Anybody Got a Sword?

The Gordian Knot of Binding Arbitration

Legend has it that Alexander the Great, while encamped at Gordius, came across a cart tied to a post with an incredibly complex knot. There was a prophecy that the man who untied this knot would be ruler of Asia. Alexander “untangled” the knot by slashing through it with his sword and went on to conquer Asia as far as India. This is the story of the Gordian Knot, and its moral is that sometimes the best answer to a complex problem is the simplest one.

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The problem of binding arbitration would appear to be one of those situations. Rather than trying to reform the process with more and more intricate provisions, the Legislature would be better off doing away with it completely. Under Public Act 312 of 1969, whenever a local government and the union representing police officers or firefighters cannot agree on a contract (labor lawyers call this “impasse”) the unresolved issues are referred to arbitration, meaning that a third party authorized by the state will come in and decide all the contentious issues. On first glance this might seem perfectly reasonable: we don’t want police officers or firefighters to go on strike, so we have a neutral person come in and settle everything. Hopefully that third party will be able to figure out what’s fair.

The problem is that “what’s fair” is entirely subjective. The arbitration law lists eight different factors that arbitrators are supposed to consider. Public interest and ability to pay is only one of the eight “factors,” and one of the factors is essentially a catch-all. The law establishes no priorities. The arbitrator’s ruling is effectively not open to appeal. If the arbitrator miscalculates – or essentially ignores – the financial condition of the community, taxpayers are stuck. It would appear this sort of thing happens way too often; a task force established by Gov. Jennifer Granholm found that binding arbitration added as much as 5 percent to the cost of government.

The Senate Reforms and Restructuring Committee heard public testimony recently on new legislation that would speed up the arbitration process. Delays are part of the arbitration process and a very real problem. The average arbitration process takes 15 months to reach a decision. But the Senate’s attempt to speed up the process misses the real problem, and might make the matter worse. If arbitrators are struggling to fulfill their duties competently, the last thing we should be doing is speeding up the process. More substantive reform would make ability to pay the primary consideration, and put the burden of proof on the union to prove that its demands are feasible. To the extent the arbitrator is unsure about economic conditions, he or she ought to err on the side of taxpayers.

But these rules would still leave cities and employees to deal with the best guesses of arbitrators. Better yet would be to abolish binding arbitration outright. Binding arbitration might have been well intentioned, but it simply isn’t working and there’s every reason to believe it can’t work, because it demands that we find arbitrators with Olympian wisdom and foresight. This knot can’t be untangled; we are better off grabbing a sword and cutting through it.