ARBITRATION: Advantages and Disadvantages
In any type of transaction, be it business, employment, legal, one does not anticipate or foresee the possibility of future litigation. Oftentimes though, disputes do arise, and one should always be prepared with options to resolve it.
Arbitration may be a preferable alternative to trial, particularly if the thought of going to court displeases you. The caveat is that all parties must agree to pursue arbitration.
Arbitration is in essence a paid private trial. It is a method of resolving a dispute without going to court. Parties seeking arbitration will submit the dispute to a third party neutral arbitrator rather than the courts, and unlike a court bench or jury trial, the arbitration may consist of solely evidentiary documents, (though common practice shows that parties benefit from having attorneys present to make oral arguments.) Arbitration is also a voluntary procedure. This allows the parties flexibility in determining the rules and procedure of the hearing, along with timeline, evidence, hearing length, etc. Arbitration procedure and timeline is entirely customizable process for the parties.
Before considering arbitration as a means to resolve your dispute, taking the time to understand the advantages and disadvantages of arbitration may prove beneficial.
Efficient and Flexible: Quicker Resolution Procedure, Easier and Quicker to Schedule Through arbitration, the dispute is typically resolved much sooner. Procuring a court trial date, can take up to several years (and amid the pandemic possibly longer) while an arbitration can usually be scheduled within a few months. Remember, trials are scheduled into court calendars, which are backlogged with hundreds, possibly thousands of cases in front of you. Arbitration hearings On the other hand, can be conveniently scheduled based on the parties and the arbitrator's availability.
Less Complicated: Simplified and Flexible Rules of Procedure Litigation is complex and time consuming. Filing papers, motions, discovery, attending court processes, meetings etc is part of litigation procedure. Normal rules of evidence used in court is optional in arbitration proceedings, making it much easier to submit evidence. Discovery, a time-consuming and costly procedure may be greatly reduced in arbitration as with most matters, such as witnesses and important documents, are handled with simple phone calls with the arbitrator or during the arbitration hearing, or can be foregone altogether, per the parties' wishes.
Impartiality: Selecting the Arbitrator. The parties in the dispute pick the arbitrator together through the use of a 'strike' list, ensuring the arbitrator will be someone that both sides have confidence in. More importantly, the arbitrator selected must be impartial and unbiased.
Privacy: Keeping it Confidential. Unlike trials, arbitrations are private so any information brought up in the dispute and subsequent resolution process is kept confidential. This may be an enticing factor for well-known public figures or when handling business disputes. This is because all evidence, statements, and arguments will not be public knowledge. In court trials, there is always a risk that the public with have some access to sensitive information.
Usually less expensive: Costs are lower. Arbitration is typically significantly less expensive than pursuing litigation. Because arbitration is easier to schedule, and a quicker avenue to pursue, attorney fees, witness costs, filing fees, and time spent are also reduced. In turn, making arbitration a more desirable alternative to preparing for a jury trial.
Finality: The end of the dispute. In binding arbitration, there are limited opportunities for appeal. This option gives finality to the arbitration that is not often available with a trial verdict, which may be subject to appeals, new trials and further appeals. In non-binding arbitration however, the parties are free to appeal the decision.
For employers, waiver of class action suit In 2018, the Supreme Court of the United States confirmed that employee arbitration agreements can include a class action waiver. This is enticing for may employers because it limits risk exposure in employment agreements.
Mandatory arbitration Clauses. If arbitration is mandatory due to an arbitration clause in a contract, then the parties do not have the flexibility to choose arbitration. In these instances, one party can force the other party to go to arbitration, even if a jury trial maybe more advantageous to the other party.
Lack of Transparency. Arbitration hearings are generally held in private and are confidential in nature. This is seen as a positive to many but can also be seen as a negative. A lack of transparency may make arbitration more biased, due to arbitration decisions being infrequently reviewed by the courts.
Unbalanced playing field. Many arbitration clauses work in favor of an employer or manufacturer. Frequently, employees or consumers do not understand what arbitration is or how the arbitration procedure works.
Non-objective Arbitrator. Arbitrator selection is not always objective. In certain instances, the arbitrator could be biased because he/she has a business relationship with one party or is selected by an agency from an available list. In those situations, impartiality is essentially non-existent.
No Jury, One Decision Maker. In court trials, having a jury is an important right that helps prevent biases and mitigate unfairness. Arbitration eliminates juries entirely, leaving matters in the hands of a sole arbitrator, who acts as both the judge and the jury.
Costs: Can be More Costly There are many cases in which arbitration can become just as, or more expensive than court proceedings. This is particularly important if arbitrator selection is limited to one agency. Quality arbitrators can demand substantial fees that cost the parties nothing when pursuing litigation. In non-binding arbitrations, the final award is not "binding" and the parties are free to pursue litigation, essentially adding the costs of litigating onto the costs of non-binding arbitration. In the case of arbitration clauses, employers must pay the full cost of the arbitration. This can be very expensive as arbitrators’ fees may be significant for cases pertaining to employment.
Unpredictability: Unconventional outcomes As previously stated, arbitration procedure doesn't follow the formal rules of procedure in a courtroom trial. Rules of evidence do not apply to arbitration. For example, an arbitrator’s decision may be based on evidence that a judge or jury would not consider at trial, or if information from a witness is presented by documents, then there is no opportunity for cross-examination of testimony in arbitration. An arbitrator may make rulings that would not be allowable in court or may push for unconventional and unexpected solutions. Unpredictability in outcome can be a pro or con, so when considering arbitration, one must carefully evaluate how this may affect the parties.
Finality: No Ability to Appeal While this may be an advantage if you find the binding arbitration decision favorable, parties should always be aware that in binding arbitration, all parties give up their right to an appeal. If one party feels the decision is erroneous, there is limited opportunity to contest it.