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Method of arranging differences between two parties by referring them to the judgment of a disinterested outsider

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Arbitration, in a general sense, is a method of arranging differences between two parties by referring them to the judgment of a disinterested outsider whose decision the parties to a dispute agree in advance to accept as in some way binding. The whole process of arbitration involves the reference of issues to an outside party, investigation, decision, acceptance or enforcement of it. The condition which invites arbitration is one wherein a number of persons of equal, or nearly equal power, disagree obstinately concerning a right, privilege, or duty, and refuse to come to terms themselves. The underlying assumptions are that the sense of fairness is dulled in the opponents by advocacy of self-interest, and by obstinacy, and that the judgment of a capable disinterested third party will more nearly approximate justice and equity. The motive which prompts appeal to arbitration is found finally in society’s desire to eliminate force as a sanction of right, and to introduce effectively the principles of the ethical order into the settlement of disputes among its members. Courts, rules of law and procedure have as purpose the protection of order and justice by compelling men to settle vital differences in a peaceful manner. In the main, society must always trust to the common sense, honor, and conscience of men to arrange peacefully the differences which arise in everyday life. When, however, differences of actual or possible grave social consequences arise, wherein high principles or great interests are involved, and the parties of themselves fail to agree, society attempts to secure order by creating institutions to decide the situation according to predetermined rules of law. The movement to introduce arbitration in the settlement of disputes between laborers and employers is an effort in society to lift such conflicts from the plane of brute force to the level of the ethical order; to provide a rational method of settling such disputes as fail to be resolved by other peaceful means.

THE ISSUES.—The issues which have arisen between laborers and employers concern the division of profits in industry or the rate of wages, and the formal recognition of labor unions, which professedly claim a right to have a voice with the employer in determining questions of hours, methods of work, conditions of work, manner of payment of wages, etc. Disputes generally concern the arrangement of terms to govern future relations or the interpretation of the terms of an already-existing labor contract.

THE PARTIES.—AS a rule, the labor union and not the individual is a party to the industrial conflict. The individual workman is in no condition of equality with his employer. Only a large body of laborers in an industry or a factory is strong enough to raise an issue effectively against an employer. An active and advanced minority of the laboring class have created labor unions which undertake the care of the interests of the members, and aim to deal on equal footing with the employer. Where the men in a shop or factory are not unionized, they may organize temporarily to enforce a demand or resist a policy, but, generally speaking, it is the union which is involved when there is conflict between employers and laborers. Until recently each employer, in his individual capacity, dealt with his working men or with the union. In late years, however, organizations of employers have been built up extensively and they now tend to replace the individual employer in dealing with organized labor.

