Arbitration is the most traditional and well-known form of alternative dispute resolution. Most arbitration arises from pre-dispute contracts in which the parties agree that if a dispute arises, it will never make it into the court system, but instead will be arbitrated. The arbitrator (usually an attorney, retired judge, or an organization that provides arbitration services) makes a decision at the conclusion of an arbitration hearing, which is final and binding, subject to only very limited review.
By agreeing in advance to arbitration, the parties are waiving a constitutional right to a jury of their peers. Unless agreed in advance, the arbitration decision is legally binding and not appealable, except in the very rare occurrence of fraud or other similar act on the part of the arbitrator.
The arbitrator is an impartial but experienced person selected by both parties to the dispute. Although arbitration takes place outside the courtroom, the arbitrator nevertheless reads briefs, reviews documentary evidence, hears testimony, examines evidence, and ultimately renders an opinion on liability and damages. An arbitration award can be entered as a judgment after being confirmed by a court of competent jurisdiction.
Although the law is not absolutely settled, the trend is leaning in favor of both upholding and enforcing agreements to arbitrate, unless they fall into certain types of arbitration clauses in employment and consumer-related documents that unfairly force employees or consumers into arbitration.
The following are some pros of arbitration:
- Cost to the parties is moderate compared to litigation in court.
- Some organizations that provide arbitration offer sliding fee schedules based on the size of the claim.
- It is a semi-informal procedure, and the rules of evidence are relaxed.
- There is speed and efficiency in the process.
- The proceedings are presumed to be confidential and private.
- The parties may control the process by making certain decisions regarding the arbitration processes and procedures in advance.
- Parties are represented by counsel.
- Informal investigation is allowed.
- Parties may agree on exchanging specific documents.
- Parties are not required to line up in front of the arbitrator; all parties may choose to sit around a table.
- The parties have the ability to select the arbitrator.
- If the parties are unable to agree on an arbitrator, the court or arbitration association may be asked to assist in the process.
- Parties can select an arbitrator with expertise in a certain subject matter.
- The arbitrator makes the final decision.
- There is no jury.
The following are cons of arbitration:
- Antagonism remains between the parties involved in the dispute.
- There is a lack of full range of discovery.
- There is limited cross-examination of witnesses.
- Arbitration fees may be substantial, particularly in complex cases.
- Arbitrators typically make awards without written opinions or explanatory documents.
- Arbitration is the most formal type of alternative dispute resolution.
- Arbitrators sometimes “split the difference” when making an award, which may not be a desirable solution.
- It is either impossible or difficult to appeal an arbitration decision.
- Punitive damages are usually unlikely to be granted.
Some of the kinds of cases that are suitable for arbitration include:
- Construction contracts;
- Commercial contracts;
- Banking disputes;
- Intellectual property;
- High technology;
- Medical malpractice;
- Employment discrimination and harassment;
- Multiparty disputes;
- International disputes; and
- Cases involving critical public employees, such police, teachers, and firefighters, who may be required to participate in arbitration as a final step in negotiating collective bargaining agreements;