Final Offer Arbitration: Better Theory Than Practice

The theory of final offer arbitration promises more than its actual performance delivers, based on admittedly limited experience. There is no showing that fewer negotiations reach impasse than would occur under conventional arbitration. There is evidence, however, that final offer arbitration does tend to produce awards less equitable than warranted by the positions and strengths of the parties, particularly when there are multiple issues at impasse and when arbitrators may select only one overall package or another. This tendency is built-in to the process, since the whole point of final offer arbitration is deterrence, with little or no concern for getting a good settlement through arbitration. “Bad” awards cannot fail to generate irritation and to have a corrosive effect on responsible contract administration. It is possible that such awards, and their effects, will be accepted as the necessary price of a final offer selection system. What seems more likely, however, is that the system will be modified along the lines of those in Eugene and Michigan. Those modifications can be expected to have two effects. First, they will make it more likely that the parties will be able to reach their own agreement by encouraging mediation and further negotiations, even after arbitration has been invoked. Second, they will increase the possibility of an acceptable arbitrated settlement by allowing the arbitrator greater flexibility in making an award. By doing these things, however, the deterrent effect of final offer selection will be substantially weakened, and what will be left will be a useful form of mediation-arbitration but not a substitute for the strike which contains an equivalent incentive to negotiate.