What is Arbitration?

Arbitration is a legal mechanism for alternative dispute resolution (ADR) that allows parties to avoid the expense and risk of a lawsuit by attempting to reach an agreement outside of court. Arbitration is always voluntary, though the agreement to submit one's self to arbitration may take place long in advance of the issue. Many written contracts, for example, include a clause that requires the parties to meet for arbitration rather than go to court if a disagreement arises.

Arbitration can take a number of different forms, though generally speaking it involves one party delivering the other a notice outlining their dispute and expressing the intention to seek arbitration. In most jurisdictions there is time given for a responses, followed by a selection of arbitrators and a hearing. If the arbitration takes place as the result of a contract the rules, timeline, and venue may all be predetermined by the agreement.

Arbitration Pros and Cons

Arbitration is an interesting alternative to litigation. Depending on the circumstances it may be helpful or detrimental to pursue arbitration. However, there are some common defenses and complaints relating to arbitration that can help you determine whether arbitration is the right way to resolve your problems.

Arbitration benefits include:

• Arbitration is a relatively inexpensive way to resolve your dispute, compared to court costs. However, arbitration is not always cheaper.
• Arbitrations tend to resolve more quickly than courts.
• Arbitrators are selected by agreement of both parties, making outcomes more fair and impartial.
• Arbitration rulings are difficult to appeal, meaning that arbitration provides finality and closure.
• Arbitration follows simpler procedures than most court actions.
• Arbitration is confidential and not part of the public record.

Arbitration drawbacks include:

• A complex arbitration case may be more costly than a court case. Where an arbitration results in a non-binding decision and a party refuses to obey the ruling the parties are free to go to court for a new, enforceable ruling. This can dramatically increase expenses.
• As with cost, court cases may also end up being cheaper where an arbitration involves a complex issue, or where non-binding rulings result in the need for litigation.
• Some companies favor arbitration. The frequency and volume of their arbitrations may decrease the fairness of the process.
• A contract may require arbitration in a specific place. This may create huge inconveniences for a consumer, since the proceedings could take place out of state.
• The lack of finality to some rulings is another terrible potential drawback.
• The lack of a jury is, in some cases and for some parties, a significant drawback.