Many organizations in the public sector fall under compulsory interest arbitration  by law or the parties have voluntarily entered into this process as a means to mitigate against the risk of damaging work disruptions (i.e. strikes). However, for some, the interest arbitration process is flawed and in serious need of some degree of reform. The central problem is that while there are many misgivings about the efficacy of interest arbitration, it is sometimes the preferred option because it is better than the alternatives. The solution therefore lies in reforming the interest arbitration process itself, not abandoning it all together.
The theory behind interest arbitration is it can not only be an effective way of overcoming impasse at bargaining but can also be a means of actually improving the relationship between the parties or enhancing an already solid relationship due to a less confrontational means to settlement. Many organizations have had an experience with interest arbitration where the process seemed efficient and resulted in an acceptable contract. Notwithstanding, the satisfaction with the process may simply be the product of not being fully aware of the actual impact the process has had on bargaining outcomes especially over multiple rounds of bargaining. In practice there are a number of factors that have resulted in the interest arbitration process devolving from an ideal state.
The Labour Relations model established in Canada is based on a sense of voluntarism wherein the parties to a collective agreement voluntarily enter into a contractual arrangement through direct negotiations and without any third-party intervention. In the ideal, the system results in agreements that both parties are happy with and have agreed to abide by. In the vast majority of cases this is the result. In the basic model, if the parties reach an impasse at bargaining, they face a choice of exerting economic pressure on the other party by withdrawing services (i.e. striking) or withdrawing available work (i.e. locking-out employees). Thus, unresolved issues at impasse are significant and salient, otherwise the risks of a work stoppage are too great and the better alternative is to drop your demands or accede to the other party’s wishes or demands. Where the risks of a work stoppage could place the safety of the public at risk or where the cost of a disruption to the public good is so significant governments have mandated interest arbitration or the parties themselves have chosen it as a better alternative to meet their needs in the context of such risks.
While there are many benefits to interest arbitration the actual experiences are that it is far less than a perfect alternative to traditional bargaining. While one should be cautious to lay blame at the foot of any particular set of actors in the system, the truth is that the biggest issues emanate from the community of arbitrators we rely on for impartial and informed assistance. They carry with them certain biases and create legacy issues that need to be addressed.
What are some of the causes of these issues?
Compulsory interest arbitration produces greater rates of impasse (i.e. fewer freely bargained settlements) than we find when the parties face the possibility of a work disruption. One reason for this is that arbitrators have actually taken deliberate care to fashion settlement awards that are conservative and predictable, therefore encouraging repeat usage of the interest arbitration settlement approach. Generally arbitrators attempt not to irritate the parties and shy away from rendering any decisions that might be called innovative. In most scenarios the arbitrator chosen must be agreed upon by both parties. Nevertheless, it is believed that arbitrators may tend to have some bias towards the union’s positions in some contexts simply because they are loathed to award any settlements that might be considered concessionary for fear that they will alienate the union, who is typically dominate in the sector.
Another reason why the use of interest arbitration has become almost inevitable in some relationships is the result of a narcotic effect where the parties come to rely on a third party to render decisions as a means to avoid taking on responsibility for the outcome themselves. In some instances, the use of interest arbitration has become practically institutionalized to the point where freely bargained agreements are the exception rather than the norm!
In theory, the role of the arbitrator is, or ought to be, to replicate what the parties would have produced had they been allowed to freely negotiate with the pressure of a strike or lockout. However, this notion of replication is largely a myth. The fact that it is axiomatic that interest arbitrators will not cut any new ground, will avoid concessions and innovations strongly suggests that they cannot replicate what happens in free bargaining. Where the possibility of an impasse leading to economic sanctions perpetually looms over the heads of the participants, it allows for harder bargaining and breakthrough agreements.
