Alternatives for Resolving Controversies

Business Law, Sixth Edition
© 2019 BVT Publishing. All rights reserved.
S-1
Chapter 5:
Alternatives for Resolving
Controversies

S-2
Learning Objectives
• Explain reasons to compromise.
• Define mediation.
• Understand the advantages to arbitration.
• Discern common-law arbitration.
• Describe the approaches to arbitration.
• Recall the procedures in arbitration hearings.
• Explain the judicial review of arbitration
issues.

S-3
5.0 In the News (Slide 1 of 2)
Justices Will Hear Challenges to
Mandatory Employee Arbitration
http://bvtlab.com/Z44n8
The Supreme Court agreed to decide whether
companies can use employment contracts to
prohibit workers from banding together to take
legal action over workplace issues.

S-4
5.0 In the News (Slide 2 of 2)
• Should companies be permitted to include
binding arbitration clauses in employment
contracts?
• Which stakeholders benefit from binding
arbitration clauses in employment contracts?
• Which stakeholders do not benefit?

S-5
5.1a Reasons to Compromise
Personal: desire to compromise, if
possible
Economic:
• Public image
• Costs of litigation
Role of lawyers
• It is the duty of lawyers to seek and
achieve compromise whenever possible.

S-6
5.1a Critical Thinking
Case: Burbach Broadcasting
Negotiating a compromise is effective as long
as the parties understand that negotiating
may not lead to a binding contract.
• What evidence exists that a contract was formed
based on the negotiations?
• What evidence exists that no contract was
formed?
• How could the letter of intent been clearer on
whether it was a contract?

S-7
5.1b Mediation
A process geared to produce a
compromise between two parties
through the use of a third party
• Popular uses: labor disputes and
certain consumer disputes
• Even if mediation is used, parties
can still sue.

S-8
5.2a Arbitration (Slide 1 of 2)
The procedure used, as an alternative
to litigation, to submit a dispute to one
or more third parties who have
authority to impose a resolution to the
dispute.

S-9
5.2a Arbitration (Slide 2 of 2)
Advantages
• Quicker than litigation
• Less expensive than litigation
• Usually creates less hostility
• Complex issues can be handled by
those well trained in the particular
arena.

S-10
5.2b Common-Law Arbitration
• Based on an agreement between
the parties
• Distinguish arbitration of
current dispute with arbitration
of future disputes

S-11
5.2c Approaches to Arbitration (Slide 1 of 2)
Common law
• An agreement to arbitrate is revocable,
but a final award is enforceable.
Statutes covering methods only
• Agreement to arbitrate is revocable, but
there is a quick and inexpensive
method for enforcing the award.

S-12
5.2c Approaches to Arbitration (Slide 2 of 2)
Statutes providing comprehensive system
• Arbitration agreement is revocable if
common-law arbitration is being used,
but it is not revocable if the statutory
method is being used.
Statutory method exclusive
• Statutory compliance makes the
agreement irrevocable and the award
enforceable.

S-13
5.2d General Aspects of
Arbitration Statutes
• Most statutes authorize voluntary
arbitration only if there is a written
agreement to arbitrate, which is usually
irrevocable.
• Failure to follow the statute is not
completely ineffective because common-
law arbitration procedures may be
followed as an alternative.

S-14
5.2d Critical Thinking (Slide 1 of 2)
Case: Armendariz
Recognizing the power of the employer to
create an arbitration system in the
employment contract that favors the employer,
the court addressed the parameters of a
proper arbitration system.

S-15
5.2d Critical Thinking (Slide 2 of 2)
• Should the parties be able to negotiate
contractual provisions without
interference from the courts?
Why or why not?
• Does the decision of this case effectively
prohibit the use of arbitration in any type
of employment agreement? Why?

S-16
5.2e The Submission (Slide 1 of 2)
Submission is the act of referring an issue
or issues to the arbitration process.
Submitted issues
• Factual
• Legal

S-17
5.2e The Submission (Slide 2 of 2)
Submission may occur under two
circumstances.
• Parties may enter into an agreement to
arbitrate an existing dispute.
• The demand to arbitrate is served on
the other party.

S-18
5.2f The Award
Decision of the arbitrator
• Binding on all issues submitted
• May be judicially enforced

S-19
5.2g Procedures in Arbitration
Hearings
• Parties to the dispute are given notice of
the time and place of the hearing.
• Testimony is given at the hearing.
• The arbitrator or arbitrators deliberate
and render a decision.
• No formal pleadings or motions
• Strict rules of evidence that are used in
trials usually are not followed.

S-20
5.2h Judicial Review of
Arbitration Issues
• Either party refuses to submit the
dispute to arbitration
• Either party refuses to carry out the
terms of the award

S-21
5.2h Critical Thinking (Slide 1 of 2)
Case: Hall v. Mattel
On appeal of an arbitrator’s decision, the court
agreed with the district court that the arbitrator
was reasonable in concluding that the plaintiff
failed to show that the defendant’s employees
knew of the fraud. One party believed that the
arbitrator’s decision was based on an
erroneous application of a legal rule, yet the
court ruled the arbitration award will stand.

S-22
5.2h Critical Thinking (Slide 2 of 2)
Case: Hall v. Mattel
• What reasoning did the court employ to
reach this conclusion?
• Why did the court conclude that the award
should stand despite an allegation that the
arbitrator misstated or misapplied the law?
• Why do you think the statutory grounds
listed in the Federal Arbitration Act do not
include the reason of an arbitrator making
an ordinary legal error?

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