Arbitration

I

Introduction

Arbitration, reference of a dispute to an impartial person or persons, called arbitrators, for a decision or award based on evidence and arguments presented by the disputants. The parties involved usually agree to resort to arbitration in lieu of court proceedings to resolve an existing dispute or any grievance that may arise between them. Arbitration may sometimes be compelled by law, particularly in connection with labor disputes involving public employees or employees of private companies invested with a public interest, such as utilities or railroads.

Most arbitration in the United States has involved labor or commercial disputes. In recent years, however, other uses of arbitration have gained acceptance, such as arbitration of medical malpractice claims and resolution of disputes among insurers in states with no-fault insurance or uninsured motorist programs. As worldwide trade and investment have increased, international commercial arbitration has become important both in planning international transactions and in resolving disputes when they arise.

Labor arbitration is concerned largely with disputes between employers and employees over interpretation or application of the terms of collective bargaining agreements, and occasionally with new contract terms. Commercial arbitration deals with disputes among private parties regarding contracts to produce, buy, sell, lease, or distribute goods, or to perform a business service.

It was formerly thought that so-called public law disputes, such as those arising under antitrust, securities, or patent laws, could not be arbitrated. Since 1982, however, disputes concerning validity or infringement of a U.S. patent are arbitrable by statute. The U.S. Supreme Court has approved enforcement of agreements to arbitrate cases involving claims under the securities laws, and (in international transactions) under the antitrust laws as well.

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II

Labor Arbitration

In the 1947 Taft-Hartley Act, Congress declared that arbitration was the “desirable method for settlement of grievance disputes arising over the application or interpretation of an existing collective bargaining agreement” (see National Labor Relations Act). Building from that policy, the Supreme Court has created presumptions favoring a broad judicial interpretation of arbitral authority, and has severely limited the judiciary's role in reviewing arbitrators' awards.

Today the overwhelming majority of private-sector collective bargaining agreements provide for grievance arbitration, including cases of employee discipline and discharge. Such agreements typically leave to union discretion the choice of which claims to take to arbitration, but the union is subject to a legally enforceable “duty of fair representation.” In recent years grievance arbitration has also been widely accepted in the public sector. Increasingly, too, compulsory arbitration to establish the terms of a new collective agreement has been used in the public sector.

Arbitrators generally are chosen because they are acceptable to both management and labor. Most are lawyers, economists, educators, or specialists in industrial relations. Some collective bargaining agreements provide for selection of arbitrators according to the procedures of the Federal Mediation and Conciliation Service, the American Arbitration Association, or a state or municipal public-sector labor agency.

III

Commercial Arbitration

In the U.S., commercial arbitration is used most often in the construction, garment, and textile industries; in cases involving insurance and negligence; in maritime disputes; and in controversies involving members of stock and commodity exchanges. All but six states have adopted modern arbitration statutes, and since 1925 the Federal Arbitration Act has governed arbitration of grievances arising out of maritime transactions and transactions in interstate or foreign commerce. These statutes provide that agreements may be made to arbitrate future as well as existing disputes; that the courts will not hear disputes subject to valid agreements to arbitrate; and that arbitral awards may be enforced in the courts. Such awards generally may be set aside only because of misconduct (such as an undisclosed conflict of interest) by an arbitrator. Agreements to arbitrate usually are contained in the arbitration clause of a contract; the Supreme Court has held that if there is a dispute about the validity or effectiveness of a contract containing such a clause, it is for the arbitrators—not the courts—to decide the issue.

Commercial arbitrators include business executives, lawyers, and other professionals who, as a public service, are willing to help resolve conflicts in their areas of expertise. In simple cases, a single arbitrator may hear a dispute; in cases in which the issues are complicated or the amount in dispute is substantial, it is common to provide for a panel of three arbitrators. Arbitrations are often conducted under the auspices of the American Arbitration Association or a specialized trade association.

See also International Labor Organization; Labor, Department of; Labor Relations.

IV

International Arbitration

International arbitration is the settlement by a mutually acceptable third party of disputes between sovereign states. Modern international arbitration began with the conclusion of Jay's Treaty (1794) by Great Britain and the United States. Numerous disputes were arbitrated during the 19th century, many involving these two countries. The most important disputes were settled in the Treaty of Ghent (1814) and in various treaties defining fishing rights in specific areas. The Treaty of Washington (1871) embodied arbitrations of the San Juan Boundary Dispute and of claims arising from the American Civil War. In Europe, the first important development in international arbitration in modern times was the Hague Conference of 1899, which resulted in the creation of the Permanent Court of Arbitration. Although reluctant to participate in many early international treaties, the U.S. continued to make individual arbitration treaties, especially in the years between World Wars I and II.

Today, international arbitration may be used to settle boundary disputes, controversies about interpretation of international agreements, and claims arising out of wartime damage. International commercial arbitration involves private parties and/or governments engaging in commercial activity. The International Bank for Reconstruction and Development, for example, sponsors the International Center for Settlement of Investment Disputes, to hear disputes between private investors and the countries in which their investments were made.

International commercial arbitration, like its counterpart in the U.S., proceeds on the basis of an arbitration clause contained in an export-import, investment, or similar contract between persons from different countries. Since neither party wishes to have future disputes adjudicated in the courts of the other party, arbitration in a neutral forum is a common solution. The arbitration clause usually provides for the manner of selecting arbitrators; sometimes provision is made for arbitration to be conducted under the supervision of an institution such as an international trade association.

Some 80 countries, including the United States, the former Soviet republics, and all other major commercial nations outside Latin America, are parties to the United Nations Convention on the Recognition of Foreign Arbitral Awards. This convention enforces arbitral awards rendered in any contracting state, regardless of the nationalities of the parties to the dispute. Agreements to arbitrate are also enforceable, and a court will generally not hear a dispute that is governed by a valid agreement to arbitrate between persons from different contracting states.

Typically, international arbitrations are heard before three arbitrators, one appointed by each side and the third by mutual agreement or by designation of an administering body. Most arbitrators are jurists and are expected to support their award by full opinions. Centers for international arbitration are London, Paris, Zürich, Geneva, New York, Tokyo, Hong Kong, and (for East-West trade disputes) Stockholm.

See also International Law.