Author: Elissa M. Meth*
Published: September 1999
Arbitrators and Arbitral Tribunals
Dispute Resolution and Litigation
Description: During the last thirty years, a new form of arbitration has emerged in the United States. Called final offer, or last-best offer, arbitration, the dispute resolution procedure limits an arbitrator to choosing the final offer made by one of the parties. It is designed to motivate each party to negotiate in good faith and genuinely attempt to compromise in order to create a final offer that an arbitrator will select as most reasonable. The theory predicts that good faith bargaining and the risk of losing will facilitate settlements.
Various private and public sector disputants in the United States have adopted final offer arbitration (“FOA”) to resolve contract-based disagreements. The most publicized use is by Major League Baseball (“Baseball”), which adopted FOA, or salary arbitration, as a means to set salaries for veteran players. Currently, several states also use FOA to settle disputes with unionized public employees. In 1994, the IRS and Apple Computer chose FOA to resolve a $114 million tax disagreement.
Although those who have used FOA have found it to be an effective process, few outside of Baseball and public sector collective bargaining relationships have adopted it. International arbitrants have ignored it altogether. As a dispute resolution procedure that encourages settlement, preserves relationships and is time and cost effective, FOA could be ideal for many disputants. This note explains the advantages and disadvantages of FOA, offers guidance to domestic and international disputants who wish to implement it and describes disputes that can readily benefit from it.
*The author is a 1999 graduate of Columbia Law School. She is currently an associate at Cravath, Swaine & Moore. She would like to thanks those who contributed to the completion of this note including Elizabeth Cooper and Professor Hans Smit who supplied inspiring ideas and guidance; David Cohen, Michael Weiner, John Westoff and Francis Bellotti who generously donated their time and thoughts; and Margaret, Warren and Michael Meth and Jean and Arthur Still who continuously offered encouragement and support.