arbitrator, who facilitates communication between two sides of a dispute. An arbitrator may or may not be an attorney, and many retired judges take positions as arbitrators. Often the most effective arbitrators have knowledge of, and experience in, the subject of the disputes they hear. For instance, an employment law attorney, or retired administrator in the state’s employment division, may be effective in resolving an employment dispute.

Mandatory Arbitration

In some cases, mandatory arbitration may be ordered by the court. In mandatory arbitration, a single arbitrator usually hears the case. If arbitration is voluntary, the parties may agree to a single arbitrator, or choose a panel of arbitrators. The arbitrator in a voluntary case is chosen, or agreed upon, by the parties. If the parties cannot come to an agreement, the court may assign an arbitrator.

How to Find Arbitration Services

The truth is, anyone can claim the title of Arbitrator, since no specific qualifications or certification exists. Most people prefer to choose an arbitrator experienced in a specific field of law, or experts in the topic of the dispute. The first step qualified arbitration services is to contact local attorneys in the field to discover which arbitrators they use. The local bar association, and local trade unions often maintain lists of recommended arbitrators and arbitration services. Finally, the American Arbitration Association can provide a list of arbitrators in any area of the country, as well as procedures and additional information on arbitration.

Examples of Cases Settled in Arbitration

Since arbitration became a popular method of settling disputes while avoiding overcrowded court calendars in the 1970s, many cases large and small have been settled by professional arbitrators. Many such cases involving large companies or large settlements have been highlighted on the news.

Midwest Airlines Flight Attendants Contract Dispute

Following the 2009 Republic Airways Holdings purchase of Midwest Airlines, more than 400 Midwest Airlines flight attendants complained of a contract violation, as hundreds founds themselves laid off in favor of non-Midwest employees paid as much as 70 percent less. As it turned out, the Midwest flight attendants’ union contract contained specific provisions protecting their jobs in the event the airline was purchased by another company. As these provisions had been violated, the Association of Flight Attendants (AFA) filed a grievance accusing Republic Airways of violating their contract.

The AFA struck a major victory in the March 2011 arbitration ruling that required a settlement to be negotiated between Republic Airways and the union to be in the best interest of the former Midwest flight attendants.

NFL 2012 Bounty Scandal

In 2012, several players for the New Orleans Saints were accused of engaging in a 2009-2011 bounty program in which Saints players allegedly earned bonus payments for intentionally inflicting game-ending injuries on players for the opposing teams. As none of the injury-causing hits were ever penalized by officials during the game, the question arose as to how high the conspiracy rose, gaining the name “Bountygate” from the news media and fans alike. In the wake of the controversy, NFL Commissioner Roger Goodell handed out the most severe sanctions in NFL history. Following the sanctions, a federal judge in New Orleans ruled that Commissioner Goodell overstepped his authority in sanctioning the players involved, and subsequently all the suspensions were overturned.

At this point, the issue was whether the NFL Commissioner had the authority to take disciplinary action in what the players’ association stated was a salary-cap issue. The arbitrator ruled, on June 12, 2012, that the players’ actions were “conduct detrimental,” which made them subject to collectively bargained discipline and, therefore, Commissioner Goodell’s authority. This arbitration decision not only gives strong backing to the NFL and its Commissioner, but sets a precedent for similar cases that may arise in the future.

The Arbitration Process

The arbitration process begins when one party files a claim, detailing the dispute, including the individuals or entities involved, dates, and type of relief sought, whether monetary, interest, or specific performance. The party filing the claim is called the “Claimant,” and the party against whom the claim is filed is called the “Respondent.” The Respondent then files a written Answer, specifying the facts and defenses to the stated claim.

An Arbitrator is then selected by the parties. This may be a single arbitrator the parties have approved of, or an arbitration panel, usually made up of three or more arbitrators, to which the parties have agreed.

The arbitration process then proceeds much in the same manner a court case would, with a prehearing conference, which may occur by phone, and “discovery,” which is the exchange of documents, information, and evidence between the parties.