Under some Canadian jurisdictions, legislation establishing the process of interest arbitration specifies a number of arbitral criteria, including ability to pay; the economic situation; the terms and conditions of employment for comparators; and the ability to attract/retain employees. These criteria are in fact necessary to ensure ‘’just’’ outcomes that reflect what might have been negotiated under the alternative system. However, arbitrators are not held accountable to considering these factors or to demonstrating the weight they have given to each. In fact, arbitrators as a rule dismiss “ability to pay” arguments in the public sector out of hand despite the fact that the law requires them to consider these arguments.
In response, some arbitrators have said that they believe public-sector employees should not be expected to “subsidize” public services through inferior terms and conditions of employment. They reject any role that might suggest that they (the arbitrator) are actingas ‘’an instrument of government fiscal policy’’ rather than as an impartial umpire. Ironically in doing so they also are rejecting their responsibility under the legislative regimen to consider all stakeholders concerns including the “public good”.
Another problem that interferes with an arbitrator’s ability to replicate freely bargained agreements is the lack of suitable comparators in the private sector where free collective bargaining is the norm. At the very least, a lack of comparator organizations who are notunder an interest arbitration regime provides an arbitrator with a built-in excuse that one cannot truly know what the parties might have done if freely negotiated, because of the lack of any credible comparisons.
Recently (April 2019) the C.D. Howe Institute released a commentary entitled Time to Tweak or Re-boot? Assessing the Interest Arbitration Process in Canadian Industrial Relations, authored by Richard Chaykowski, Queens University . In it they made four key recommendations for Interest Arbitration reform:
- To ensure that arbitration clearly serves the public interest, governments should consider updating the system by introducing certain criteria that arbitrators should consider – including the need to explain how each factor, whether judged relevant or not, was considered – and increasing the accountability of arbitrators by requiring that they explicitly consider and assess the submissions of the parties.
- To ensure that, where required, third parties have the skill set to perform the roles of mediator and arbitrator and are accountable to the stakeholders in the industrial relations system, governments should support a review of the competencies and skills that mediators and interest arbitrators need, with a view to setting competency standards and developing (formal) training to enhance their skills.
- To minimize the systemic risk of the parties “capturing” arbitrators and of incentives to engage in the simple patterning of awards, as well as to maintain a degree of uncertainty in the system, governments should examine formally whether or not to establish an independent roster of mediators and arbitrators.
- Finally, governments should assess whether the arbitration system needs to be modified to further strengthen the role of mediation and/or more formally follow a two-stage mediation-arbitration (med-arb) process.
The current cadre of interest arbitrators (there are only a few practitioners effectively doing all the work) are not well equipped to make the kind of decisions necessary to make interest arbitration more effective. This is a bold statement. However, this group of well-educated lawyers do not have the requisite expertise in economics, public administration or management to be qualified as interest arbitrators. Moreover, because they have insinuated themselves deeply in some sectors, they have developed institutional biases that ensure that we, the public, will continue to see routine, predictable and conservative outcomes. Innovation, breaking new ground, is not in their repertoire.
Interestingly the C.D. Howe report points out that the practice of having arbitrators who are pre-named by the parties is not actually a “best practice” though it is a common one. The theory is that a named arbitrator will get to know and understand the parties and their relationship and be in a better position to facilitate an effective outcome. The C.D. Howe report suggest that while this is true and desirable for a mediator, an arbitratorhowever should be devoid of preconceptions and come in fresh with an unaffected perception of the submissions made by each party.
Arbitrators making their living working in these sectors are conflicted and therefore cannot be counted on to advocate for the kind of reforms needed.
In the end, the report makes a strong case for legal Interest Arbitration reform. This report ought to be a must read for everyone who is involved in public sector bargaining and for those who have governance responsibilities in these sectors.
 In simple terms “interest arbitration” is where an arbitrator gets to decide what goes in the collective agreement whereas in “rights arbitration“, the arbitrator is restricted to deciding on the interpretation of what is in the agreement and cannot make any changes.
 Richard P. Chaykowski is a Professor, Faculty of Arts and Science and Professor, Faculty of Law (cross-appointed), and Director, Employment Relations Programs, Faculty of Arts and Science, Queen’s University