Like all alternative dispute resolution methods, arbitration pros and cons must be highlighted and evaluated. While arbitration has many benefits that make it the best choice in various cases, occasionally, disadvantages may make parties consider other dispute resolution options. This article will explore the advantages of arbitration when it is used to resolve legal disputes.
After that, this article will evaluate the disadvantages of resolving a dispute through arbitration and end with a discussion of some of the most important considerations for deciding whether or not arbitration is the best choice. However, before any of this, this article will explain the basics of arbitration and ADR to help all parties decide if they are willing to consider arbitration.
Defining Arbitration
Arbitration is resolving legal disputes through an arbitrator or an arbitral tribunal. Of the ADR options, arbitration hearings are the most similar to traditional litigation. It typically ends in a binding arbitration award that the parties must comply with. However, arbitration is significantly distinct from litigation, as later discussion will show, because it is a voluntary process allowing parties to resolve disputes efficiently and confidentially.
The arbitration may be a party’s first choice, or it may be a final destination in an alternative dispute resolution agreement that starts with mediation and progresses to arbitration if the dispute is not settled. However, a party may find themselves in arbitration, which usually involves the same essential elements.
Agreement
All arbitration proceedings begin with an agreement to arbitrate. This can be a general agreement in a contract that any legal dispute arising from the contract will be submitted to mandatory arbitration or a dispute-specific agreement where the parties agree to submit a specific dispute to arbitration. However, it must be an agreement between the parties and cannot be a unilateral arbitrator’s decision.
Arbitrator
An arbitrator is a neutral person who decides disputes. This person is usually a lawyer or judge trained to resolve conflicts. The parties can choose an arbitrator or a panel of arbitrators.
Applicable Law
Depending on the case, the arbitrator may apply local, state, or federal laws to decide the case, or the agreement in the contract may specify which laws the arbitrator is supposed to use.
Award
The arbitrator will issue an arbitration award at the end of the arbitration hearings. This is similar to a court decision but is usually not appealable.
In addition to these elements, arbitration usually proceeds like arbitration hearings or trials. All parties can present their case through their evidence to the arbitrator, who will consider it and issue an arbitration award.
Pros of Arbitration
Submitting a dispute to arbitration can be incredibly beneficial for the parties. Because of these benefits, companies, and others often use arbitration.
Speed
Because a mandatory arbitration clause only requires the parties and the panel to be prepared, arbitrations are often scheduled and decided before a trial begins. Arbitrators are usually not overrun by cases like the court system, and arbitrations typically follow a general timeline that allows them to be completed within six months. This means that the parties will decide much faster than in litigation.
Costs
Arbitration is often cheaper than trial, especially a trial that is incredibly complicated and time-intensive. The arbitrator’s fees are often less than all the court fees and costs. Parties involved are not required or recommended to have a lawyer, which can save significant costs.
Evidence
The standard rules of evidence will not apply in an arbitration proceeding, so the arbitrator may consider evidence that is not usually admitted.
Confidentiality
Arbitration proceedings are not open to the public, and the parties can agree to keep everything confidential, ensuring that nothing embarrassing or damaging to reputation will be released.
Finality
Arbitration awards have very little room for appeal, and even if they may be reviewed, the grounds for setting aside an award are specific and limited, so there is little chance of a case lasting a long time to work through the appeals process.
Arbitrator
The parties in arbitration can choose their arbitrator, a luxury not allowed in litigation. This also allows the parties to pick an arbitrator knowledgeable in the subject matter, making explaining the dispute easier.
Collaborative
Because the parties can participate in the decision process and are even encouraged to provide ideas, the process can become less hostile and more conciliatory. There is less room for the parties to compete and more encouragement to develop creative solutions that both parties can be happy with.
Cons of Arbitration
Arbitration is often a beneficial tool. However, choosing to arbitrate means that a party gives up certain constitutional rights to a trial, which makes it a big decision. The choice must be informed, so it is crucial to consider the cons of arbitration proceedings.
Speed
Speed can be both a pro and a con. While resolving a dispute faster is usually a good thing, there are cases where litigation could grant motions and preliminary matters to be settled for trial. This would allow the parties to streamline their case and narrow the issues to complicated and specific points of law. These types of decisions are not usually available in arbitration clauses.
Costs
Many parties elect to be represented by an attorney, which can eliminate many cost-saving factors. Certain arbitrators also charge hefty fees that increase with the claim amount. A party can pay a lot of money if they must pay both an award and the arbitration fees.
Evidence
On the flip side of evidence, because the rules of evidence do not apply, the other party may be able to submit proof of their legal claim that would otherwise be inadmissible.
Finality
Finality can be a significant hindrance if a case is decided against a party. The party does not have a chance to appeal, even if the arbitrator makes an award that seems to abuse discretion or a mistake.
Expertise
While the parties may choose an arbitrator for their expertise, an arbitrator may come into a dispute with a bias toward one side based on their knowledge and experience before arbitrating. This bias can be overcome, but it will likely put a lot of pressure on the party that needs to overcome it.
Experience
Some companies and individuals participate in arbitration often, giving them a head start in other arbitrations. Additionally, resources may not be balanced, giving one party an even more significant advantage.
Considerations
Finally, when deciding whether to arbitrate a dispute, it is best to consider the following factors to evaluate whether arbitration or litigation will be the best option for the case to be decided based on what the parties need.
Need for Interim Relief
Arbitration may not be the best avenue if interim relief or dismissal of specific claims is needed before the case is heard. While these motions are sometimes allowed in arbitration, they are rare. They are more accessible in litigation. Litigation may be best if a case needs an injunction or claims dismissed.
Need for a Lawyer
If a party cannot present their case effectively, or if one of the parties already has a lawyer, it may be worth evaluating whether arbitration may save costs. In cases that will still move quickly, attorney’s fees may not be as high, but complicated cases may eliminate the savings an arbitration decision can bring.
Need for Evidence to be Admitted or Excluded
If a party needs a particular piece of evidence admitted or excluded to prove their case best, it may be worth evaluating which forum would achieve the required results.
Need for Secrecy
If there is a great need for secrecy, arbitration may be best. However, if a party is trying to make a point or an example out of the other party for their action, it may be best to allow the case to be public through litigation.
Need for Expertise
As noted above, the parties may choose an arbitrator experienced in the dispute’s subject matter, allowing them to understand the disagreement more deeply. The arbitration may provide an experienced decision-maker for complicated disputes involving specific knowledge and subject matter.
Need for Balance
If a party has less bargaining power and resources, it may be best not to pressure that party into arbitration, as arbitration can amplify power imbalances.
Conclusion
Choosing to arbitrate a dispute or signing an arbitration agreement is a big decision that cannot be taken lightly. It must be made with an understanding of the arbitration process and its pros and cons. Arbitration often saves the parties time and money and allows them more freedom in presenting their case. However, arbitration is not a one-size-fits-all solution to a problem, and some cases should not be submitted to arbitration based on certain factors.
Making a final decision that considers all of the ramifications allows a party to understand their case and its needs better and to be confident in their decision, whether in litigation or arbitration.
Contact ADR Times today to learn more about arbitration’s pros and cons, alternate dispute resolution, and more!
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