THE PLACE OF ARBITRATION., this industrial evolution has been much more rapid than the adjustment of social institutions, serious conflicts of interest, of views, of principles, have arisen in the industrial world, to arrange which, with final authority, we have in fact neither accepted methods nor adequate institutions. The way has thus been left open to permit the settlement of these disputes to fall to the level of force, that is, of the economic power of the parties to resist. The strike and the lockout, with their accompanying secondary phases, are the last resort to which industrial conflicts are, by a sort of necessity, referred. The penalties suffered by society are found in social disorder, estrangement, widely felt disturbance of business, and enormous financial losses. In the face of this discreditable condition, public opinion and the enlightened self-interest of laborers and employers have begun the work of creating and testing peaceful methods by which differences may be anticipated and prevented, or if not prevented, settled in a secure, just, and peaceful manner. In pressing forward towards the creation of these institutions of industrial peace, society is held back to an extent by traditional principles, settled views, established interests and constitutional problems. This has tended to turn the current of effort towards nonlegal rather than legal methods of industrial peace. Arbitration, conciliation, mediation, trade agreements, shop committees, joint conferences, are some of the institutions that have resulted. The function of arbitration is best understood when the institution is seen in relation to the whole industrial situation out of which it springs. 1.—To a great extent relations between unorganized laborers and employers are peaceful. If laborers ask only what employers offer, or employers give all that laborers ask, there is no prospect of difficulty while such conditions endure. Whether one explain the peaceful relations referred to by apathy, weakness, or hopelessness of unorganized labor, or by the benevolence or tyranny of the employer, or by their antagonism to the labor union, one should not overlook the fact that in a very large section of the industrial field relations are peaceful. 2.—Relations between employers and labor unions are to a considerable extent peaceful and at times even cordial, though without any formal effort at definite anticipation of trouble. Whatever the explanation, whether the generosity of the employer or the conservatism of the union, the relations between them are largely peaceful, a fact which is unfortunately often overlooked by many who speak of the industrial situation. 3.—In another increasing class the relations of employers and labor unions are cordial, or at least peaceful, through formal, mutual understandings, and oral or written contracts. In these cases the accredited representatives of employers and of labor unions meet in a friendly way, discuss all questions bearing on the contract of labor, reach conclusions, and embody them in some form of definite understanding to cover a given period. In such cases provision is usually made for the peaceful settlement of unforeseen minor disputes. The classes referred to show that industrial peace does actually exist to a considerable extent already. However, it still remains possible that disagreement, estrangement, war, appear in any of the classes referred to. Hence no statistical enumeration of the numbers of employers and laborers who live and labor peacefully covers the whole situation. We lack still a final authoritative institution which will be prepared to settle in a peaceful manner the conflicts that may arise. The possibility of strike or lockout in the classes enumerated being recognized, we may proceed to consider employers and unions actually at war. Assuming that the employer takes action adverse to the union’s will, or vice versa, threats may be made, compromise may be refused, war may be declared, causing a strike, or lockout, with its train of varied evils. The contest is then thrown to the level of brute force, each party depending on his own economic power to resist., and on the expectation of the harm that may come to his opponent. In advance of the actual suspension of work and declaration of strike, or at any time during a strike, the parties may endeavor either to prevent an outbreak, or to terminate it, by efforts at compromise among themselves. If they fail to do so, representatives of the public, of civil, of religious, of political organizations, may intervene to induce them to come to an agreement among themselves for the sake of the public. If all such efforts fail of result, one peaceful recourse is left, namely, to ask the parties, who of themselves will not agree, to place the issue in the hands of a disinterested tribunal and abide by the decision. When this is done, the process is called Arbitration. When employers and labor unions arrange the terms of the labor contract formally and for a definite period, the process is called Trade Agreement, or collective bargaining, defined by the Industrial Commission as “the process by which the general terms of the labor contract itself, whether the contract be written or oral, are determined by negotiation directly between employers or employers’ associations and organized workmen.”

When differences of any kind arise, whether of great or of minor importance, if the parties themselves arrange an amicable settlement, the process is called Conciliation, defined by the Industrial Commission as “the settlement by the parties directly, of minor disputes, as to the interpretation of the terms of the labor contract, whether that contract be an express one or only a general understanding”, while it is further stated that in England quite commonly the term conciliation is applied to “the discussion and settlement of questions between the parties themselves, or between their representatives who are themselves actually interested”. Trade agreements, as a rule, provide for the reference of unforeseen minor disputes to a board of conciliation composed of representatives of both sides. The intervention of outside parties who seek to induce the opponents to arrive at a peaceful settlement of their differences, is called Mediation, defined by the Industrial Commission as “the intervention, usually uninvited, of some outside person or body, with a view to bringing the parties to the dispute together in conciliatory conferences”. When there is no prospect of peace through the action of the parties to the dispute, and they agree to refer it to a third party or body for judgment, the process is called Arbitration, defined by the Industrial Commission as “the authoritative decision of the issue as to which the parties have failed to agree, by some person or persons other than the parties”. Arbitration involves, therefore, reference of issues to a third party, investigation, decision, action on the decision by the antagonists. It is greatly to be regretted that usage has not succeeded in establishing clear definitions. One may, however, avoid confusion if one will distinguish the following situations: (I) Informal peaceful relations between unions and employers; (2) Formal peaceful relations provided for in trade agreements in advance of any estrangement or difference; (3) After differences have arisen, all efforts made by the parties themselves to establish peace, whether before or after a strike has been declared; (4) Reference to outside parties of the issues and authoritative decision by them; (5) Intervention of disinterested outsiders, who aim to induce the contestants to arrange for peace, either among themselves or through reference to outside parties. To these situations respectively, excluding the first, the terms trade agreements, conciliation, arbitration, mediation, may be applied.

