"We are going to arbitration.....wait, what is arbitration?"
I have had many discussions with personnel in collective bargaining units and even management who make mention of taking a matter to "arbitration" but oftentimes do not understand the nitty gritty of what arbitration is and when something can be taken to arbitration. While it can be a complicated issue and is fact specific, here is a basic review of the arbitration basics:
1) What is arbitration?
At its core, arbitration is a type of an alternative dispute resolution (ADR). Arbitration can best be defined as a way to resolve a dispute in an more informal, and private, process. It is a relaxed trial situation. The arbitrator (or arbitrators) act as a neutral decision maker. They will review written submissions, hear evidence (which could include testimony of fact witnesses and expert witnesses) and ultimately issue a decision. There are many different sets of rules that arbitrations (and arbitrators) could be made to follow depending on how you draft your arbitration clause.
An arbitration proceeding involves significant preparation and is treated much like a trial, especially from an attorney's perspective.
Arbitration should not be confused with mediation - another type of ADR. Mediation involves a neutral third party which tries to negotiate a settlement/resolution between the parties. In this situation, it is up the parties to agree to a resolution vs. arbitration where the arbitrator makes the final ruling (like a judge or jury).
2) How does a dispute get to arbitration?
Arbitration for disputes should be agreed to by the parties prior to the dispute even arising. It should be provided for in the contract. In Fire/EMS/Police disputes with labor, the Collective Bargaining Agreement (CBA) oftentimes provides that disputes will follow a certain grievance procedure where they will be submitted to various internal parties with the last step as arbitration. The various PA laws that deal with CBAs (such as Act 111) allow for disputes to be submitted to arbitration.
It is key, however, that the particular CBA (or contract) be clear as to what can be submitted to an arbitrator. Recently, the PA Supreme Court heard a dispute regarding the pension distribution to the widow of a police officer. The main issue was whether or not the arbitrator even had the jurisdiction to hear the case. The PA Supreme Court found that because the pension was mentioned in the CBA (and the pension documents/resolutions incorporated into the CBA) as well as the CBA providing that all disputes under the CBA be resolved at arbitration, that the arbitrator could hear the matter. Parties should be clear in spelling our their arbitration clauses in light of this pro-ADR ruling.
3) What is binding vs. non-binding arbitration?
Simply, binding arbitration is supposed to end the dispute after the ruling - the decision is binding on the parties. Whereas non-binding arbitration provides for an avenue to appeal the arbitrator's ruling to the court system. This is not always full-proof and there are ways to appeal a binding arbitration decision but the avenues are much more limited.
4) Is arbitration cheap?
This question has no specific answer. A party should not expect to take a matter to arbitration and pay little to no expense. First, the parties have to pay the costs of the arbitrator and the cost to submit the matter to the arbitrator which could run a few hundred dollars to a few thousand dollars. Second, the parties would most certainly have to pay their attorneys to file the arbitration request and prepare for the arbitration. This includes reviewing documents, speaking to and lining up witnesses, subject matter preparation and other items that will put you in the best light possible given the importance of the decision. On a positive note, arbitrations usually involve very limited discovery (such as depositions, document requests, etc.) so that is a tremendous litigation expense that is not there. You may also have expenses for the arbitration such as compensation of expert witnesses (if applicable), paying your representation to attend and stenography/transcript services. Ultimately, arbitration is oftentimes a more cost-effective way to resolve a dispute (vs. full blown litigation) but cost and other factors should be discussed with your counsel in your particular circumstances.
A great resource for those who want to learn more on arbitration is: Arbitration In a Nutshell written by Thomas Carbonneau.