The format of the arbitration hearing is similar to that of a trial, however the setting is substantially less formal. The hearing typically takes place in a conference room, either at the arbitrator’s office or at the offices of one of the parties, the parties, their attorneys, the arbitrator, and a court reporter sitting around a large table. Because arbitration hearings often span several days, and may last weeks, frequent breaks are taken.

Testimony is heard by the parties and their respective witnesses, with cross examination allowed. Additional evidence, in the form of testimonials, documents, or other items may be submitted, and expert witnesses may testify. After all testimony has been heard, and all evidence submitted, the attorneys make closing arguments. After the hearing, the arbitrator, or arbitration panel, considers all of the evidence and makes a decision, notifying the parties, usually in 30-90 days.

The Difference Between Arbitration and Mediation

While both arbitration and mediation are forms of Alternative Dispute Resolution, there are some fundamental differences between the two. The primary difference is that an arbitrator hands down a decision on the matter which is usually binding, much like a judge hands down a judgment. A mediator assists the parties in working out a settlement that both can agree to. Such a settlement agreement is put in writing and signed by the parties, becoming a contract of sorts.

Arbitration is used as a way to obtain a binding, court-like decision without actually going through the overcrowded court system. Mediation, on the other hand, is seen as a non-binding process in which the parties are not obligated to go on with the process once it has started, nor are they required to agree to a settlement. Mediation is often used in conjunction with litigation, giving the parties the opportunity to reach a settlement and cancel the court proceedings.

In some situations, mediators not only facilitate communication between the parties, but also make recommendations to the court in the event a resolution or settlement cannot be reached. One example of this is the mediation required in many jurisdictions between parents in child custody cases.

Arbitration Clause

Arbitration clauses exist in many types of agreements, from employment contracts to credit card agreements, consumer contracts such as cell phone terms of service, and even contracts for medical care. An arbitration clause basically requires that, if a dispute arises related to the service or contract, it will be resolved through arbitration, rather than going to court.

Binding Arbitration

An arbitration clause of any contract may simply state claims will be settled through arbitration, or may set out specifics, such as how the arbitrator is to be chosen, where it will take place, and how pays for it. The contract may have a binding arbitration clause specifying that the arbitrator’s decision on any matter is “binding.” The arbitrator’s decision in binding arbitration is final, and cannot later be taken to court, except in rare cases of fraud or misuse of power during the process.

Arbitration Award

An arbitration award is the award of damages to a party in the arbitrator’s decision. In the arbitrator’s decision, the result is referred to as an “award,” even if the original claimant was unsuccessful, and no money is to be paid to either party. Roughly equivalent to a judgment in a court trial, an arbitration award may provide a range of relief. Examples of remedies that may be awarded by an arbitrator include:

  • The payment of a specific sum of money, called “conventional damages”
  • An order for a party to the proceeding to do or not do something, called “injunctive relief”
  • An order for a party to perform a specific act stated in a contract, called “specific performance”
  • An order for a specific change to a document or contract, called “rectification”

Challenging an Arbitration Award

While it is possible to challenge an award made by an arbitrator in court, the court will generally only overturn such a decision in rare cases. For the court to take such an action, it would be necessary to prove that:

  • The arbitrator had a serious conflict of interest
  • Fraud was committed by any party during the arbitration, and that it influenced the decision
  • The award was not final, and therefore there was no conclusion to the matter
  • The award was somehow outside the scope of the arbitration agreement

When a matter requesting the court vacate or overturn an arbitration award, the judge often only considers the procedural details of the arbitration itself, not the actual evidence and testimony presented. Unless the request is made on the grounds that the award itself was unethical or unreasonable, the court is loathe to overturn the decision.

Related Legal Terms and Issues

  • Arbitration Agreement. Another term for an arbitration clause in any contract. Alternatively, a separate Arbitration Agreement may be signed as an addendum to a contract or agreement.
  • Alternative Dispute Resolution. The resolving of disputes by means other than litigation. Most often refers to the use of mediation or arbitration to resolve problems.