LIMITS OF ARBITRATION.—It would be a mistake to assume that arbitration is a panacea. It is not necessarily effective beyond the term for which a decision is made. While the elements of conflict remain in society the possibility of dispute remains also. Hence, at best, arbitration is a makeshift, one of the highest importance no doubt, but it does not eradicate the evils to which it is applied. There are certain issues between employers and laborers which will not be submitted to arbitration; fundamental rights claimed by each party and held to be beyond the realm of dispute. Thus, for instance, the labor union will not submit to arbitration the question of the right of the laborer to join a union or the right of the union to represent its members. On the other hand, the employer would not submit to arbitration his right to manage his own business. The Industrial Commission remarks: “Whether it is as wise ordinarily to submit general questions to arbitration as questions of interpretation is perhaps doubtful. It is certainly the case that minor questions are more often arbitrated than those of great importance involving general conditions of future labor.”

KINDS OF ARBITRATION.—Arbitration is voluntary when it is freely invited, or accepted by the parties to the controversy, without reference to law, when only good faith is involved in the acceptance of the decision. It is compulsory when the civil law compels the parties to the industrial conflict to submit to the decision of a board of arbitration. The law may require a legal board of arbitration to investigate a controversy, render a decision, and make public a report. The decision in this case has no binding power and no sanction other than that of public opinion. The law may provide a board which the parties may invoke if they wish, whose decision is binding when both parties join in request for action. Arbitration is governmental when civil authority provides encouragement, opportunity, boards, of which employers and laborers may avail themselves in case of dispute. In all such cases the law may or may not confer upon a board power to administer oaths, to subpoena witnesses and compel the production of papers and books. In nearly all forms of arbitration the rule is to represent the conflicting interests by equal numbers of representatives who agree on an umpire and thus complete the organization.

COMPULSORY ARBITRATION., Sentiment throughout the powerful industrial nations seems to be unanimous against compulsory arbitration, which involves legal enforcement of decision. Labor unions, employers, and representatives of the public generally, in the United States, and in Europe as well, agree in opposing it. The sentiment against it is particularly strong in the United States, as is shown by the amount of testimony collected by the Industrial Commission. Compulsory investigation and decision with publication of facts and of decision is frequently favored where great interests are involved, as in interstate commerce, and not a few are found who favor enforcement of decision where both parties invoke arbitration. New Zealand alone has attempted full compulsory arbitration. The reasons alleged against compulsory arbitration are numerous. It appears to invade the property rights of the employer, or the personal liberty of the laborer, since the former might be compelled by law to pay wages against his will, and the latter might be forced to labor in spite of himself. It is difficult to make the action of compulsory arbitration reciprocal, since the employer is more easily held than the labor union, unless the latter be incorporated and be made financially responsible, a condition from which the unions usually recoil. As arbitrators would not be governed by a rule of law, it is feared that sympathy with the weaker party might sway them, and that they would be inclined to “split the difference”, thereby ensuring some gain to labor, a prospect which, it is said, might encourage strikes and prompt unreasonable demands. It is claimed that decisions unfavorable to laborers would tend to strengthen an already-growing suspicion of government and of courts. Furthermore, the employer sees in compulsory arbitration divided jurisdiction in his business, interference of outsiders who lack technical knowledge, probable overturning of discipline, and a weakening of his position, points that were made with some feeling against Cardinal Manning in his mediation in the great Dock Strike. Fear is expressed that employers would be driven to organize for self-protection, that they would be inclined to raise prices, or adulterate products, in order to offset losses sustained by adverse decisions of arbitration courts. There are in addition constitutional difficulties which in most modern nations might make the operation of compulsory arbitration difficult, even if the public were to accept it. It is urged in favor of compulsory arbitration that the prospect of it would inevitably create a more conciliatory attitude of mind in employers and laborers, that common fear of undesirable results would develop the practice of trade agreement and conciliation, that society would thereby gain finally legal guarantee of industrial peace, and would be spared the enormous losses, confusion, and violence that result from strikes. The modified forms of compulsory arbitration—enforcement of decision when both parties agree to submit to arbitration, and compulsory arbitration where vital public interests are immediately concerned, as in interstate commerce—avoid many of the objections and appear to promise good results.

