Adapted from “Final-Offer Arbitration” by Stephen Goldberg for the August 2008 issue of the Negotiation newsletter.
The likelihood that a provision for final-offer arbitration in the event of impasse will actually result in arbitration is slim. However, as a precaution, you and your counterpart should agree on an arbitrator before you start negotiating. It’s easier to choose an arbitrator when both sides view arbitration as an unlikely event than when arbitration is imminent and feelings are running high. You need not engage the arbitrator at this time since you probably won’t need her services.
The potential arbitrators should be in the same business as you are or at least know the business well, such as an attorney who represents parties in the industry. Another option would be to seek out a professional arbitrator through provider organizations such as the American Arbitration Association or the CPR Institute for Dispute Resolution, both of which are based in New York City.
Arbitration proceedings, when necessary, should be neither complex nor lengthy. The arbitrator’s responsibility is to decide which final offer is fairer and more reasonable under the circumstances and should include such criteria as industry practice and prior dealings between the parties. Each party will have presented arguments on many of these issues during negotiations and should present this argument perhaps supplemented by factual material to the arbitrator. The parties may limit the length of the arbitration hearing and require the arbitrator to decide the matter within the specified number of days.
Consider a royalty dispute between an author and a publishing firm. The author has published previous books with the company and the two sides have a solid working relationship. The publisher offers an increase in the author’s royalty rate from 10% to 12% and refuses to go higher; the author proposes a 22% royalty rate and will go no lower. The parties could bridge the difference if the publisher were motivated to increase its offer to 15% and if the author reduced her demands to 19% for the same reason. An agreement in the neighborhood of 17% thus would be likely.
So far we have discussed disputes that revolve around a single monetary issue. But a provision for final offer arbitration in the event of impasse also has been used to encourage agreement and avoid strikes in multi issue contract negotiations between public sector employers such as schools and fire and police departments and their employees. In this context, too, there is evidence of the very risk of arbitration breaks impasse and avoid the need for arbitrator services.
In this FREE special report from the Program on Negotiation at Harvard Law School, Dispute Resolution, Working Together Toward Conflict Resolution on the Job and at Home, the editors of Negotiation Briefings cull valuable negotiation strategies and curate popular content to provide you with a concise guide on how to improve your dispute resolution skills.