12 Arbitration Pros and Cons

Instead of going to court to settle disputes, the current trend has evolved to choosing arbitration instead. Because a dispute can be resolved rather efficiently as there is no need for a court hearing, a trial, or even litigation, there is no surprise as to why it has become popular. The only problem is that arbitration is not always the right choice to make.

Here are some of the key arbitration pros and cons to consider if you have a dispute that needs to be settled. This will allow you to determine if this or some other form of resolution is the best decision to make.

What Are the Pros of Arbitration?

1. It removes the conflict aspect of a dispute.
Arbitration avoids a lot of hostility because both sides are invited to participate on an equal basis. Both parties are often encouraged to even help form the resolution so that a compromise that helps both parties can be established. The goal is to work together peacefully to find a solution and this happens most of the time because there is no need to escalate the conflict in order to achieve a potential gain.

2. It can be expensive, but it is often cheaper than litigation.
Arbitration takes less time to complete, which means it is cheaper than most forms of legal conflict resolution. There aren’t the costs of court filings and other legal fees either, which further saves on the cost.

3. It is fast.
For cases that are complex, especially in the business to business world, arbitration is a lifesaver. The average amount of time to settle an arbitrated case is about 475 days. In comparison, a case that goes to litigation may last 18-36 months. Having 3 years of legal fees continue to drag out can drive a business into bankruptcy rather quickly. Even if the arbitrator doesn’t rule in your favor, the costs are still less than what litigation would bring in most cases.

4. It is remarkably flexible.
Arbitration doesn’t require fitting hearings into a full court schedule. That’s one of the biggest reasons why litigated cases take so long. A case that is going through arbitration can be scheduled around the needs of everyone involved so it fits into a schedule neatly. Even nights or weekends are a possibility with some arbitrators.

5. It isn’t a public record in most circumstances.
Most arbitration cases are kept private. There is even the possibility of having the outcome of the case kept confidential if both parties agree to do so. This provides a measure of safety for future business dealings that the public records of the court system are unable to provide.

6. The rules are simplified.
Instead of the complicated evidence rules that must be followed in a court hearing, arbitration has a less formalized system of introducing items during discovery. Instead of a back and forth system of responses that can take years to resolve, many discovery issues can be resolved through arbitration with a simple phone call. Documents can be produced and submitted for evaluation immediately so that all necessary information can be evaluated without the extreme formality.

What Are the Cons of Arbitration?

1. It is becoming expensive very rapidly.
Because many people are turning to arbitration as a way to resolve their conflicts, the demand for good arbitrators is increasing as well. The best in the business today can charge upwards of $4,000 per day for their services. Add in the attorney fees that must typically be paid as well and the costs add up quickly. At this pace, arbitration may soon cost more than litigation does.

2. It doesn’t always seem like a fair system to create a resolution.
Many large businesses use arbitration as their legal recourse because it gives them an advantage. The decision of the arbitrator becomes a forced resolution that must be accepted because the other party doesn’t have the funds to go up against a large business. This creates an uneven playing field, especially if these clauses are in the fine print of a contract. They’ll take an unfair deal because they feel like there isn’t any other alternative.

3. There are very few ways to make an appeal.
Most of the time an arbitrator’s decision will be a final decision. If someone feels like that decision was uninformed or biased in some way, there are very few ways to appeal what has happened. Not only can this mean consumers may be stuck with a negative decision, but they could be held legally responsible if they were to discuss the unfairness of their situation with anyone. This can be especially problematic if the terms and conditions of a legal arrangement have changed to require binding arbitration and the notice was ignored.

4. There may be zero transparency with the process.
Arbitrators do not need to share the minutes of their hearings whatsoever. The parties who are participating in the process do not always need to share details either. This means the lack of transparency can help to hide unethical practices that would affect consumer decisions. It is very rare for even a court to review an arbitrator’s decision, which adds another problematic layer to this issue.

5. Favoritism is a very real possibility.
Agencies tend to pick arbitrators based on the decisions that have been rendered in the past in their favor. If one arbitrator consistently rules in the favor of a corporation against consumers, for example, then that arbitrator will be the one that is typically requested to hear a dispute. Consumers could be walking into a system of favoritism that is already stacked against them without ever realizing it.

6. There are no discounts for arbitrator panels.
If a panel of 3 arbitrators is desired to hear a case, then the costs are going to be tripled. There aren’t any discounts available to either party. In some instances, this means the costs can be massively higher to initiate a claims procedure when compared to traditional court proceedings. The cost of filing a lawsuit may be as low as $500 [or less in some counties], yet a panel request could exceed $10,000.

The arbitration pros and cons show that this can be a beneficial service, but special attention must be paid to the selection process. A fair hearing off of the public books can be helpful to everyone involved in a dispute. Arbitration provides this opportunity. By keeping these advantages and disadvantages in mind, a fair and impartial arbitrator can be chosen who will decide a case on its merits. If you don’t want to be obligated to binding arbitration, then take your business to a different provider.