VOLUNTARY ARBITRATION., That opposition to compulsory arbitration is directed against the compulsory feature, and not against arbitration as such, is seen from the practical sympathy, and even enthusiasm, with which voluntary arbitration is received. In the United States, which may be taken as typical, we find organized labor speaking strongly in favor of voluntary arbitration. It deplores strikes, provides careful scrutiny and a thorough test of feeling before permitting strikes, and generally provides for appeal to conciliation or arbitration. Mr. Gompers, President of the American Federation of Labor, said before the Congress of Industrial Conciliation and Arbitration in Chicago, in 1894: “As one who has been intimately and closely connected with the labor movement for more than thirty years from boyhood, I say to you that I have yet to receive a copy of a Constitution of any general organization, or local organization, of labor which had not the provision that, before any strike shall be undertaken, conciliation or arbitration shall be tried; and, with nearly twelve thousand local trade unions in the United States, I think that this goes far to show that the organizations of labor are desirous of encouraging amicable arrangements of such schedules and conditions of labor as shall tend to peace.” This is fully corroborated by the Industrial Commission, which said in its report, six years later, that “the rule of local and national trade unions, almost without exception, provides for conciliatory negotiations with employers before a strike may be entered upon”. In nearly all trade agreements a provision is made for conciliation or arbitration whenever minor disputes of any kind arise. As to employers, one should recall that all employers who stand in friendly relations with union labor, either informally, or formally, in trade agreements, are presumptively favorable to arbitration. The employer who refuses to recognize or to deal with the labor union is inclined not to favor arbitration, since it involves recognition of the union. He may be willing to meet a committee of his men and hear complaints, and even grant demands, but his method is not that of arbitration. The following, from the Principles of the National Association of Manufacturers, adopted in 1904, is typical. The Association “favors an equitable adjustment of the differences between employers and employees by any amicable method that will preserve the rights of both parties”, though at the same time the Association declares that it will permit no interference by organizations. The Republican National Platform of 1896, as well as the Democratic, declared in favor of arbitration in interstate-commerce controversies. Nothing on the subject appeared in either platform in 1900. The Republican platform of 1904 contained only an endorsement of President Roosevelt’s mediation in the Coal Strike of 1902, while the Democratic platform declared directly for arbitration without qualification. A remarkable expression of public opinion in the United States is seen in the creation of the National Civic Federation which has held a number of national conferences in the interest of industrial peace. Representatives of employers, of laboring men, of political life, of churches, of academic circles, have met in these conventions and their endorsements of attempts to establish industrial peace, through trade agreements, conciliation, and voluntary arbitration, have been unanimous and enthusiastic. The Protestant Episcopal Church in the United States has a standing Committee on Labor and Capital whose duty it is “to hold themselves in readiness to act as arbitrators should their services be desired between the men and their employers with the view to bringing about mutual conciliation and harmony in the spirit of the Prince of Peace”. The action of Cardinal Manning in the Dock Strike in London, in 1889, together with his great efforts to establish boards of conciliation in the London District; the presence and activity of Archbishop Ireland in the National Civic Federation; that of Archbishop Ryan in the Philadelphia strike, in 1896; the work of Bishop Quigley in the strike of 1899, in Buffalo; of Bishop Burke in the Albany strike, in 1902; that of Bishop Hoban, of Scranton, in the streetcar strike of 1903, and in 1906; the activity of Bishop Spalding in the anthracite-strike commission in 1902-3; the strong public approbation given by His Eminence Cardinal Gibbons, and as well many instances of successful activity by clergymen, all serve to show that Catholic leaders recognize the value of conciliation and arbitration in promoting industrial peace. In France, Belgium, Germany, and Italy we find the Catholic attitude equally strong. In these countries the endorsement of the organization of labor is most emphatic, as is also the demand by representative Catholics for recognition of organizations of labor, for boards of conciliation and arbitration, all of which is in harmony with the spirit and teaching of Leo XIII, who, in his encyclical on the condition of the working men, expresses strong approval of conciliatory methods in arranging disputes between labor and capital.

GOVERNMENTAL ARBITRATION., The Government of the United States enacted laws, in 1888 and 1896, by which provision is made for mediation, conciliation, or arbitration, in interstate-commerce disputes. If both parties join in requesting action, the decision of the board is enforceable in equity for one year. The law authorizes an investigation, decision, and publication of decision, whether or not such action is invited. The only effect produced by the law was the creation of the strike commission to investigate the Pullman Strike in 1894. In 1905 twenty-five States of the Union had made legal provision for arbitration, the earliest law being that of Maryland, of 1878. There are four forms of boards: (I) Local arbitration without permanently constituted boards, found in four States; (2) Permanent district or county boards, established by private parties, found in four States; (3) Arbitration or Conciliation through the State Commissioner of Labor, found in five States; (4) State boards for the settlement of industrial disputes, found in seventeen States. In some States several types of institution may be found. The laws in the first group of States are practically dead letters. The same may be said of the second group, with the exception of Pennsylvania, where some effect has been produced. Intervention by State Commissioners of Labor has had but moderate success. In only eight of the seventeen States which have State boards of arbitration have real results been accomplished. These States are New York, Massachusetts, New Jersey, Ohio, Wisconsin, Illinois, Indiana, Missouri. The records, for instance, of New York and Massachusetts are representative: 1886-1900




Preliminary Action only,….


