Labor Unions, Cartelization, and Arbitration: Replacing At-Will Employment With Arbitration of Employee Grievances

Abstract

This Article shows that while a significant amount of commercial arbitration occurred at each stage of U.S. history, labor arbitration was extremely rare until the 20th century, and remained uncommon until the New Deal of the 1930s. In the late 19th and early 20th centuries—amidst vast inequalities of wealth and violent labor disputes—employers generally succeeded in maintaining at-will employment by refusing to recognize labor unions, let alone agree to unions’ demands to replace at-will employment with arbitration of employee grievances. Pre-1930s employer successes in defeating unions were aided by a range of legal doctrines from the law of master-servant and tort, to the Sherman Antitrust Act and enforcement of workers’ promises not to join unions, to Lochner era constitutional law. And all these doctrines were undergirded by a classical liberal emphasis on freedom of contract with respect to the sale of labor.

By contrast, the Great Depression combined with the early 20th century ideological shift from classical liberalism to progressivism to produce massive legal changes in the 1930s. The key legal change was legally-encouraged labor cartelization, the economic policy of the landmark Wagner Act of 1935, now known as the National Labor Relations Act (NLRA). The NLRA’s legally-encouraged labor cartelization produced labor grievance arbitration by empowering unions to extract from employers the promises—like firing workers only “for cause”—that create the claims (grievances) in labor arbitration, as well as employers’ promises to resolve those claims in arbitration rather than litigation. And labor grievance arbitration’s roots in legally-encouraged labor cartelization largely explain many of labor arbitration’s important differences from other arbitration, as discussed in my forthcoming article, Labor Grievance Arbitration’s Differences.