.„_ CRPY F &) n CANADIAN TRANSPORTATION RESEARCH LE GROUPE DE REDIERCHES SUR LES TRANSPORTS AU CANADi 21st ANNUAL MEETINL PROCEEDINGS VANCOUVER, B.C. MAY 1986 A 313 FINAL OFFER ARBITRATION: HARD-HITTING ADVICE TO CANADIAN TRANSPORTANTS Richara Lande Donald T. Weckstein For so many years, transportation researchers have carried with them the uneasy feeling that their families do not really understand what their jobs entail. We mutter phrases like "cross-subsidy" and "market contestability" to the inquiring eyes of our children, all the while knowing that the roles of policemen, rock stars and bus drivers are much more comprehensible. The days of local anonymity are over. The tonic which will put glamour into our profession has been found. It is deregulation. People's Express and Laker's Airbus started making transportation exciting to the public and the stigma of unexplained careers began to disappear as the prospect of cheap airfares aroused everyone's interest. But the inclusion of final-offer arbitration as one of the elements to be contained in the new Canadian transportation law may well advance us yet another notch into the same league as professional baseball, where this institution has existed for some time. What do we know about the arbitration process which is being envisaged by Minister Mazankowski's policy advisors? 1) Confidential contracts will not be subject to arbitration. 2) There will be approximately 8 criteria from which the arbitrators are to base their decisions. 3) The disincentives for a shipper to go to arbitration would be the obligation of shipping his product at the railway's proposed rate for a year and the knowledge that he could have had a lower rate had he accepted the railway's confidential contract offer during negotiations. 314 4) Arbitration will take no longer than 90 days, and permit no appeal. However, there are some very important questions about this arbitration format which must be discussed. 1) Since 1/3 of the Canadian railway freight revenues derive from U.S. traffic, how are American shippers to make use of arbitration without being compelled to break international through rates into proportionals at the border? 2) Doesn't the exclusion of confidential contracts from arbitration limit its potential to domestic rate disputes? In other words, won't the eventual publication of the arbitrator's final decision drive international shippers away? 3) What is the role of precedent, either from previously published rates or from other arbitration decisions, to play in the arbitrator's decision? How is inconsistency to be avoided? 4) What would happen if the shipper's final offer was for a different volume or number of routes than the railway's offer? Is the arbitrator supposed to determine his own jurisdiction? 5) Since no evidence other than that exchanged during railway-shipper negotiations will be acceptable before the arbitrator, will the results not be to formalize negotiations in consequence, and advantage those who bring rail-cost consultants' reports, other arbitration decisions, etc. into the negotiation process at its inception? 6) How will the shipper choose between an arbitration proceeding and an expedited section 23 NTA appeal? 7) Will the concept of "market dominance" which has been developed in the U.S. (Ex Parte 320 sub. 3) to include product and geographic competition, replace the Canadian terminology for "captive shipper"? 315 8) What will be the penalty in the event the arbitration exceeds its duration of 90 days? (The ICC has taken an average of 18 months to reach a decision on market dominance, whereas the statutory delay is 90 days). This article will investigate the final arbitration process as it is used in U.S. professional baseball currently with a view towards uncovering any structural weaknesses which have arisen there. 3 16 FINAL OFFER ARBITRATION The concept of final offer arbitration is generally accredited to Prof. Carl Stevens who in 1966 proposed this form of compulsory "interest" arbitration as operating as a strike substitute, compatible with collective bargaining.1 The distinction between an "interest" dispute and a "rights" dispute was explained by Dr. A.W.R. Carruthers, past president, Institute for Research on Public Policy: "A rights dispute conventionally describes a case in which a party claims he has a legal right which another party has infringed. The term is used in contrast to the term interest dispute, in which each party is seeking to convert a mere interest into a legal right which can then claim the protection of the system. Grievances are archtypical rights disputes. Disputes over the negotiation of a collective agreement, and which conventionally lead to the right to strike, are archtypical interest disputes. They are both, generically, labor disputes; yet they are different as chalk and cheese."2 Final-offer arbitration is therefore a form of compulsory interest arbitration when the parties must resort to formal impasse procedures. Two studies of the Canadian Public Service Staff Relation Act (PSSRA) were done covering the eight rounds of settlements by Treasury Board units of 500 or more employees for which the arbitration mode was selected, from the inception of the Statute in 1968 through 1979.3 In the 1968 round, 82.9% of the settlements were achieved without resort to formal impasse procedures. However in subsequent rounds, voluntary settlements were reached only in 74.5%, 56.4% and 46.2% of the negotiations, respectively. The cases which required settlement by arbitration, steadily increased. Thus, bargaining seemed to have become ancillary to arbitration. In the next tour rounds, the cases requiring settlements by arbitration were 32%, 60%, 45% and 60% . 