Strikes in same period,……. In England the present law dates from 1896. It provides for the registration of private boards of conciliation or arbitration by the Board of Trade, and it permits the Board of Trade in times of dispute to investigate and mediate, on the request of either party to appoint a board of conciliation, or on the request of both parties to create a board of arbitration. In the period of 1896-1903, requests for intervention were made by employers in twenty cases, by laborers in fifty-four cases, by both jointly in seventy-one cases, a total of 145. In seventeen cases failure resulted, while in the same period there were 4,952 strikes. In France the present law dates from 1892. Either or both parties to a dispute may apply to a local justice of the peace who acts as conciliator. In case of a strike, if application is not made, the justice of the peace is required to offer his services. If efforts of conciliation fail, arbitration is attempted. The entire proceeding is voluntary, the only pressure exerted is from the prospect of publishing the facts and decisions. In the period of 1893-1903, requests for intervention under the law were made by employers in forty-two cases, by laborers in 782 cases, by both jointly in thirty-three cases; initiative was taken by the justice of the peace in 556 cases. Full procedure was had in only 784 cases, in 342 of which failure resulted. During that same period there were 5,874 strikes. The present law of Belgium dates from 1887. Boards are organized in different industries, either at the decree of the king or on the request of the commune, the employers, or the laborers. The members of the board are elected legally, and the board is required to meet at least once a year. The majority of the boards already created are due to royal initiative. In the period off our years under the action of the law, but sixteen strikes out of a total of 610 were settled by the labor councils. In Germany the boards are called Industrial Courts, the law authorizing their action dating from 1890. An amendment was added in 1901, making the formation of industrial courts compulsory in all cities of 20,000 inhabitants. The courts are composed of representatives of employers and laborers in equal numbers, while the president is appointed by local authorities. Conciliation is attempted in case of disputes; that failing, the court must investigate, render a decision, and publish it. In 1903 there were 400 courts in existence. Of 174 applications for intervention made in that year, 135 came from one side only; in fifty-four cases settlement was reached by conciliation. Of decisions rendered in that time, six were rejected. During that year out of a total of 1,501 strikes, fifty-five were brought to peaceful termination. In Austria, by the law of 1883, the factory-inspectors are authorized to intervene in threatened or actual disputes, for the sake of industrial peace, while a law of 1896 provides indirectly for conciliation and arbitration in mining. Denmark, the Netherlands, Switzerland, Canada, and Italy have legislated also in the interests of industrial peace, by creating boards, and facilitating prevention or settlement of industrial disputes. New Zealand alone has gone to the extent of in 1886-1900 I 1886-1904 inaugurating compulsory arbitration. The present law is from 1900, with amendments up to 1904, the original law, however, dating from 1894. There are seven industrial districts in which the law provides for the creation of boards of conciliation, while there is one supreme court of arbitration over all. The latter is composed of three members, one of whom is a judge of the supreme court, the other two being appointed by the governor from nominations made by registered trade unions and registered employers’ associations. The local boards of conciliation act in all cases submitted to them, and endeavor to effect peaceful settlements. If they succeed, an industrial agreement is made which becomes compulsory. If the parties fail to agree, the board itself renders a decision, which may be accepted or appealed from—to the General Board of Arbitration—within one month. If no such action be taken by the parties to the dispute, the decision becomes compulsory. If the case comes to the Supreme Court of Arbitration, its decision is final. It appears that awards by this court of arbitration affect all employers engaging in the industry affected after the decision has been rendered, and it applies to all laborers who may work for an employer affected by the decision. The court may extend an award to a whole competitive field. The law concerning arbitration applies to all employers potentially, but only to such labor organizations as are registered. Registration is voluntary. Hence compulsory arbitration in New Zealand depends absolutely on the favorable attitude of organized labor towards it. In 1904 there were 266 registered unions with a membership of 27,640. In seven years, under the action of the law, fifty-four cases of dispute were settled by boards of conciliation, and 143 by the higher court. (See also Industrial Conciliation. Trade Unions. Trade Agreements. Strikes. .)


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