Arbitration: How Does It Work?

Arbitration can be an alternative for your business to filing a lawsuit in court and ultimately going to trial.

You are probably wondering what that means, so read on…

Usually, you will agree to arbitrate in advance in your contract as the method which any dispute would be resolved. You may want to check you contracts and see if they have these provisions that will guide you should you find your self in the precarious position of being in a irreparable situation. Sometimes, however, after an adversarial situation arises the parties will agree to arbitrate in order to better control timing and costs.

So, here’s how arbitration works: When you arbitrate a business dispute, you will present your story to either one person or a panel of people who will act as your arbitrators. The other party in your business dispute will also present their story. Usually, the arbitration will take place in a conference room at a neutral space, not a courtroom. Because of the way these matters proceed and the fewer formalities they have, you can generally anticipate your business arbitration to take less time from initiation to conclusion or receipt of the arbitrator’s decision than filing a lawsuit and playing that out in a courtroom.

Your arbitrator generally has a great deal of latitude in deciding your business dispute and, as a matter of fact, your arbitrator may even decide your case without reference to the law. Depending on whether your governing provision calls for binding (or final) or non-binding (appealable), once the arbitrator’s decision is issued, there may be an opportunity to take that decision to the trial court as an appeal, however, usually you will only go to the rial court to confirm the decision as a judgment. Normally, the appealability of your business arbitration decision is quite limited.

The advantages of arbitrating a business dispute include overall cost savings, time savings, and avoiding a formal trial. Most times an arbitration provision is included as a cost saving measure. Since an arbitration is usually a streamlined process, the time spent and attorneys fees should be minimal compared to a lawsuit and trial in court. And, as discussed above, since the appeal rights are minimized, generally when the arbitrator’s decision is issued, the case is usually over.

The disadvantages include giving up your right to have your case heard by a jury of your peers, having to pay for the arbitrator up front rather than having a judge oversee and hear your business dispute for a reasonable fling fee, and if inability to focus the issues in dispute occurs, your arbitration may take longer than had you just filed your lawsuit in a court house. As mentioned above, some thought exists that one of the biggest disadvantages of arbitration for your business dispute is that the arbitrator is not limited to the law which makes some business owners uncomfortable taking this risk. .

Do your contracts have arbitration clauses? What do you think are the advantages? The disadvantages?

Integrated General Counsel