317 respectively. Thus, the general trend toward greater reliance on arbitration points to the conclusion that compulsory interest arbitration may well give rise to a "chilling effect" to the free collective bargaining process. With few exceptions, interest arbitration has not been widely employed in the private sector. One major exception has been the use of "final-offer" arbitration to determine individual salaries of major league baseball players. Unlike collective bargaining in most other industries, the Major League Baseball Players Association and the Players Relations Committee of the Major League Baseball Club Owners negotiate a minimum salary rather than actual salaries to be paid to the player-employees. Each player is then free to attempt to negotiate his season's salary with the club employing him. For the first time, in the 1973 master agreement; interest arbitration was made available for determination of the salaries of eligible players (employed more than two years) who could not reach agreement with their clubs.5 As one of the originally selected baseball arbitrators, Tom Roberts, has stated: "Major league baseball salary arbitration is different.... No other form of arbitration compares to baseball salary arbitration in substance, format, and the criteria imposed upon the neutral."6 The process works as follows: The eligible player or, in certain circumstances, the club may file for arbitration if agreement is not reached on the player's salary for the next season. All arbitrations are scheduled prior to the February opening of Spring training. Arbitrators are chosen from a previously agreed upon panel and sit as a sole neutral. The arbitrator must choose either the club's or the Player's submitted offer and fills that in on two. copies of previously executed contracts complete in every detail except for the salary. The Arbitrator may not choose a third or in between figure, and there is no further bargaining between the parties after the arbitrator's award has been made. The parties are encouraged to continue bargaining up to the time of the arbitration, however, and frequently do settle during the period between filing for arbitration and the hearing. 318 The figure submitted to the arbitrator need not be the same as the last offer which that party made to the other party in bargaining. Indeed, the arbitrator is not permitted to be told the amount of such last offers. In 1980, Chicago Cubs' pitcher Bruce Sutter, according to information published in the Los Angeles Times.7 had sought $400,000 from the Club while their last offer was $350,000. Apparently thinking he had little to lose (only a mere $50,000 that they were apart in bargaining), Sutter submitted a bid for $700,000 to the arbitrator. The arbitrator selected Sutter's figure rather than that of the Club: Sutter got a windfall; Baseball salary arbitration almost came to an end. The actual decision is made by the arbitrator subjectively determining a figure he thinks appropriate based on the submitted evidence and then choosing the bid of the player or club which comes closer to his figure. Thus, in 1981. Ted St. Antoine thought that Ed Farmer of the Chicago White Sox was worth $400.000 for the season. The Club submitted an offer of $300.000 and Farmer a bid for $495.000, which being $5000 closer to the arbitrator's estimate. was awarded. When Farmer had a poor 1981 season. St. Antoine had to acknowledge his disappointment and noted that maybe Farmer was getting compensated for a superlative 1980 season.8 Having awards come back to publically haunt the arbitrator is one of the unique aspects of baseball salary arbitration. After one pitcher won a king's ransom from Arbitrator Roberts and performed miserably in his first Spring training appearance, a Los Angeles newspaper sports page headline asked: "What do you suppose Tom Roberts is thinking now?" Baseball salary arbitration is also different regarding the criteria which the arbitrator may, and may not, consider. The Arbitrator considers the player's contributions to the club during the prior season including his overall performance, special qualities of leadership and public appeal: the length and consistency of his career contributions, his prior compensation record, any physical or mental defects, the recent performance of the club including its league standing and attendance, and comparative baseball salaries.