The Pros and Cons of Arbitration

Deciding how best to pursue a legal claim can be challenging. It makes sense to weigh the pros and cons of each path you might take. One common form of alternative dispute resolution (ADR) is arbitration. During arbitration, the parties submit a dispute to a neutral third party, who makes a binding decision on the matter. 

Because an arbitrator’s decision is generally final, it’s essential to weigh your options before agreeing to arbitrate a dispute. You will want to assess the advantages and disadvantages carefully. An ADR attorney can help you understand how arbitration may work in your situation. Professional legal help can be crucial in choosing the most effective, practical way to resolve your legal matter.

This article shares the advantages and disadvantages of arbitration. You’ll learn about both positive and negative aspects of arbitration, and how each party’s perspective may shape whether arbitration feels like the best choice for the legal issue.

What Is Arbitration?

Arbitration is a legal pathway for alternative dispute resolution (ADR). It 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 to arbitration (through an arbitration agreement) may be made in advance of the issue. For example, many written contracts include a clause requiring the parties to submit to arbitration rather than go to court if a dispute arises.

Arbitration can take a number of different forms. But in general, it involves one party delivering the other a notice outlining their dispute and expressing the intent to seek arbitration. In most jurisdictions, there is time given for a response, followed by the selection of arbitrators and a hearing. If the arbitration occurs as the result of a contract, the rules, timeline, and venue may all be predetermined by the agreement.

Advantages of Arbitration

Arbitration has various advantages over a lawsuit in the court system. Below are many of the perceived benefits.

Cost

Arbitration is often, on average, a cheaper way to resolve disputes when compared to court proceedings. Attorney fees may rise in court litigation which provides for more pretrial hearings and disputes over discovery. However, this isn’t always the case, as described in the following section.

Speed

With some exceptions, arbitrations follow more specific and defined timelines for resolving a dispute. Arbitrators, unlike judges with crowded dockets, can serve as focused decision-makers. This often results in quicker final decisions.

Fair and Impartial

Arbitrators are commonly selected by agreement of both parties. This may occur via a third-party arbitration service or through an outlined method involving input from both parties. This means that in many cases, no single party controls who the arbitrator (or arbitrators) will be.

Finality

For the most part, it’s difficult to appeal arbitration rulings. This is true even if an arbitrator has made some mistakes. This finality can be a positive factor in resolving a dispute, one way or another, allowing the parties to move on.

Simplified Procedures

Litigation can involve extensive paperwork, multiple hearings, depositions, subpoenas, and related processes. Arbitration may eliminate some or many of those time-consuming and expensive parts of the discovery process. For example, simplified rules of evidence will apply in arbitration proceedings.

Confidential

Arbitration hearings don’t occur in open court and transcripts aren’t part of the public record. This confidentiality can be very valuable for parties seeking to maintain privacy.

Disadvantages of Arbitration

Now that you’ve learned about some of the advantages of arbitration, it’s also essential to consider its possible disadvantages.

Not Always Cost-Effective

While cost was listed as a “pro,” it can also be a “con.” That’s because arbitration doesn’t always reduce the cost of resolving a legal problem. Arbitrations can vary in complexity and can take many forms. Some types of arbitration are more likely to increase the costs of dispute resolution than litigation.

As one example, arbitrations can be binding or non-binding. In non-binding arbitration, the decision or award in the case isn’t final. That means the parties are free to take their issue into court litigation. As a result, a party might face costs from arbitration, including the arbitrator’s fee, and then more costs if a party still proceeds to litigation.

May Favors Companies

Consumers may have legitimate concerns about the fairness of being dragged into arbitration over a minor issue the parties could resolve in small claims court. Also, companies favoring arbitration may be more familiar with specific arbitrators and the process in general.

Not Always Faster

Just like they aren’t always cheaper, arbitrations aren’t always faster than litigation. This is more likely the case when there are multiple parties, multiple arbitrators, and complicated legal disputes.

Location

In the small print of a contract or mandatory arbitration clause requiring consumers to arbitrate their issues, there may be language specifying where an arbitration will occur. This location can sometimes be inconvenient to the average consumer, as it could be in another state. This raises the cost and may require time off from work.

Difficult To Appeal

As noted above, the right to appeal arbitration awards is very limited. Although less common, this can sometimes result in what may be seen as an unfair result. There may be only a small chance that a court can step in to correct the outcome.

No Jury

Arbitration does away with juries entirely, leaving matters in the hands of an arbitrator. The arbitrator essentially plays the role of both judge and jury.

Considering Arbitration? Make the Right Choice With a Lawyer’s Help

Sorting through the pros and cons of arbitration on your own may not answer all your questions. Getting legal advice from an experienced attorney can help you make the decision that’s right for you. A lawyer can help you understand arbitration clauses and explain the timelines for both court and arbitration proceedings.

FindLaw’s directory of ADR attorneys can get you started. Enter your city or ZIP code for a list of qualified legal professionals near you. Because state law is relevant, your attorney should be licensed in your state. Your search results will also include important details about prospective lawyers, like ratings and whether they offer free consultations.