How to Find & Select an Arbitrator

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  • 0:03 How Arbitrators…
  • 3:14 Institutional & Ad Hoc…
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Lesson Transcript
Instructor: Beth Loy

Dr. Loy has a Ph.D. in Resource Economics; master's degrees in economics, human resources, and safety; and has taught masters and doctorate level courses in statistics, research methods, economics, and management.

In this lesson, we look at arbitrators, including what characteristics they have and what defines a permanent arbitrator. We review institutionalized and ad hoc arbitration, and learn more about agencies that can assist with arbitration.

How Arbitrators Resolve Disputes

Byron wanted to make some money for a new video game. He started B's Lemonade Stand. He hired three employees, Keith, Laura, and Lisa who needed to raise money to get a dog. Byron was selling lemonade for $5 a cup. The three employees got half, and Byron got half. Keith, Laura, and Lisa decided that this was unfair and said they weren't coming back to work until they each got at least a dollar a cup.

Keith, Laura, and Lisa didn't realize they were forming a union. The hottest and busiest week of the summer was coming, and Byron needed them back to work. He asked Mr. C, who lived down the street, to intervene and help get them back to work. Byron was asking an arbitrator to resolve their dispute.

An arbitrator is someone who comes in from the outside, with no relationship to the parties involved, to settle disputes. This was Mr. C. He wasn't related to any of the children so this helped him remain unbiased. Arbitrators must:

  • Have several years of experience
  • Have applicable degrees and licenses
  • Have current training
  • Be members of professional associations
  • Uphold ethical guidelines, and
  • Remain free from bias

Arbitrators are known for resolving union disagreements. Most union contracts require that any disputes be settled by an independent arbitrator. As a dispute resolution tool, an arbitrator tends to save money, time, and negative publicity compared to hashing it out in court.

Sierra Company, for example, is a coal mining company that has had labor disputes regarding wages and retirement benefits. Previously these went to court. Sierra Company and Service Alliance Union (SAU), the most powerful union in the West, decided to specify in their most recent contract that an arbitrator would handle any disputes between them. These disputes had just become too costly and time consuming. This process, known as arbitration, is used to settle labor-management conflicts without going to court.

An arbitrator frequently operates alone or as a tribunal, which typically involves an odd number of arbitrators. When a decision is made, majority rules. The arbitrator holds the power to make a binding decision as a part of the alternative dispute resolution, which is a formalized course of action to resolve conflicts. Before Mr. C would take on the dispute at the lemonade stand he wanted reassurance from the children that his ruling would be final.

Some union contracts specify a permanent arbitrator, one that makes decisions over the life of the contract. This is one that is agreed upon by both union and company representatives. It could be someone they worked with before or someone chosen from a professional arbitration organization. A typical way a permanent arbitrator is chosen is for each side to get a list and begin striking names. Each side gets to remove arbitrators from the list until one is left.

If one is not specified in the contract an institutional or ad hoc arbitration process is used. This can be tricky, and Sierra Company and SAU had different perspectives. Let's look at what these terms mean.

Institutional & Ad Hoc Arbitration

Institutional

There are two types of arbitration, institutional and ad hoc. Sierra Company wanted a more formalized, or institutional, dispute resolution process. Institutional arbitration is overseen by a specific agency.

These agencies have rules and procedures, establish hearings, provide administrative support, oversee the choosing of an arbitrator, and establish a paper trail. Sierra Company representatives felt this type of arbitration would provide the record they would need to show they were acting in a good faith effort to meet the requirements of the contract. The company investigated two impartial agencies.

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