Arbitration is a method of dispute resolution that is different from the legal system, yet similar in several ways. Arbitration clauses are often put into contracts as a means of alternative dispute resolution to save time, money and frustration. There are many pros and cons to arbitration, so lets take a look at both, and some of the basic functions of arbitration.
Arbitration is essentially the privatization of the courtroom process: a neutral third party (arbitrator) heard evidence and then makes a decision which the parties are legally bound to. While it is pretty straightforward in a Black’s Law Dictionary sense, there are a lot of little complications that can make arbitration very right or very wrong for any particular case.
The advantages of arbitration are pretty good: it avoids hostility as both parties are typically encouraged to participate in a less adversarial process than the courtroom; it is typically cheaper and faster than the adversarial process of the courts; because courts are typically much busier than arbitrators, the process can be gone through at more convenient times; the rules of evidence and procedure do not apply in arbitration cases, doing away with some of the complicated facets of discovery such as taking interrogatories and the proceedings are private and can stay that way if agreed upon by the parties.
Much like the advantages, however, the drawbacks of arbitration can be fairly significant and worth considering. For starters, there is limited recourse if you have an unsatisfactory decision: even if the arbitrators decision is unfair, you may be stuck with it and unable to go into a courtroom to seek the justice you feel you are owed. While arbitration is typically cheaper than the court process, this is not always the case, and can actually become significantly more expensive at the extremes.
There are also concerns around objectivity: often an arbitrator will be chosen from a pool list, and those who become favorites by producing outcomes favorable to the selector of the arbitrator are typically chosen more frequently.
Finally, there is the lack of transparency in arbitration. As mentioned before, arbitration is typically held in private and are not usually open to the public. While this may be great in certain circumstances, a private process offers a lot of opportunities for unchecked bias, and having a decision reviewed by the courts is quite difficult.
To make sure you have the best handle possible on your arbitration clause, the most obvious first step it so read it with an eye towards some of the details. For example, is the arbitration clause binding or non-binding? If non-binding, although it may be a more expensive, time consuming and adversarial process, you will still at least have the option of going to the courts. Also important is who will be arbitrating potential disputes?
“Arbitration is often a great, lower-pressure environment to work out legal concerns that typically does not require the money, formalities or adversarial nature that the courtroom does,” said Miguel Palmeiro of the Law Office of Miguel Palmeiro. “Arbitration agreements vary widely, however, and I’ve seen people taken advantage of through an arbitration clause that greatly favored the other party. It’s important to read any arbitration clause and either hire an attorney or do some homework before signing: you could be signing away a lot more legal rights than you intended to a process that could be heavily stacked against you at the first sign of trouble.”
If you have any questions about arbitration in general or any arbitration clause in particular, please make an appointment to stop by for a free consultation. Remember, the advice is free, and even a brief conversation with a knowledgeable professional can offer a lot of clarity.