Interest Arbitration and Final Offer Selection -Canada Labour Code Part 1, Chapter 10

Interest Arbitration and Final Offer Selection

Canada Labour Code -Part 1, Chapter 10

We must also answer the question – Is there a better way? Could the right to strike or lockout simply be banned and be replaced with a form of final and binding arbitration? Legally this could be done, although the risk of illegal job action remains. However, we do not believe that this is a satisfactory long-term solution. Australia regularly used arbitration as a substitute for free collective bargaining but found it to be unsatisfactory; it is now moving towards a system more like our own.

Interest arbitration, in its most desirable form, should be an extension of the collective bargaining process since it provides resolutions to issues that the parties could not agree upon. It relies on the arbitrator’s ability to sort out the key issues, and discard those that would have been eliminated in the collective bargaining process. It also depends on the arbitrator to make reasonable decisions about the key issues and to fashion an agreement around what reasonably could have been achieved had bargaining continued until an agreement was reached.

Conventional interest arbitration processes provide the arbitrator or arbitration board with information about the importance of each issue, a clear picture of the differences between the parties, and perhaps a pathway to an award which represents a compromise for each of the parties. This can create protracted hearings and lengthy delays before the award is issued. The award is that of the arbitration board and the parties have no real sense of ownership. The award is a package, fashioned from the submissions and positions of the parties. Often, both sides come away from the process believing that they lost, or at least, did not win enough. This is particularly true of employees or employers involved in multi-employer bargaining, where they feel they had little say in the end result.

The most serious criticism of conventional interest arbitration is the so called “chilling effect” on collective bargaining. The parties recognize that they can take positions and hold them because there is no advantage to compromise. In effect, they structure the anticipated outcome of the arbitration by refusing to compromise on issues during bargaining. The theory, put crudely, is that, if arbitration is going to come down somewhere in the middle, then they agree to as little as possible so that “the middle” is closer to their position.

This criticism leads many to advocate a different form of arbitration called final offer selection (FOS). This is a process that continues to attract interest. The simplest model of FOS would see each party put an offer to the “selector” which would resolve all the outstanding issues on the bargaining table. The selector chooses either the employer’s offer or the union’s offer and it becomes the final award. There are many variations on this model. But all basically come to the same point – the selector must choose the proposal of one or the other. There is no ability to construct a compromise or to re-fashion proposals. Thus FOS, by design, abandons the approach of trying to replicate the settlement that would have been reached at the bargaining table in the hope that a win/lose result will induce reasonable final positions.

Selecting one offer creates a “winner” and a “loser”. When FOS is part of a back-to-work package, the negative atmosphere which led to job action in the first place is reinforced by polarization and a “winner take all” resolution. In conventional interest arbitration involving multiple issue disputes, the panel, through its award, can try to bridge the gap between the parties. That is an option which is not available to the FOS selector.

The “winner” and “loser” approach becomes more acute when the issues separating the parties involve radical changes to work rules rather than money, a much more frequent occurrence recently. It is often impossible to offer part of a new work structure. The logic that FOS forces each side to minimize its demands simply fails to work effectively when the issues include complex work rules, seniority, pension or job security plans or similar difficulties.

A single issue dispute may be ideally suited to FOS. Several of those who advocated this approach appeared to assume that money, or proposals easily reducible to money, were inevitably the issues involved in labour relations. That view is outdated. Collective bargaining, in an increasingly competitive economy, generates many complex issues not easily amenable to win or lose answers. Applying FOS to such complex matters forces one side to say “yes” to a major change and the other side to say “no”. If “yes” is imposed, employees feel that they have lost everything and may be unwilling to buy into the change being forced upon them, which in itself may doom the chances for real success. If the answer is “no”, an employer may be unable to introduce change, perhaps realistically needed to meet competition, for the full term of the collective agreement. It is this effect that leads some to describe FOS as “the one armed bandit of labour relations”.

In our view neither conventional arbitration nor FOS offers an attractive substitute for free collective bargaining. If arbitration is used, except in essentially simple issue disputes, consensual arbitration is probably the best alternative, particularly if it includes an ability to mediate as well as arbitrate.

What then is our solution for protecting the public interest? There are no magic solutions. We have, throughout our report, particularly with respect to multi-employer bargaining and the reform of the bargaining cycle, suggested ways to increase the percentage of disputes that settle without work stoppages.

Part of the solution is already in place, but through reduced regulation and increased competition. This, more than anything else, is providing third parties with alternate sources of delivery and supply and in turn giving labour and management new incentives to settle. The number and severity of stoppages has come down drastically because of these developments.

We see the imposition of binding arbitration, particularly on multi-employer or broad based bargaining, as a step backwards that will impede change in some industries, rather than encourage parties to work through that change collaboratively.

While we recognize that the public interest sometimes requires intervention, we are not convinced that mandatory or ad hoc Ministerial imposition of either conventional or final offer selection arbitration provides the answer. Instead, we believe ad hoc legislation, with its flexibility to design a dispute resolution mechanism to fit a particular situation, continues to offer the best approach when needed, supplemented by the advice of Public Interest Panels.

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