Although the legal system provides the opportunity to resolve disputes in court, sometimes it's best to avoid a lawsuit. That's the idea behind alternative dispute resolution (ADR), which includes arbitration. The arbitration process involves an impartial intermediary who hears arguments by both sides and makes a binding decision on how to resolve the issue. The intermediary, often a retired judge or lawyer, is chosen and approved by both parties. His or her job is to hear arguments, much like traditional civil litigation, and then issue a decision that is considered final. Unlike litigation, appeals are seldom allowed in arbitration.
When is Arbitration an Option?
In order to resolve an issue through arbitration, both parties need to agree to the procedure. This is different than litigation, in which the party served with a lawsuit must respond or face a default judgment. So while arbitration may be used in place of a civil lawsuit in most cases, it must be mutually agreed to by the parties.
Consumers and employees often are compelled to resolve disputes through arbitration because they signed arbitration agreements. This is a common scenario, since companies would rather not suffer the embarrassment of a public court case. In fact, most online shoppers may not be aware that by simply clicking "yes" to the company's terms and conditions, they also have agreed to resolve any and all disputes through arbitration. Employees often sign similar documents when they are hired.
Overview of the Arbitration Process
The process begins when one of the parties sends the other party a notice of their intent to arbitrate a given dispute, with a summary of the basis for the dispute. Similar to the legal complaints, the receiving party has a limited time in which to send a response. The next step is the selection of an arbitrator, in which each party has a say (the selection process is typically outlined in the arbitration agreement). Sometimes a panel of arbitrators is used, but most such proceedings involve just one arbitrator.
The rules of arbitration largely depend on the contract, which often provides timelines and other parameters. Parties also may consult attorneys to learn more about how the process works. But generally, there are similarities to courtroom trials: including the presentation of evidence, arguments from the parties, the calling of witnesses, and questioning by the parties. However, arbitration is typically much more streamlined in order to speed this process along.
After the hearings have been completed, the arbitrator (or panel of arbitrators) delivers a ruling. The ruling is often final and binding, but sometimes there are options to appeal.
Advantages and Disadvantages of Arbitration
The arbitration process offers both advantages and disadvantages to the parties involved. From the perspective of businesses, arbitration does not pose the risk of exposing potentially embarrassing information about the company, since it's not a matter of public record. It's also a quick process, relative to a court trial.
But while it's seen as a less expensive option to litigation, it really depends on the situation and who you ask. While it may be less expensive for the company (if a business is one of the parties) than paying a team of lawyers, arbitration can be more expensive for the individual. Unlike a civil trial, the plaintiff can't defer legal fees until he or she wins the case. And in cases where small claims court would be easier and cheaper than arbitration, it often puts the consumer or employee at a disadvantage.
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